A Depository Participant (DP) serves as the agent or registered stockbroker of a depository. A depository is an institution that holds the securities of investors through the depository participant while offering related services. It securely holds various securities like shares, debentures, Government securities, bonds, and mutual fund units in an electronic form. Essentially, the DP acts as an intermediary between the companies issuing shares and their shareholders.
Direct contact with the depository is not allowed; instead, individuals interact with the depository through the DP to open and maintain a De-mat account. The DP facilitates the connection between the depository and investors, governing their association through a contractual agreement. As per the Depositories Act, 1996, a DP is defined as a person registered under Section 12 of the Securities Exchange Board of India (SEBI) Act, 1992. According to Section 12 of the SEBI Act, no DP is permitted to engage in buying, selling, or dealing with securities unless they are registered with SEBI.
Depositories and depository participants are both regulated by SEBI on the basis of guidelines established by them. Only once the NSDL and CDSL have recommended that the DP be registered with SEBI will it be effective.
The Depository Act of 1996 established two depositories in India, namely the National Securities Depository Limited (NSDL), which is supported by the National Stock Exchange, Industrial Development Bank of India, and Unit Trust of India, among others. The Central Depository Services Limited (CDSL), which is promoted by the Bombay Stock Exchange, State Bank of India, and Bank of India, among others, is the other depository.
Primary Purpose Of Depository
It serves as a conduit between shareholders and listed corporations that issue shares. Depository Participants, or DPs, are companies affiliated with listed companies that act as its representatives when issuing shares. A DP is a bank, financial institution, broker, or other business that satisfies the requirements set forth by SEBI and is in charge of carrying out the final transfer of shares from the depository to investors. At the conclusion, the depository sends a confirmation to the investor.
Depository Is Required
The risk of keeping physical securities is eliminated by using a depository. Since the depository system was implemented, the risks of damage, loss, or theft have been considerably decreased because the shares are held and transferred electronically. They further reduce the amount of paperwork associated with trading and speed up the transfer of shares.
The Depositories Act, 1996, and SEBI (Depositories & Participants) Regulations, 1996 specify the entities eligible to become a Depository Participant. The following entities qualify as DPs:
Additional eligibility criteria set by NSDL and CDSL for DP registration:
For Non-Banking Financial Companies (NBFCs) and registrars to an issue or share transfer agents, the minimum net worth requirement specified in the SEBI Regulations will be applicable for their DP registration.
To become a Depository Participant (DP) with CDSL, the applicant must fulfill the eligibility criteria laid down under Regulation 19, sub-regulations (a) to (d) of the SEBI (Depositories and Participants) Regulations, 1996, and the admission criteria as enumerated in CDSL Bye-Law 5.2. The net worth requirements for stock brokers to become CDSL DP are as follows:
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