Stock market investments necessitate the use of a demat account, trading account, and bank account. It is the depository that manages the demat and trading accounts, and it is the bank that manages the bank account for depository participants or brokers.
The investor purchases shares by transferring funds from a bank account to a trading account. A demat account is used to credit certain stocks for money deposited by the investor after the actual transaction has taken place through the exchange.
The securities can't be moved to a physical locker because they're electronic or dematerialized. There are depositories that hold the securities that are traded on the stock market. Investors and issuers do not interact with the vault, which is merely a repository for their securities. In the Indian context, there are two significant repositories:
National Securities Depository Limited (NSDL)
Central Depository Services (India) Limited (CDSL)
Some of the benefits of Depository System
Participating in the capital market is made easier and less time-consuming by the use of a depository system. As a result, unlike in the previous days, the stock market is no longer reliant on paper to conduct business.
Another significant benefit of the depository system is the simplicity with which funds may be exchanged. It's easier to recognise securities of the same class when they're dematerialized, which means they're more interchangeable. This lowered the real cost of exchange and increased the speed of transaction as a result of this modification.
As a result of the depository system, it is now possible for securities to be transferred between depositories in a safe and inexpensive manner. Shares are transferred quickly, even if ultimate settlement takes two days longer.
Depository Participant (DP)
Depository participants are the entities that are registered with SEBI and permitted to function as a connection between depositories and investors. It covers financial institutions, such as banks and brokers.
Some Examples of Depository Participant in India-
Depository Participants of NSDL
Industrial Development Bank of India
State Bank of India
HDFC Bank Ltd
Deutsche Bank
Axis Bank
Citi Bank
Standard Chartered Bank
That is to say, a depository's agent or licenced stockbroker (NSDL, CDSL). The Depositories Act, 1996 defines a depository participant as a person registered under Section 12 of the Securities Exchange Board of India ('SEBI') Act, 1992.
Brokers with a net worth of at least Rs. 3 crores can register with the NSDL, while those with a net worth of at least Rs. 2 crores can register with the CDSL.
DP Name
SEBI-registered depository participant broker's name is entered in the DP name field. Depository participant ID is included in the DP name, as well. The depository where the DP is registered assigns this ID to the DP. According to our research and experience, the DP ID is often comprised of the first eight digits of the emat account.
In order to complete an IPO application, you need to be aware of the depository's and participants' duties. As a result, investors may rest certain that they will not be duped by a fraudulent depository participant.
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