Central Depository Services Ltd
- November 19, 2022
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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Central Depository Services Ltd
Subject: Economy
Context:
The settlement of trades at Central Depository Services Ltd was delayed on Friday due to detection of malware in its machines.
Concept:
Depository
- It is a place where financial securities are held in dematerialised form.
- Depositories act like your bank account. As you store money in your bank account similarly, a depository helps you store securities in your Demat account.
- It is responsible for maintenance of ownership records and facilitation of trading in dematerialised securities.
- There are two depositories which are functional in India –
- National Securities Depository Ltd (NSDL) –NSDL is the oldest and largest depository in India. It was established on 12th December 1995 and started its operations in 1996 in Mumbai. It was the first depository to provide trading services in electronic format.
- Central Securities Depository Ltd (CDSL)-CDSL came into existence after NSDL in February 1999. Its goal is to provide convenient, dependable and secured depository services. CDSL is the first depository to reach five crores Demat accounts.
- Apart from above mentioned, they offer a wide range of services like:
- Dematerialisation services
- Rematerialisation services
- Transfers between depositories
- Off-market transfers
- Lending of securities
- Nomination services
- Collateral and mortgage of securities
- They are entrusted with the safekeeping of the following financial securities in the electronic format:
- Stocks
- Bonds
- Debentures
- Commercial papers
- Mutual Funds
Difference between NSDL and CDSL:
- There is no key difference between having a Demat account with a DP registered either with NSDL or CDSL.
- Both are regulated by SEBI and provide similar trading and investing services.
- The only difference between both the depositories is their operating markets. While NSDL has National Stock Exchange (NSE) as the primary operating market, CDSL’s primary market is the Bombay Stock Exchange (BSE).
How do they work?
- Depository interacts with its clients or investors through its agents, called Depository Participants normally known as DPs.
- For any investor or client, to avail the services provided by the Depository, has to open a Depository account, known as Demat A/c, with any of the DPs.
- In a strictly legal sense, a DP is an entity who is registered as such with SEBI under the sub section 1A of Section 12 of the SEBI Act. As per the provisions of this Act, a DP can offer depository-related services only after obtaining a certificate of registration from SEBI.
- The relationship between the DPs and the depository is governed by an agreement made between the two under the Depositories Act.
A Demat account or dematerialised account
It converts the shares from the paper form into an electronic form. They are similar to pass books offered by the banks where you have opened an account. One can easily buy or sell shares of different companies using your Demat account.