Security market and demat account

Security market and demat account

Context:

The cumulative number of demat accounts opened up to end-March 2020 was 4.1 crore. This number increased to 9.2 crore as on end-April 2022.

Demand account:

Demat refers to a dematerialised account. Just as we open a bank account to hold money and make payments, we need to open a Demat account to buy and sell securities (listed stocks), ETFs as well as debentures in the financial markets.

The investor should start the demat account with a depository participant who is recognized by SEBI. In the Demat account, shares and securities are held electronically instead of the investor taking physical possession of share certificates. Whenever an investor registers with an investment broker or sub broker, a Demat Account is opened by him/ her and the Demat account number is quoted for all transactions to enable electronic settlements of trades to take place.

The account is accessible on the internet and all trades are settled in dematerialised form i.e. in the form of electronic records rather than certificates.

Depository and Depository Participants:

A depository is an organisation which holds securities (like shares, debentures, bonds, government securities, mutual fund units etc.) of investors in electronic form at the request of the investors through a registered Depository Participant.  It also provides services related to transactions in securities. At present, there are two depositories viz. National Securities Depository Limited   (NSDL) and Central Depository Services (India) Limited (CDSL) are registered with SEBI.

The depositories don’t directly interact with the customers who purchase and sell shares. Rather, they provide their services like keeping of share certificates in electronic forms through another set of institutions called depository participants (DP).

In India, a Depository Participant (DP) is described as an agent of the depository. They are the intermediaries between the depository and the investors. The relationship between the DPs and the depository is governed by an agreement made between the two under the Depositories Act.

Structure of Security/Bond market:

The securities market which is divided into:

• Government securities -it is issued by the government and are risk-free, hence, they are called gilt-edged securities. In the gilt-edged securi­ties market, the RBI plays an all-important role.

Government securities market for both ‘old’ and ‘new’ issues has been on ‘over-the- counter market’ where securities of the Un­ion Government and State Governments are issued.

• Corporate securities– like shares, or equi­ties, bonds and debentures are issued by the corporate firms.
  • It consists of the primary mar­ket, called new issues-the new issues are not ‘quoted’ or ‘listed’ or ‘approved’ in the reg­ister of the stock exchange in the organised stock exchanges, these new securities are dealt in ‘over-the-counter market’ or the ‘auction market’.
  • The secondary mar­ket, called old issues-The stock exchange is a specialist market place to facilitate the exchanges of old securities. It is known as a ‘secondary market’ for securities. The stock exchange dealings for ‘listed’ securities are made in an open auction market where buyers and sellers from all over the country meet. 

These are the instru­ments through which long-term capital funds are collected from the public.