Depository Participant Registration

Depository Participant (‘DP’) is the agent or the registered stockbroker of a depository. A depository is an institution or organisation which holds the securities of an investor through the depository participant and also provides services in relation to these securities. It holds the securities of the investors in the form of shares, debentures, Government securities, bonds, mutual fund units, etc. in an electronic form. It acts as a link between the companies which issue shares and its shareholders.

A person cannot contact the depository directly. Through the DP, a person can open and maintain a Demat account. They are the link between the depository and the investors. An agreement between the DP and the depository regulates their relationship. Depositories Act, 1996 defines a DP as a person registered under Section 12 of the Securities Exchange Board of India (‘SEBI’) Act, 1992. Section 12 of the SEBI Act states that no DP shall buy, sell or deal in securities unless registered with SEBI.

Types of Depository Participants in India

There are two types of Depositories in India. Thus, a DP may be operating under any one of the two depository institutions. The two depository institutions are-

• National Securities Depository Limited (NSDL)

The National Securities Depository Limited (NSDL) is promoted by the National Stock Exchange, Unit Trust of India and Industrial Development Bank of India among others. The activities of NSDL are carried out through service providers such as the DP, Share Transfer Agents and Clearing Corporations of Stock Exchanges. DP’s are known as the business partners in NSDL.

The DP’s need to register with NSDL to be able to provide services to the investors and the clearing members. The depository services provided by NSDL are accessible to the investors through the DP registered with them. The investors need to open a depository account with the DP to avail the depository services such as trading account maintenance, dematerialisation, rematerialisation of securities, etc.

• Central Depository Services (India) Limited (CDSL)

The Central Depository Services Limited (CDSL) is promoted by the Bombay Stock Exchange, Bank of India and State Bank of India among others. The DP’s registered under the CDSL help the investors to avail the services provided by the CDSL.

The DP’s of CDSL act as a link between the CDSL and the investors. The investors can obtain the balances in their accounts recorded and maintained by the CDSL through the DP’s. The DP’s provide the investors with a statement of their accounts at regular intervals which gives details of their transactions and securities held by them.

Eligibility Criteria

The Depositories Act, 1996 and SEBI (Depositories & Participants) Regulations, 1996 provide the list of entities who are eligible to become a Depository Participant. The list of entities that qualify to become a DP is:

• Public Financial Institutions.
• Scheduled Banks including Foreign Banks approved by the Reserve Bank of India (RBI).
• State Financial Corporation established under the State Financial Corporations Act, 1951.
• Institutions engaged in granting financial services, promoted by the entities mentioned above, jointly or severally.
• Custodian of Securities who is granted Certificate of Registration under the SEBI Act, 1992.
• Clearing House or Clearing Corporation of a Stock Exchange.
• Stock Broker who is granted Certificate of Registration under the SEBI Act, 1992.
• Non-Banking Financial Company having a net worth of not less than Rs.50 lakh.
• Registrar of Issue and Transfer Agents who have a minimum net worth of Rs.10 crore.

Apart from the above eligibility criteria, the NSDL and CDSL have also added certain eligibility criteria to be registered as DP under them. The NSDL and CDSL are empowered to set their own eligibility criteria in their Bye-Laws. They are-

• A Stock Broker must have a minimum net worth of Rs.3 crores to be registered under NSDL and a minimum net worth of Rs.2 crores to be registered under CDSL.
• A Stock Broker having a net worth of Rs.1 crore may be admitted as DP under the category ‘Limited Depository Participant’ in CDSL, subject to the condition that they will increase their net worth to Rs.2 crores.
• The applicant for DP under NSDL should not be convicted for misappropriation of funds and securities, embezzlement of funds, fraudulent conversion, theft or forgery in any of the five years preceding the filing of the application.
• The applicant for DP under NSDL should not be barred, expelled or suspended by SEBI or any stock exchange.

Registration Under NSDL

The procedure for registration of a DP under the NSDL is as follows:

• An applicant who wishes to be registered as a DP with NSDL should submit an application in Form E along with the necessary documents mentioned below
  • Board Resolution authorising the applicant to become a Participant and Networth Certificate.
  • Information about the applicant in Form A.
  • Additional information required by SEBI.
  • If the applicant and subsidiaries of the applicant are registered as members of a stock exchange or CDSL as a Participant, then status report issued by the stock exchange or CDSL.
  • Business History of the applicant such as background and details of the experience of promoters and directors, core business areas, applicant’s background and track record in the prescribed format.
  • Payment of application fee and entry fee.

