Basic Terms of Stock Market

Basic Terms of Stock Market

Most of the students want to know about basic concepts of Stock Marketing. This article will explain the basic terms and a narrow view of process followed by the different parties in listing of shares.

DEPOSITARY

Depository is an institution or a kind of organization which holds securities with it, in which trading is done among shares, debentures, mutual funds, derivatives, F&O and commodities.

There are two depositaries in India:
NSDL- National Securities Depository Limited, the first and largest depository in India, established in August 1996.
CDSL-Central Depository Services Limited.

Depository Participant
A Depository Participant (DP) is an agent of the depository through which it interfaces with the investor. A DP can offer depository services only after it gets proper registration from SEBI. Banking services can be availed through a branch whereas depository services can be availed through a DP.

Every Depository Participant (DP) needs to be registered under this Depository before it begins its operation or trade in the market.

Depositories are the intermediaries between the depository and the investors. The relationship between the DPs and the depository is governed by an agreement made between the two under the Depositories Act. In a strictly legal sense, a DP is an entity who is registered as such with SEBI under the sub section 1A of Section 12 of the SEBI Act. As per the provisions of this Act, a DP can offer depository-related services only after obtaining a certificate of registration from SEBI.

SEBI (D&P) Regulations, 1996 prescribe a minimum net worth of Rs. 50 lakh for stockbrokers, R&T agents and non-banking finance companies (NBFC), for granting them a certificate of registration to act as DPs. If a stockbroker seeks to act as a DP in more than one depository, he should comply with the specified net worth criterion separately for each such depository. No minimum net worth criterion has been prescribed for other categories of DPs; however, depositories can fix a higher net worth criterion for their DPs.

There are two demat 'storage' providers which are majorly owned by Govt. They store your shares you buy and tag it against you. A DP is a depositary participant (basically a broker) who buys shares as advised by you.  Example: you are retail buy shares via icici( who acts as DP) and deposits with NSDL ( ICICi 's storage partner)

Depository interacts with its clients / investors through its agents, called Depository Participants normally known as DPs.

For any investor/client, to avail the services provided by the Depository, has to open Depository account, known as Demat A/c, with any of the DPs.

NSDL AND CDSL BOTH ARE LIKE RESERVE BANK OF INDIA WHERE THE DP ARE MEMBERS.

DP ID

NSDL DP ID consist of 16 character which start with IN and 6 character and along with client ID 8 characters total 16 characters.
CDSL DP ID consist of 16 character (first 8 character of DP ID and another 8 character of client id)

EXPLAINATION FROM SHAREKHAN (DP)

To start E-Trading with Sharekhan you need to open a trading Account and a Depository (or Demat shares) Account with Sharekhan Ltd. (Sharekhan's sponsors). All receipts and payments for buying and selling of shares and all commissions and charges will be posted to your trading Account. Shares which you buy and sell through the trading Account will be received in or delivered from your demat Account.

Trading account refers to the account of client maintained by SSKI in their books of accounts.

Demat account refers to the account opened by you with Depository for holding securities in electronic form. For the purpose of E-Broking through Sharekhan demat account refers to the account opened by client with National Securities Depository Limited (NSDL) through SSKI as Depository Participants (DP) 

MEANING OF DEMAT

Dematerialisation (usually known as demat) is converting physical certificates to electronic form.

Rematerialisation, known as remat, is reverse of demat, i.e. getting physical certificates from the electronic securities.

CDSL Update as on Jul 31, 2013		Demat Custody
Companies	13,209	Quantity (in Million)	1,58,950
Depository Participants	573	Value (₹ in Million)	94,97,370
DP Locations	11,522	Equity	7,144
Investor Accounts (Excl. Closed Accounts)	84,73,396	Others	6,609

Explanation of process practically followed:

v  A company sell its shares to investors through NSDL and CDSL. Company issue shares and handed it over to depositories. Thus in the books of company there are accounts of depositary (not of each and every shareholder).

v  Depository maintain the account of investors (not of DP) with them, which is known as Demat Account. In demat account there is no role of Currency, only shares are traded.

v  The depositaries sell shares to investors through DPs. And DPs further sell shares through brokers. (Reliance Religare is a broker) (ICICI, 3 in 1 a/c, is also a DP and a broker) (Sharekhan ltd is DP, Sharekhan is a broker)

v  In share trading two accounts are required. Demat and Trading a/c. Demat has been discussed. Now trading a/c is maintained with DPs in which currency is involved.

v  An investor ask broker to sale or purchase share, who in turn instruct DP for the same.

AUTHOR

AKSHAY BATRA

E-mail: akshaybatra12@gmail.com