DRAMATIC CHANGES IN THE SECURITIES MARKET
Things have changed dramatically in the securities market for the better, as far as India is concerned. No longer the taboo of bad deliveries, payment delays, paper movement and slower settlement.
The two entities that can among others, claim a major credit for improving the market efficiency of the Indian securities market are National Securities Depositories Ltd. (NSDL) and the Central Depository Services Ltd. (CDSL), both established in Mumbai.
In 1996, the Indian government passed the Depositories Act allowing the establishment of securities depositories in India.
The principal function of a depository in the Indian context is to dematerialize securities and enable their transaction in book-entry form.
In simple terms, the depository provides the following functions:
Dematerialization: It is the process of converting securities in physical form into holdings in book-entry form
Rematerialization: It is the process of converting securities in electronic form into holdings in physical form, for those investors who opt to move out of the depository system
Account transfer: The securities are transferred by debiting the transferer's depository account and crediting the transferee's depository account
Pledge and hypothecation: Depositories allow the securities placed with them to be used as collateral to secure loans and other credits. The securities pledged / hypothecated are transferred to a segregated or collateral account through book entries in the records of the depository.
Linkages with the clearing system: The clearing system performs the functions of ascertaining the pay-in (sell) or payout {buy) of brokers who have traded in the stock exchange.
Actual delivery of securities to the clearing system from the selling brokers, and delivery of securities to the buying broker is done electronically by the depository. To achieve this, the depositories and clearing system are electronically linked.
Corporate actions: The depository may handle corporate actions in two ways. In the first case, it merely provides information to the issuer about the persons entitled to receive corporate benefits.
In the other case, depository itself takes the responsibility of distribution of corporate benefits.
Mumbai, being the financial capital of India and hub of stock market activities, was the natural choice for establishment of depositories. NSDL was registered as a depository on June 7, 1996.
The depository commenced operations in November 8, 1996 by implementing a state-of-the-art technology system in record time. NSDL operates as a for-profit institution and is owned primarily by the IDBI, UTI, NSEIL, SBI with several other Indian and foreign banks having a small shareholding.
Things have changed dramatically in the securities market for the better, as far as India is concerned. No longer the taboo of bad deliveries, payment delays, paper movement and slower settlement.
The two entities that can among others, claim a major credit for improving the market efficiency of the Indian securities market are National Securities Depositories Ltd. (NSDL) and the Central Depository Services Ltd. (CDSL), both established in Mumbai.
In 1996, the Indian government passed the Depositories Act allowing the establishment of securities depositories in India.
The principal function of a depository in the Indian context is to dematerialize securities and enable their transaction in book-entry form.
In simple terms, the depository provides the following functions:
Dematerialization: It is the process of converting securities in physical form into holdings in book-entry form
Rematerialization: It is the process of converting securities in electronic form into holdings in physical form, for those investors who opt to move out of the depository system
Account transfer: The securities are transferred by debiting the transferer's depository account and crediting the transferee's depository account
Pledge and hypothecation: Depositories allow the securities placed with them to be used as collateral to secure loans and other credits. The securities pledged / hypothecated are transferred to a segregated or collateral account through book entries in the records of the depository.
Linkages with the clearing system: The clearing system performs the functions of ascertaining the pay-in (sell) or payout {buy) of brokers who have traded in the stock exchange.
Actual delivery of securities to the clearing system from the selling brokers, and delivery of securities to the buying broker is done electronically by the depository. To achieve this, the depositories and clearing system are electronically linked.
Corporate actions: The depository may handle corporate actions in two ways. In the first case, it merely provides information to the issuer about the persons entitled to receive corporate benefits.
In the other case, depository itself takes the responsibility of distribution of corporate benefits.
Mumbai, being the financial capital of India and hub of stock market activities, was the natural choice for establishment of depositories. NSDL was registered as a depository on June 7, 1996.
The depository commenced operations in November 8, 1996 by implementing a state-of-the-art technology system in record time. NSDL operates as a for-profit institution and is owned primarily by the IDBI, UTI, NSEIL, SBI with several other Indian and foreign banks having a small shareholding.