Laws Governing to Depositories and Depository Participants

According to the Regulation 7 of the SEBI (Depositories and Participants) Regulations, 2018, the depository shall not carry on any activity whether involving deployment of funds or otherwise without prior approval of the SEBI. However prior approval of the SEBI shall not be required in case of treasury investments if such investments are as per the investment policy approved by the governing board of depository.

However, a depository may carry out such activity not incidental to its activities as a depository, whether involving deployment of funds or otherwise, as may be assigned to the depository by the Central Government or by a regulator in the financial sector, through the establishment of Strategic Business Unit(s) specific to each activity with the prior approval of the SEBI and subject to such conditions as may be prescribed by the SEBI, including transfer of such activity to a separate company within such time as may be specified by the SEBI having regard to the matters which are relevant to the efficient and orderly function of the Depository.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 5(b) (Old syllabus).

Fintech Limited aims to enter into the securities market infrastructure by establishing itself as a new and leading depository participant, the following are the legal position with respect to the SEBI (Depositories and Participants) Regulations, 2018:

(i)The net worth requirements for the Depository Participants as per Regulation 35 of the SEBI (Depositories and Participants) Regulations, 2018 are:

•In case of a non-banking finance company – net worth of not less than ₹ 50 lakhs (only on behalf of itself).

•In case of a registrar to an issue or share transfer agent -minimum net worth of ₹ 10 crores.

•In case of a stock broker - net worth of ₹ 5 crores.

In the given scenario, the FinTech Limited has a net worth of ₹ 75 crores. Therefore, company falling within any above mentioned category meets the prescribed net worth requirements as a depository participant.

(ii)Under Regulation 64 of SEBI (Depositories and Participants) Regulations, 2018, every participant shall reconcile its records with every depository in which it is a participant on a daily basis.

Therefore, the intention of FinTech Limited to maintain reconciliation of the records of dematerialised securities on monthly basis is not aligned with the requirements of the SEBI (Depositories and Participants) Regulations, 2018.

(iii)Under Regulation 76 of SEBI (Depositories and Participants) Regulations, 2018 every issuer shall submit audit report on a quarterly basis to the concerned stock exchanges audited by a practicing Company Secretary or a qualified Chartered Accountant or a practicing Cost Accountant, for the purposes of reconciliation of the total issued capital, listed capital and capital held by depositories in dematerialized form, the details of changes in share capital during the quarter and the in-principle approval obtained by the issuer from all the stock exchanges where it is listed in respect of such further issued capital.

Any person falls under the above mentioned categories, may issue the audit report. In the given case, Chief Financial Officer (CFO) is yet to be appointed by FinTech Limited. Assuming that the company has appointed the CFO, hence, being its employee, CFO is not permitted to issue the audit report.

(iv)Under Regulation 35 of the SEBI (Depositories and Participants) Regulations, 2018, requires the applicant to have infrastructure, systems, safeguards and trained staff and the applicant is a fit and proper person under the SEBI (Intermediaries) Regulations, 2008 to carry on activity as a depository participant.

However, in this given case, the management of FinTech Limited does not have prior experience in handling large-scale securities market operations. Therefore, it is not complying the conditions of the above mentioned Regulation.

(v)The SEBI (Depositories and Participants) Regulations, 2018 will be applicable to FinTech Limited.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 1(a) (Syllabus 2022).

Investor Protection Fund of Depositories

According to the Regulation 73 of the SEBI (Depositories and Participants) Regulations, 2018 every depository shall establish and maintain an Investor Protection Fund for the protection of the interest of beneficial owners. However, this Fund shall not be used by the depository for the purpose of indemnifying the beneficial owner.

Every depository shall credit five percent or such percentage as may be specified by the SEBI, of its profits from depository operations every year to the investor Protection Fund.

The contribution to and utilization of the Investor Protection Fund shall be in accordance with the norms specified by the SEBI.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 6A(v) (Old syllabus).

