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NCFM Training in Hyderabad : Capital Market - The Depositories Act
The paper based ownership and transfer of securities was a major drawback of the Indian securities markets since it often resulted in delay in settlement and transfer of securities, leading to ‘bad delivery’, theft, forgery etc. The rapid growth in number and volume of transactions in the securities markets further highlighted the limitations of handling securities in the physical/paper mode. As a result, in line with the developments in the securities industry worldwide the paper based settlement and clearing system was replaced with depository system or a scrip less trading system. This transition was facilitated by the Depositories Act, 1996.
This Act provides for the establishment of depositories in securities with the objective of ensuring free transferability of securities with speed, accuracy and security by:
(a) making securities of public limited companies freely transferable subject to certain exceptions;
(b) dematerialising the securities in the depository mode; and
(c) providing for maintenance of ownership records in a book entry form.
In order to streamline the settlement process, the Act envisages transfer of ownership of securities electronically by book entry without making the securities move from person to person.
The Act has made the securities of all public limited companies freely transferable, restricting the company’s right to use discretion in effecting the transfer of securities, and the transfer deed and other procedural requirements under the Companies Act have been dispensed with.
The terms used in the Act are defined as under:
(a) Beneficial owner means a person whose name is recorded as such with a depository.
(b) Depository means a company, formed and registered under the Companies Act, 1956
(c) Issuer means any person making an issue of securities.
(d) Participant means a person registered as such under sub-section (1A) of section 12 of the SEBI Act, 1992.
(e) Registered owner means a depository whose name is entered as such in the register of the issuer.
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Sources : NSEIL-NCFM