A capital market is a place where investors can purchase and sell securities. Primary and secondary markets are the two categories into which capital markets can be split. The capital market, which is governed by SEBI, houses the depository system.
The primary market is the location where businesses first issue their securities through IPOs, rights issues, private placements, and preferred allotments.
After being issued for the first time, shares are exchanged on the secondary market. It is also referred to as the stock market since it gives investors a place to buy and sell already-traded shares.
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What is Depository?
An apex organisation or entity in the depository system is known as a depository in the stock market. In the stock market, a depository is a place where investors or depositors can put money or securities up for deposit or withdrawal. An investor can deposit and withdraw his shares from a depository in the same way.
Functions Of a Depository
- enables the communication between shareholders and investors and public companies
- reduces the risk associated with holding actual financial securities
- permits the lending of mortgages to potential borrowers.
- decreases paperwork and expedites the transfer of securities
Features of depository
- An organisation that keeps securities is known as a depository system.
- Depositories communicate with investors through depository players in the stock market.
- Depository Participants (DPs) can only provide their services if they have the SEBI certificate.
- An investor must open a depository account, often known as a Demat account, with any DP.
- The electronic transfer of securities and transaction settlement are under the jurisdiction of depositories with the assistance of DPs.
- Dematerialized securities may be hypothecated by depositories against bank loans.
- Depositories issue electronic receipts for bonus shares.
- A stock market depository provides a nomination facility for the Demat account.
Depositories in India
The Central Depository Services Limited (CDSL) and the National Securities Depository Limited are the two main depositories in India.(NSDL).
Differences between NSDL and CDSL
Full Form
- National Securities Depositories Limited(NSDL)
- Central Depository Services Limited(CDSL)
Established
- In the year 1996, NSDL was founded.
- CDSL was founded in the year 1999.
Promoters
- Unit Trust of India, IDBI Bank Ltd., and NSE are the sponsors of NSDL.
- On the other side, Standard Chartered Bank, PPFAs Mutual Fund, HDFC Bank, and LIC are the promoters of CDSL.
Stock exchange
- The shareholders of those businesses that use banking brokers like HDFC Securities are the main focus of NSDL.
- Conversely, CDSL mostly works with the stockholders of businesses that use discounted brokers like Zerodha or Upstox.
Format for Demat Account Number
- The Demat account number in NSDL is made up of 16 numerical digits.
- In contrast, the CDSL Demat account number is 14 numeric digits long.
Participants in the Depository
- As of December 6, 2021, there were 222 depository participants registered under NSDL.
- There are 586 total depository participants in CDSL as of December 6, 2021.
Client Accounts
- There are 2.92 crore investor accounts with NSDL as of June 2020.
- In CDSL, there are 7.3 crore investors as of June 2020.
What is Depository System?
In contrast to the fact that all shares of registered firms are held in depositories in dematerialized (electronic) form, the stock market is a platform that makes it easier to acquire and sell shares. A depository system is a mechanism for the computerised allocation and transfer of securities.
The depository, the top entity in the depository system, is comparable to depositing money in a bank and allowing the transfer of ownership through straightforward account transfers. It is a paperless technique of transferring shares that eliminates all the difficulties and dangers involved in transferring certificates.
What are Depository Participants and its role in the depository system?
Opening a Demat account by a stock broker, also known as a Depository Participant, is required in order to invest in the stock market. as a go-between for investors like Groww, Zerodha, and other authorised Sebi brokers and depositories. If you want to open a demat account, you need be aware of the procedure.
By gathering the necessary data about an investor and providing it to the depositories, Depository Participants assist you in opening a Demat account in the depositories. Then a depository will create a Demat account in the investor’s name, which will be kept up to date by depository participants like Zerodha, Groww, Angel One, and many more.
The investor is the beneficial owner in this case, whereas the depository is the registered owner. The registered owner is the proprietor of the namesake and is not entitled to shareholder rights or rewards. A beneficial owner, on the other hand, enjoys the same privileges and rights as a shareholder.
When it comes to secondary markets, shares that have already been sold on the open market are traded there so that investors can purchase and sell them at market value. Learn all there is to know about stock exchanges, including a list of them in India.