Regulation 76 of the SEBI (Depositories and Participants) Regulations, 2018 provides that every issuer shall submit audit report on a quarterly basis to the concerned stock exchanges audited by a practising Company Secretary or a qualified Chartered Accountant, for the purposes of reconciliation of the total issued capital, listed capital and capital held by depositories in dematerialized form, the details of changes in share capital during the quarter and the in principle approval obtained by the issuer from all the stock exchanges where it is listed in respect of such further issued capital.

The audit report is required to give the updated status of the register of members of the issuer and confirm that securities have been dematerialized as per requests within 21 days from the date of receipt of requests by the issuer and where the dematerialization has not been effected within the said stipulated period, the report would disclose the reasons for such delay.

The issuer is under an obligation to immediately bring to the notice of the depositories and the stock exchanges, any difference observed in its issued, listed, and the capital held by depositories in dematerialized form.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 3(c) (Syllabus 2017).

Under the Depositories Act, 1996:

A “Beneficial owner” means a person whose name is recorded as such with a depository, and

A “Depository” means a company formed and registered under the Companies Act, and which has been granted a certificate of registration under sub-section (1A) of section 12 of the Securities and Exchange Board of India Act, 1992.

Section 10 of the Depositories Act, 1996, further lays down that a depository should be deemed to be the registered owner for the purposes of effecting transfer of ownership of security on behalf of a beneficial owner. Thus, the depository as a registered owner should not have any voting rights or any other rights in respect of securities held by it.

The beneficial owner is entitled to all the rights and benefits and is subject to all the liabilities in respect of his securities held by a depository. Under the Depositories Act, 1996, beneficial owners have the following rights:

(a)A beneficial owner may with the previous approval of the depository create a pledge or hypothecation in respect of a security owned by him through a depository. Every beneficial owner should give intimation of such pledge or hypothecation to the depository and such depository is required to make entries in its records accordingly. (Section 12)

(b)A beneficial owner may opt out of the depository system in respect of any security by informing the depository. (Section 14)

(c)Any loss caused to the beneficial owner due to the negligence of the depository or the participant, would be indemnified by the depository to such beneficial owner. (Section 16)

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 2(c) (Syllabus 2022).

Depositories Act, 1996 gives the option to investors to receive securities in physical form or in the dematerialized mode.

It is not necessary that all eligible securities must be in the depository mode. In the scheme of the Depositories legislation, the investor has been given supremacy. The investor has the choice of holding physical securities or opt for a depository-based ownership record.

However, in case of fresh issue of securities, all securities issued have to be in dematerialized form. However, after that, investor will also have the freedom to switch from depository mode to Physical mode and vice versa. The decision as to whether or not to hold securities within the depository mode and if in depository mode, which depository or participant, would be entirely with the investor.

According to the Depositories Act, 1996, an investor has the option to hold securities either in physical or electronic form. Part of holding can be in physical form and part in demat form. However, SEBI has notified that settlement of market trades in listing securities should take place only in the demat mode.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 2A(iv) (Syllabus 2017).

As per section 16 of the Depositories Act, 1996, any loss caused to the beneficial owner due to the negligence of the depository or the participant, would be indemnified by the depository to such beneficial owner. Where the loss due to the negligence of the participant is indemnified by the depository, the depository has the right to recover the same from such participant.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 5(c) (Old syllabus).

Under Section 20 of the Depositories Act, 1996, following act(s) constitutes an offence for any individual:

(a)Contravenes or attempts to contravene or abets the contravention of the provisions of this Act or any rules or regulations or buy-laws made thereunder, or

(b)Fails to pay the penalty imposed by the adjudicating officer or the SEBI or fails to comply with any directions or orders.

Penalties as provided under this section, for contravening the above mentioned acts:

(i)For (a) above, person shall be punishable with imprisonment for a term which may extent of 10 years, or with fine, which may extend to Rs. 25 crore, or with both, and

(ii)For (b) above, person shall be punishable with imprisonment for a term which shall not be less than one month, but which may extent to 10 years, or with fine, which may extend to Rs. 25 crore or with both.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 2A(iii) (Syllabus 2022).

