- What are Depository Participants in India?
- Eligibility Criteria for Depository Participants in India:
- Functions of the Depository Participants in India:
What are Depository Participants in India?
A Depository Participant in India is defined as an Agent of a Depository. They are the broker between the depository and the investor. A depository participant means a place equal to the bank that holds cash and regulates transactions. In the place of cash, a depository participant holds the assets such as securities. With a DP or depository participant, you can open your best Demat account in securities and start trading with them as your account is linked if you open a trading account. As an agent of one or both the NSDL and CDSL, a depository help you manage your assets efficiently.
Types of Depository Participants in India:
There are two types of Depository Participants in India, they are :
National Security Depository Limited (NSDL):
National Security Depository Limited is an Indian Central Securities Depository located in Mumbai. It was well established in August 1996. As the first electronic securities depository in India with National Coverage. The National Security Depository Limited is assisted by the National Stock of Exchange, Unit trust of India, and Industrial Development Bank of India. NDSL duties are assigned through a service provider such as the DP, Share Transfer Agents, and Clearing Corporation of Stock Exchanges.
Register DP’s with NSDL to provide the services to the investors and the clearing members. NSDL regulates the services of Depository Participants in India so that they can access the investor through the DP registered with them. Firstly, investors need to open a depository account with the DP to access the depository service such as trading account maintenance, dematerialization, rematerialization of security, etc.
Central Depository Service ( India) Limited (CDSL):
The Central Depository Service limited is assisted by the Bombay Stock Exchange, Bank of India, and State Bank of India. It is located in Mumbai. DP’s is registered under the CDSL to help the investors get the services provided by the CDSL.
The DP’s of CDSL work as a connection between the CDSL and the investor. The investor account balance is recorded and managed by the CDSL through the DPs. The DP’s share with the investor the statement of their account regularly, which shows the details of their transactions and securities managed by them.
Eligibility Criteria for Depository Participants in India:
The Depositories Act, 1996 and SEBI (Depositories & Participants) Regulations, 1996 share the number of an organization eligible to become a Depository Participant. The list of an organization that is capable of becoming a DP are :
- Public Financial Institutions.
- Scheduled banks Including Foreign banks approved by the Reserve Bank of India (RBI)
- State Financial Corporation was well established under State Financial Corporations Act,1951
- Institutions committed to granting financial service, approved by the management mentioned above, jointly or severally.
- The custom of Securities gives the Certificate of Registration under the SEBI Act, 1992.
- Clearinghouse or Clearing Corporation of a Stock Exchange.
- Stock Broker who gives Certificate of Registration under SEBI Act, 1992
- Non- Banking Financial Company that has less the worth Rs. 50 lakh.
- Registrar of Issue and Transfer Agent whose net worth is less than Rs. 10 crores.
Apart from mentioned criteria, there are other criteria also which NSDL and CDSL are added to be registered as a DP under them. The NSDL and CDSL are authorized to set their eligibility criteria in their bye-laws. They are-
- A Stock Broker should have at least a minimum net worth of Rs. 3 Crore to get registered under NSDL, and the least net worth is Rs. 2 Crore to be registered under CDSL.
- A Stock Broker with a net worth of Rs. 1 Crore may come as a DP under the division of “Limited Depository Participants” in CDSL. The primary condition is to increase the amount worth Rs. 2 crores.
- The member of DP under NSDL should not have been condemned for misuse of funds and securities, mismanagement of funds, fraudulent conversion, or any theft or fraud in any of the five-year procedures of filling the application.
- The member of DP under NDSL should not have been blocked, fired, or suspended by SEBI or any stock exchange.
Registration under NSDL:
Steps of registration of a DP under the NSDL are :
- A candidate who wants to register as a Depository participants in India with NSDL should submit an application in form F along with the required documents needed- 1. Board Resolution authorizing the candidate who wants to become a participant and Networth Certificate, 2. All the information related to a candidate is required in the form, 3. SEBI requires other information. Suppose the candidate and subsidiaries of the candidate should be registered as members of a stock exchange or CDSL as a candidate, after that. In that case, the status report issued by the Stock Exchange or CDSL, e. Business History of the candidate background and experience detail of the promoters and directors, core business areas, candidate history and track record in the given format, f. Payment of candidate fee and entry fee.
- The application should be filled before the Member Committee of NDSL for approval. On approval, the application will be forwarded to SEBI for registration assistance as DP of NSDL.
- The candidate has to install the required infrastructure, hardware, and software after getting the approval of the Member Committee of NSDL. NSDL conducts pre-activation on-site research of the installation by the candidate.
- On accomplishing the research by the NSDL, they will get activated as a candidate in the pilot environment for the testing procedure.
- After receiving the approval from SEBI and the described fees paid to SEBI and NSDL, the candidate is required to agree with NSDL as a DP of NSDL. After registering into the agreement, the candidate will be created operational in the NSDL system as a Participant.
Registration under CDSL:
Steps of registration of a DP under the CDSL :
- A candidate who wants to register as a DP and CDSL needs to submit an application form F maintained with the following details: a. list of directors and past three years of shareholding patterns of the candidate. B. complete detail of the candidate, like the history and activities of the candidate. C. Number of companies in which the director/ promoters of the candidate are also director/promoters. D. design of shareholding and number of directors of all the group of companies/holdings or subsidiaries and activities followed by them. E. copy of Memorandum and Article of Association. The object section of MOA permits the company to perform DP activities. F. Certified copy of Board Resolution for interconnecting as DP and Networth Certificate. G. A certificate copy of the past 3 years of the yearly report and past year balance sheet. H. Expert who will handle DP functions. i. The payment of the required application fee and application processing fees.
- The CDSL will study the application to find out if there is any requirement for more documentation or information.
- The candidate needs to follow the computer hardware and connect with CDSL. The candidate required two trained staff who are NISM certificates or need to attend 5 days of DP training conducted by CDSL.
- On installing hardware and connectivity, the CDSL forwards the application to SEBI for approval.
- After receiving the application from SEBI payment of registration and annual fees, SEBI permits the certificate of registration to the candidature.
- Then the candidate will agree with CDSL as a DP of CDSL.
- After agreeing, a special DP-ID is generated by CDSL for creating the DP account.
Functions of the Depository Participants in India:
- Help in opening the account of investors.
The process of Demat mainly converts the physical certificate of investors into an equal number of securities in electronic form.
- The process of converting held securities in electronic form in Demat account, converting it back to the form of the physical certificate.
- By changing the beneficial ownership of securities, ‘Transfer of Securities.’
- Trade settlements are done on the trading connected to the Depository.
- By pledging and pledging of securities for a loan against shares.
- Advantages of corporate actions such as directly transferring securities to the demat and bank account to the customers.
In conclusion, it defines depository participants in India and their types, their eligibility criteria such as registration under CDSL and NSDL with their functions.