• The application will be produced before the Member Committee of NSDL for approval. Upon approval, the application will be forwarded to SEBI for grant of registration as DP of NSDL.

• The applicant will have to install the necessary infrastructure, hardware and software after receiving the approval of the Member Committee of NSDL. The NSDL will conduct a pre-activation on-site inspection of the installations by the applicant.

• On completion of the inspection by NSDL, the applicant will be activated as a Participant in a pilot environment for testing purposes.

• On receiving the approval from SEBI and after the prescribed fees paid to SEBI and NSDL, the applicant needs to enter into an agreement with NSDL as a DP of NSDL. After entering into the agreement, the applicant will be made operational in the NSDL system as a Participant.

Registration Under CDSL

The procedure for registration of a DP under the CDSL is as follows:

• An applicant who wishes to be registered as a DP under CDSL should submit an application in Form E accompanied with the following annexures:
  • List of directors and last three years shareholding pattern of the applicant.
  • Brief Profile of the applicant, such as the history and activities of the applicant.
  • List of entities in which the director/promoter of the applicant is also director/promoter.
  • Shareholding pattern and list of directors of all groups of companies/holding or subsidiaries and activities carried out by them.
  • Duly notarised copy of Memorandum and Articles of Association. The object clause of MOA must permit the company to carry out DP activities.
  • Certified copy of Board Resolution for joining as DP and Networth Certificate.
  • Certified copy of last three years annual reports and previous year’s Balance Sheet.
  • Experience and background of the key personnel who will handle DP functions.
  • Payment of application fee and application processing fees.

• The application will be scrutinised by the CDSL to find out if there is any requirement for further documentation/information.

• The applicant should procure the computer hardware and establish connectivity with CDSL. The applicant should also have two trained staff who are NISM certified or have attended five days of DP training conducted by CDSL.

• On installation of hardware and connectivity, the CDSL will forward the application to SEBI for approval.

• On receipt of approval from SEBI and payment of registration and annual fees, the SEBI will grant the Certificate of Registration to an applicant.

• The applicant will then enter into an agreement with CDSL as a DP of CDSL.

• Upon entering into the agreement, a unique DP-ID number is generated by CDSL for creating the DP account with them.

Functions of a Depository Participant

• To open accounts of investors.
• Dematerialisation/Demat of securities. The Demat process is converting the physical certificates of investors into an equivalent number of securities in electronic form.
• Rematerialisation/Remat of securities. The Remat process is converting securities held in electronic form in the Demat account back to the form of the physical certificates.
• Transfer of securities,i.e. changing the beneficial ownership of securities.
• Settlement of trades which are done on the exchange connected to the depository.
• Pledging and Unpledging of securities for a loan against shares.
• Corporate action benefits such as directly transferring securities to the Demat and bank account of customers.

Frequently Asked Questions

What is the role of a Depository Participant (DP)? 

Depository interfaces or transacts with the investors through its agents called DP. If an investor wants to avail of the services offered by the depository, the investor has to open an account with a DP.

Can I close my Demat account with one DP and transfer all securities to another account with another DP?

Yes. You can submit your account closure request to your DP in the prescribed form. The DP will transfer all the securities lying in the account, as per the instruction, and close the Demat account.

Is it necessary to have an account with the same DP as the broker has? 

No. The investors can choose any DP as per his/her choice or convenience and carry on trading activity through a broker of his/her choice, irrespective of the DP of the broker.

Can a Demat account be opened directly with a depository?

No. A Demat account cannot be opened directly with a depository. It has to be opened only through a DP of the depository.

Can multiple accounts be opened by an investor? 

Yes. An investor can open more than one account in the same name with the same DP and also with different DPs. For all the accounts, investors have to strictly comply with the KYC norms as stipulated by SEBI and also provide a PAN number.

When does the DP provide the transaction and holding statement? 

DPs have to provide transaction statements to their clients once a month if there is any transaction. DPs also provide transaction statements in electronic form under digital signature subject to their entering into a legally enforceable arrangement with the beneficial owners to this effect.

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