Various roles a Company Secretary can exercise under the Laws Governing to Depositories and Depository Participants, are as under:

a)Right to Legal Representation: In case of any decision of the SEBI, the aggrieved entity/ company (the appellant) may either appear in person or authorise one or more chartered accountants or company secretaries (PCS) or cost accountants or legal practitioners or any of its officers to present his or its case before the Securities Appellate Tribunal (SAT). (Section 23C of Depositories Act, 1996)

b)Internal Audit of Depository Participants: The 2 (two) Depository services providers in India, viz., National Securities Depository Ltd. (NSDL) and Central Depository Services (India) Limited (CDSL) have allowed Company Secretaries in whole-time practice to undertake internal audit of the operations of Depository Participants (DPs).

c)Reconciliation of Share Capital Audit: Company Secretary is authorised to issue quarterly certificate with regard to reconciliation of the total issued capital, listed capital and capital held by depositories in dematerialized form, details of changes in share capital during the quarter, and in-principle approval obtained by the issuer from all the stock exchanges where it is listed in respect of such further issued capital under SEBI (Depositories and Participants) Regulations, 2018. [Regulation 76 of SEBI (Depositories and Participants) Regulations, 2018]

d)Concurrent Audit of Depository Participants: Practising Company Secretary is authorized to carry out concurrent audit of Depository Participants which covers audit of the process of demat account opening, control and verification of Delivery Instruction Slips (DIS).

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 2A(i) (Syllabus 2022).

Block Mechanism in Demat Account

SEBI, vide its circular, had introduced block mechanism in the demat account of clients undertaking sale transactions on optional basis, for ease of operations in Early Pay-in mechanism. When the client intends to make a sale transaction, shares will be blocked in the demat account of the client in favour of Clearing Corporation. If sale transaction is not executed, shares shall continue to remain in the client’s demat account and will be unblocked at the end of the T Day. Thus, this mechanism will do away with the movement of shares from client’s demat account for early pay-in and back to client’s demat account if trade is not executed.

SEBI vide this circular has provided that the facility of block mechanism shall be mandatory for all Early Pay-In transactions with effect from November 14, 2022. Further, SEBI vide its Circular No. SEBI/HO/MIRSD/DOP/P/CIR/2022/143 dated October 27, 2022 has issued a clarification on “Block Mechanism in demat account of clients undertaking sale transactions”. As per the clarification the block mechanism shall not be applicable to clients having arrangements with custodians registered with SEBI for clearing and settlement of trades.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 6(e) (Syllabus 2017).

Concurrent Audit

National Securities Depository Limited vide its Circular No. NSDL/POLICY/ 2006/0021 dated June 24, 2006 provides for concurrent audit of the Depository Participants. The Circular provides that w.e.f. August 1, 2006, the process of demat account opening, control and verification of Delivery Instruction Slips (DIS) is subject to Concurrent Audit.

Depository Participants have been advised to appoint a firm of qualified Chartered Accountant(s) or Company Secretary(ies) holding a certificate of practice for conducting the concurrent audit. However, the participants in case they so desire, may entrust the concurrent audit to their Internal Auditors. In respect of account opening, the auditor should verify all the documents including KYC documents furnished by the clients and verified by the officials of the Participants.

The scope of concurrent audit with respect to control and verification of DIS cover the areas given below:

(I)Issuance of DIS: The procedure followed by the Participants with respect to:

(a)Issuance of DIS booklets including loose slips.

(b)Existence of controls on DIS issued to Clients including pre-stamping of Client lD and unique pre-printed serial numbers.

(c)Record maintenance for issuance of DIS booklets (including loose slips) in the back office.

(II)Verification of DIS: The procedure followed by the Participants with respect to:

(a)Date and time stamping (including late stamping) on instruction slips.

(b)Blocking of used/reported lost/stolen instruction slips in back- office system/ manual record.

