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Depository System in India : Quiz to Test Your Knowledge

Depository System In India

A depository is a centralized warehouse of securities in dematerialized form. The eligible securities are dematerialized in the depository in computerized form to enable securities trading and other transaction in the form of book entry and securities are not issued or exchanged in physical form.

Depository Act, 1996 defines it as a company formed under Companies Act, 1956 and which has been granted a certificate of registration by SEBI Act, 1992.

Advantages :

  1. Elimination of all risks associated with physical certificates
  2. Elimination of bad deliveries
  3. No stamp duty
  4. Immediate transfer and registration of securities
  5. Faster settlement cycle
  6. Faster  disbursement of non-cash corporate benefits like rights, bonus etc.
  7. Reduction in handling  of huge volume of paper

A DP is  the agent of the depository and is the interface between the depository and the investors. SEBI regulations provide various categories of market participants who are eligible to become DPs.

A qualified DP is a DP who has taken approval from SEBI or who is registered with SEBI to  offer services to Qualified Foreign Investors (QFI).

The depository system works very much like the banking system. A  bank  holds funds in the accounts whereas a depository holds securities in accounts for the clients. A bank transfers funds between accounts whereas other transfers securities between actual handling of funds or securities. Both the banks and depository are accountable for the safe keeping of funds and securities respectively.

Any losses caused to the beneficial owner caused due  to the negligence of the depository or DP, would be indemnified by the Depository to the beneficial owner. Where the loss due to negligence of  the DP is indemnified by the depository, then the depository has the right to recover the same from such DP.

Here is a quiz to test your  knowledge.

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