A depository is a type of organization or institution in which securities are deposited. It takes note of such deposits and maintains these records. Trading of shares, mutual funds, and debentures may also take place here.
A depository is facilitates the processing of securities transactions by way of book entries. Securities are dematerialized and secured electronically when this happens. Clients can also have an electronic security rematerialized.
In a depository, shares are immediately transferred when necessary, and stamp duty is not required. Also, depositories remove the risk that the physical certificate which serves as proof of a transaction or deposit will be lost or destroyed. This system is specifically known and recognized in India.
There are two main types of depositories, the National Securities Depository Limited, or NSDL, and the Central Depository Service Limited, or CDSL.
In order to communicate and transact with its clients, a depository employs agents to act as intermediaries. Clients or investors who use a depository must open an account with one of these agents, and an International Securities Identification Number is assigned to the issuer’s security once it enters the depository.
These intermediaries are better known as Depository Participants, or DPs. DPs must be registered with the Securities and Exchange Board of India, or the SEBI, before they can operate in an official capacity. A DP is issued a certificate of registration for such purposes.