(c)Blocking of slips in the back-office system/manual record which are executed in DPM directly.

(d)Two step verifications for a transaction for more than Rs. 5 lakhs, especially in case of off-market transactions.

(e)Instructions received from dormant accounts.

The Concurrent Auditor should conduct the audit in respect of all accounts opened, DIS issued and controls on DIS as mentioned above, during the day, by the next working day. In case the audit could not be completed, he should ensure that the audit is completed within a week’s time.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 1(d) (Syllabus 2017).

Cyber-attacks and threats attempt to compromise the Confidentiality, Integrity and Availability

(CIA) of the computer systems, networks and databases. Cyber security framework includes measures, tools and processes that are intended to prevent cyber-attacks and improve cyber resilience. Cyber Resilience is an organization’s ability to prepare and respond to a cyber-attack and to continue operation during, and recover from, a cyber-attack.

The Frameworks prescribed for Depository Participants are as follows:

1.Depository Participants are mandated to conduct comprehensive cyber audit.

2.Depository Participants shall submit with Stock Exchange/Depository a declaration from the MD/ CEO / Partners/ Proprietors certifying compliance with all SEBI Circulars and advisories related to Cyber security from time to time, along with the Cyber audit report.

3.Depository Participants shall identify and classify critical assets based on their sensitivity and criticality for business operations, services and data management. The critical assets shall include business critical systems, internet facing applications /systems, systems that contain sensitive data, sensitive personal data, sensitive financial data, Personally Identifiable Information (PII) data, etc.

4.Depository Participants shall maintain up-to-date inventory of its hardware and systems, software and information assets (internal and external), details of its network resources, connections to its network and data flows.

5.Depository Participants shall carry out periodic Vulnerability Assessment and Penetration Tests (VAPT) which inter-alia include critical assets and infrastructure components like Servers, Networking systems, Security devices, load balancers, other IT systems pertaining to the activities done as Depository Participants etc., in order to detect security vulnerabilities in the IT environment and in-depth evaluation of the security posture of the system through simulations of actual attacks on its systems and networks.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 2A(ii) (Syllabus 2022).

In order to start the depository services, XYZ Ltd. is required to comply with the following requirements. Any company or other institution to be eligible to provide depository services must:

-has a net worth of not less than ₹ 100 crore;

-be formed and registered as a Company under the CompaniesAct, 2013;

-be registered with SEBI as a depository under the SEBI Act, 1992;

-has framed bye-laws with the previous approval of SEBI;

-has one or more participants to render depository services on its behalf;

-has adequate systems and safeguards to prevent manipulation of records and transactions to the satisfaction of SEBI;

-complies with DepositoriesAct, 1996 and SEBI (Depositories and Participants) Regulations, 2018;

-meet eligibility criteria in terms of constitution, network etc.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 2A(iv) (Syllabus 2017).

Dematerialization is a process by which the physical share certificates of an investor are taken back by the Company and an equivalent number of securities are credited his/her account in electronic form at the request of the investor. An investor will have to first open an account with a Depository Participant and then request for the dematerialization of his/her share certificates through the Depository Participant so that the dematerialized holdings can be credited into that account. This is very similar to opening a Bank Account.

Dematerialization of shares is optional and an investor can still hold shares in physical form. Dematerialisation is covered by the provisions of the Dematerialisation Act, 1996, the Companies Act, 2013 and SEBI laws.

Procedure for Dematerialization:

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 3(b) (Syllabus 2017).

Dematerialization

Dematerialization is a process by which the physical share certificates of an investor are taken back by the Company and an equivalent number of securities are credited in his account in electronic form at the request of the investor. An investor will have to first open an account with a Depository Participant and then request for the dematerialization of his share certificates through the Depository Participant so that the dematerialized holdings can be credited into that account. This is very similar to opening of a bank account. Dematerialization of shares is optional and an investor can still hold shares in physical form. However, he/she has to demat the shares if he/she wishes to sell the same through the Stock Exchanges. Similarly, if an investor purchases shares item the Stock Exchange, he/she will get delivery of the shares in demat form. Odd lot share certificate can also be dematerialized.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 6A(iii) (Old syllabus).

