what is depository participant
Table of Contents
A Depository Participant (DP) is a financial intermediary that facilitates the holding of securities (such as stocks, bonds, and mutual fund units) in electronic form on behalf of investors. In financial markets, securities are held in either physical or electronic form. DPs play a crucial role in the dematerialization (conversion of physical certificates into electronic form) and maintenance of electronic records of securities.
Key points about Depository Participants:
Dematerialization (Demat): Depository Participantsprovide dematerialization services, allowing investors to convert their physical securities into electronic form. This eliminates the need for handling and storing physical share certificates.
Electronic Holding: DPs maintain electronic records of the securities held by investors in their Demat accounts. This enables seamless and secure trading and investment activities.
Facilitation of Transactions: DPs facilitate the transfer of securities between different accounts, either due to buying and selling activities or through other means such as gifts or inheritance.
Opening Demat Accounts: Investors need to open a Demat account with a DP to avail of their services. This account is linked to the investor’s trading account, allowing for the buying and selling of securities on stock exchanges.
Dividend and Interest Payments: DPs credit dividends, interest, and other corporate benefits directly to the Demat accounts of investors.
Corporate Actions: DPs play a role in handling corporate actions such as bonus issues, stock splits, and rights issues on behalf of the investors. depository participant
Services provided by Depository
- Dematerialisation is also known as demat which converts physical certificates of Securities to electronic form .
- Rematerialisation, is also known as remat, whis is reverse of demat, i.e. getting physical certificates from the electronic securities
- Transfer of securities, change of beneficial ownership
- Settlement of trades done on exchange connected to the Depository
- Pledging and Unpledging of Securities for loan against shares the user hold.
- Corporate action benefits directly transfer to the Demat and Bank account of customer
No. of Depository in the country
There are two no. of depositories in the country :
- National Securities Depository Ltd.
- Central Depository Services Ltd.
In many countries, depositories are central securities depositories (CSDs), and they authorize entities known as Depository Participants to offer services to the public. The depository system aims to enhance the efficiency and safety of the securities market by reducing paperwork, eliminating the risks associated with physical certificates, and ensuring prompt settlement of trades. Examples of depositories include NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited) in India, and DTC (Depository Trust Company) in the United States.