A DP is an agent of the depository through which it interfaces with the investor and provides depository services.
Depository participants enable investors to hold and transact in securities in the dematerialized form (electronic form). Demat securities are held by depositories, where they are admitted for dematerialization after the issuer applies to the depository and pays a dematfee.
Depository participants (DPs) open investor accounts, in which they hold the securities that they have bought in dematerialized form. Brokers and banks offer DP services to investors. DPs help investors receive and deliver securities when they trade in them. While the investor-level accounts in securities are held and maintained by the DP, the company level accounts of securities issued is held and maintained by the depository. In other words, DPs act as agents of the Depositories.
Declaration of dividend / bonus / rights:
When a company declares dividend / rights or bonus shares, the depository will prepare the record of investors as on the record date and submit it to the Registrar of Company. The dividend will be sent by the registrar after calculating the dividend payable to each investor directly.
When a company declares bonus shares, the Registrar will calculate the bonus entitlement and advise the depository about the number of shares to be credited to each existing shareholder (account-holder).
In case of Rights-offer; based on the records of the depositories the Registrar will prepare a letter of offer and send it to the investor. The Registrar will advise the depository the number of shares to be credited to each account on the basis of the application and allotment. Based on this advice, the investor’s DEMAT account will be credited by the depository.
Some questions around Depository and Depository Participant:
What is a depository?
A depository can be compared to a bank. A depository holds securities (like shares, debentures, bonds, Government Securities, units etc.) of investors in electronic form. Besides holding securities, a depository also provides services related to transactions in securities.
What is a Depository Participant?
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. This is similar to opening an account with any branch of a bank in order to utilise the bank’s services. Suggestions on how to select a DP are given in Section IV.
What is Dematerialisation?
Long back when stocks were being traded on the exchange – they were traded inside the ‘ring’. When deals were fixed, money was exchanged for receipts.
Later physical shares certificates were provided. This invited a lot manual paper work and physical process also led to scams.
After which Dematerialisation was introduced in 1996. Because of Dematerialisation this entire process was digitized and shares were transferred electronically into everyone’s’ “Demat Accounts“. This saved a lot of time and endless paper work.
In other words, Dematerialisation is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited in the investor’s account with its DP. In order to dematerialise certificates; an investor will have to first open an account with a DP and then request for the dematerialisation of certificates by filling up a dematerialisation request form [DRF], which is available with the DP and submitting the same along with the physical certificates. The investor has to ensure that before the certificates are handed over to the DP for demat, they are defaced by marking “Surrendered for Dematerialisation” on the face of the certificates.
Can I dematerialise my debt instruments, mutual fund units, government securities also in my demat account?
Yes.
Can our electronic holdings be converted back into certificates? – also known as Rematerialization
Yes. If one wishes to convert back the securities in physical form, all he / she has to do is to request the DP for rematerialisation of the same. ‘Rematerialisation’ is the term used for converting electronic holdings back into physical certificates.
Post checks and balances, Depository will intimate the registrar who will print the certificates and dispatch the same to the investor.
Who can be a DP?
Public financial institutions, scheduled commercial banks, foreign banks operating in India with the approval of the Reserve Bank of India, state financial corporations, custodians, stock-brokers, clearing corporations / clearing houses,NBFCs and registrar to an issue or share transfer agent complying with the requirements prescribed by SEBI can be registered as DP. Banking services canbe availed through a bank branch whereas depository services can be availed through a DP.
What will happen if a certain DP goes bankrupt or stops operation?
In a rare event of your DP going bankrupt or closing its operations, the interests of all the investors are fully protected.
In such a situation, investors will be given an option of either transferring the securities to a new DP or they may rematerialise the securities.
Who is an Issuer?
“Issuer” means any entity such as a corporate / state or central governmentorganizations issuing securities which can be held by depository in electronic form.
What is an ISIN?
ISIN (International Securities Identification Number) is a unique 12 digit alphanumeric identification number allotted for a security (e.g.- INE383C01018). Equityfullypaid up, equity-partly paid up, equity with differential voting /dividend rightsissued by the same issuer will have different ISINs.
Who is a Beneficial Owner?
All the benefits of the dematerialized shares are given to the actual investor since the depository holds the securities in a fiduciary capacity on behalf of the investors who have opened a demat account with the depository. Hence, the actual investor is the “Beneficial Owner” (BO) of the securities.
How many registered DPs do we have in India?
As on December 21, 2012, a total of 866 DPs (289 NSDL, 577 CDSL) are registered with SEBI.
Is it compulsory for every investor to open a BO account to trade in the capital market?
As per the available statistics at BSE and NSE, 99.9% transactions take place indematerialised mode only. Therefore, in view of the convenience of trading in dematerialised mode, it is advisable to have a beneficial owner (BO) account for trading at the exchanges.
However to facilitate trading by small investors (maximum 500 shares, irrespective of their value) in physical mode the stock exchanges provide an additional trading window, which gives one time facility for small investors to sell physical shares which are in compulsory demat list. The buyer of these shares has to demat such shares before further selling.