(i)Dematerialization

Dematerialization is a process by which the physical share certificates of an investor are taken back by the Company and an equivalent number of securities are credited to his account in electronic form at the request of the investors. Dematerialization of shares is optional and an investor can still hold shares in physical form. However, he/she has to demat the shares if he/she wishes to sell the same through the Stock Exchanges.

(ii)Fungibility

Section 9 of the Depositories Act, 1996 states that securities in depositories shall be in fungible form. The act envisages that all securities held in depository shall be fungible i.e. all certificates of the same security shall become interchangeable in the sense that investor loses the right to obtain the exact certificate which is surrendered at the time of entry into depository. It is like withdrawing money from the bank without bothering about the distinctive numbers of the currencies.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 2(e) (Syllabus 2017).

Yes, Commercial Papers and Certificates of Deposits irrespective of whether these instruments are listed / unlisted / privately placed can be dematerialized with depository, if they have been admitted with the depository.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 1(b)(ii) (Syllabus 2017).

To enhance the efficiency of the stock market, rolling settlement were introduced by SEBI. To facilitate the settlement, SEBI prescribed the compulsory dematerialised trading by companies through connectivity with both the depositories NSDL and CDSL.

The stock exchanges may consider shifting the trading of securities of the company who have established connectivity with both the depositories to normal rolling settlement subject to the following:

i.At least 50% of non-promoter holdings are in Demat mode before shifting the trading in the securities of the company from trade for trade settlement (TFTS) to normal rolling settlement.

For this purpose, the listed companies are required to obtain a certificate from its Registrar and Transfer Agent (RTA) and submit the same to the stock exchange/s. However, if an issuer company does not have a separate RTA, it may obtain a certificate in this regard from a Practicing Company Secretary / Chartered Accountant and submit the same to that stock exchange.

ii.There are no other reasons for the continuation of the trading in TFTS. The stock exchanges are also required to report to SEBI, the action taken in this regard in their monthly/quarterly development report.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 5(a) (Old syllabus).

(i)Yes, a foreign bank operating in India, with the approval of the Reserve Bank of India can be registered as a depository participant.

(ii)Yes, Manoj Soni has a choice to open another Demat account with any depository participant.

(iii)The concerned company obtains the details of beneficiary holders and their holdings from the depository participant (NSDL or CDSL) as on the record date. The concerned company then issue Right Entitlement (RE) as entitlement to Mr. Manmohan Reddy. The number of shares against those REs will be credited to his Demat account by the company / its RTA.

(iv)All types of equity/ debt instruments viz. equity shares, preference Shares, partly paid shares, bonds, debentures, commercial papers, certificates of deposit, government securities (G-SEC) etc. irrespective of whether these instruments are listed / unlisted / privately placed can be dematerialized with depository, if they have been admitted with the depository.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2(a) (Syllabus 2022).

A depository interfaces with the investors through its agents called Depository Participants (DPs). If an investor wants to avail the services offered by the depository, the investor has to open an account with a DP. Just as a brokers act an agent of the investor at the Stock Exchange, a Depository Participant (DP) is the representative (agent) of the investor in the depository system providing the link between the Company and investor through the Depository. The Depository Participant maintains securities’ account balances and intimates the status of holding to the account holder from time to time.

Characteristics of a DP

•Transmission requests/nomination

•Acts as an Agent of Depository

•Customer interface of Depository

•Functions like Securities Bank

•Account opening

•Facilitates dematerialisation/rematerialisation

•Instant transfer on pay-out

•Enables off market transfers

•Settles trades in electronic segment

•Pledge/enforcement of pledge etc.

A DP is one with whom an investor needs to open an account to deal in shares in electronic form. While the Depository can be compared to a Bank, DP is like a branch of that bank with which an account can be opened.

Both depository and custodian services are responsible for safe keeping of securities but they are different in the sense that the Depository can legally transfer beneficial ownership, while a custodian cannot. The main objective of a Depository is to minimize the paper work involved with the ownership, trading and transfer of securities.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 2A(iv) (Syllabus 2022).

Auto delivery facility

Instead of issuing Delivery instructions for their securities delivery obligations in demat mode in various scrips in a settlement /auction, a facility has been made available to the member brokers of automatically generating delivery instructions on their behalf from their Clearing Member (CM) Pool accounts maintained with National Securities Depository Ltd. (NSDL) and CM Principal Accounts maintained with Central Depository Services (India) Ltd. (CDSL). This auto delivery facility is available for CRS (Normal & Auction) and for trade to trade settlements.

This facility is, however, not available for delivery of non-pari passu shares and shares having multiple International Securities Identification Number (ISINs). The member-brokers wishing to avail of this facility have to submit an authority letter to the Clearing House. This auto delivery facility is currently available for CM Pool accounts and Principal accounts maintained by the member-brokers with NSDL and CDSL respectively.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 3(c) (Old syllabus).

Issuance of Delivery Instruction Slips (DIS)

The procedure followed by the Participants with respect to:

(a)Issuance of DIS booklets including loose slips.

(b)Existence of controls on DIS issued to Clients including pre-stamping of Client ID and unique pre-printed serial numbers.

(c)Record maintenance for issuance of DIS booklets (including loose slips) in the back office.

Verification of Delivery Instruction Slips (DIS)

The procedure followed by the Participants with respect to:

(a)Date and time stamping (including late stamping) on instruction slips.

(b)Blocking of used/reported lost/stolen instruction slips in back office system/ manual record.

(c)Blocking of slips in the back office system/manual record which are executed in DPM directly.

(d)Two step verification for a transaction for more than ₹5 lakh, especially in case of off market transactions.

(e)Instructions received from dormant accounts.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 2(b) (Syllabus 2017).

Instead of issuing Delivery instructions for their securities delivery obligations in demat mode in various scrips in a settlement /auction, a facility has been made available to the member-brokers of automatically generating Delivery instructions on their behalf from their Clearing Member (CM) Pool accounts maintained with National Securities Depository Ltd. (NSDL) and CM Principal Accounts maintained with Central Depositories Services (India) Ltd. CDSL. This auto delivery facility is available for CRS (Normal & Auction) and for trade to trade settlements. This facility is, however, not available for delivery of non-pari passu shares and shares having multiple international Securities Identification Number (ISINS). The member-brokers wishing to avail of this facility have to submit an authority letter to the Clearing House. This auto delivery facility is currently available for CM Pool accounts and Principal accounts maintained by the member-brokers with NSDL and CDSL respectively.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 2A(iii) (Old syllabus).

The Depository System functions very much like the banking system, but following are the differences between the working of a bank and the working of a depository -

•A bank holds funds in accounts whereas a Depository holds securities in accounts for its clients.

•A Bank transfers funds between accounts on the instruction of the account holder whereas a Depository transfers securities between accounts on the instruction of the beneficial owner account holder.

•While Bank involves transfer of fund, Depository system involves transfer of securities.

•In the Bank, bank is accountable for the safe keeping of funds only whereas in Depository, they are accountable for securities only.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 2A(iii) (Syllabus 2017).

A depository is an organization 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. India has adopted the Depository System for securities trading in which book entry is done electronically and no paper is involved. The physical form of securities is extinguished and shares or securities are held in an electronic form.

Features of Depository System in India are given below:

1.Multi-Depository System : The depository model adopted in India provides for a competitive multi-depository system. A depository should be a company formed under the Companies Act, 2013 and should have been granted a certificate of registration under the Securities and Exchange Board of India Act, 1992. Presently, there are two depositories registered with SEBI, namely:

•National Securities Depository Limited (NSDL), and

•Central Depository Service Limited (CDSL)

2.Depository services through depository participants : The depositories can provide their services to investors through their agents called depository participants. These agents are appointed subject to the conditions prescribed under SEBI (Depositories and Participants) Regulations, 2018 and other applicable conditions.

3.Dematerialisation : The model adopted in India provides for dematerialisation of securities. This is a significant step in the direction of achieving a completely paper-free securities market. Dematerialization is a process by which physical certificates of an investor are converted into electronic form and credited to the account of the depository participant.

4.Fungibility : The securities held in dematerialized form do not bear any notable feature like distinctive number, folio number or certificate number. Once shares get dematerialized, they lose their identity in terms of share certificate, distinctive numbers and folio numbers. Thus, all securities in the same class are identical and interchangeable. For example, all equity shares in the class of fully paid-up shares are interchangeable.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 2A(iii) (Old syllabus).

Rematerialisation is the process of converting securities held in electronic form in a demat account back in physical certificate form. For the purpose of rematerialisation, the client has to submit the rematerialisation request to the Depository Participant (DP) with whom he has an account. A client can rematerialise his dematerialised holdings at any point of time.

Procedure required for rematerialisation is as under:

i.Client submits rematerialisation request form (RRF) to DP.

ii.DP enters the request in its system which blocks the client’s holding.

iii.DP intimates to Depository and simultaneously, DP sends the RRF to the Registrar/ Issuer.

iv.Registrar/ Issuer prints certificates and dispatch to the client.

v.Registrar/ Issuer electronically confirms remat to Depository.

vi.Client’s account with DP debited.

The trading is permitted only in electronic form for the listed entities. Hence, the securities sent for rematerialisation cannot be traded. Therefore, Rohit will not able to trade his securities post-remat.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 3(a) (Syllabus 2022).

SARAL Account Opening

SEBI vide circular dated 4th March, 2015 provided for SARAL account opening for resident individuals. An individual investors can open a trading account and demat account by filling up a simplified Account Opening From (AOF") termed as 'SARAL AOF' and will also have the option to obtain other facilities, whenever they require, on furnishing of additional information as per prescribed regulations/circulars.

For a set of individual investors, it has been decided by the SEBI to simplify the requirement of submission of ‘proof of address’. The requirement of submission of proof of address is as follows:

(i)Individual investor may submit only one documentary proof of address (either residence/correspondence or permanent) while opening a trading account and / or demat account or while undergoing updation.

(ii)In case the proof of address furnished by the said investor is not the address where the investors is currently residing the intermediary may take a declaration of the residence/correspondence address on which all correspondence will be made by the intermediary with the investor. No proof is required to be submitted for such correspondence/residence address.

(iii)In the event of change of address due to relocation or any other reason, investor may intimate the new address for correspondence to the intermediary within two weeks of such a change. The residence/ correspondence address and any such change thereof may be verified by the intermediary through positive confirmation such as (i) acknowledgment of receipt Welcome Kit/ dispatch of contract notes/ any periodical statement, etc. (ii) telephonic conversation; (iii) visits, etc.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 6(d) (Syllabus 2017).

SARAL (Depository)

SEBI has provided for opening of SARAL account for resident individuals. An individual investors can open a trading account and demat account by filling up a Simplified Account Opening Form (AOF) termed as 'SARAL AOF' and will also have the option to obtain other facilities whenever they require, on furnishing of additional information as per prescribed regulations/circulars. Individual investor may submit only one documentary proof of address (either residence/correspondence or permanent) while opening a trading account and / or demat account or while undergoing updation.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 6A(iv) (Old syllabus).

Wind-down plan

Wind-down plan means a process or plan of action employed, for transfer of the beneficial owner accounts and other operational powers of the depository to an alternative institution that would take over the operations of the depository in scenarios such as erosion of net worth of the depository or its insolvency or its inability to provide critical depository operations or services.

Every depository shall devise and maintain a wind-down plan in accordance with guidelines specified by SEBI.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 6A(v) (Old syllabus).