12th SP Chapter 9 Solution (Depository System) – Maharashtra Board – Free Solution

12th SP Chapter 9 Solution

Chapter 9 – Depository System

Q.1 A) Select the correct answer from the options given below and rewrite the statements.

1) In physical mode, securities are held in _____ form.
a) Paper
b) Dematerialization
c) Electronic

2) Risk of losing certificates exists in _____ mode.
a) Physical
b) Dematerialised
c) Digital

3) In Depositor System, securities are held in _____ form.
a) Scrip based
b) electronic
c) Physical

4) _____ is the institute which facilitates electronic holding of securities.
a) Depository participant
b) Issuer
c) Depository

5) There is no payment of _____ when securities are demated.
a) Octroi
b) Wealth Tax
c) Stamp Dut

6) Depository Act was passed in _____.
a) 1919
b) 1996
c) 1999

7) India has a _____ depository system.
a) sole
b) multi
c) single

8) _____ is a constituent of depository system.
a) Government
b) Issuer
c) Trust

9) _____ is the oldest depository in India.
a) Dow Jones
b) NSDL
c) CDSL

10) Demat account is opened by _____.
a) Beneficial Owner
b) CDSL
c) SEBI

11) Demated shares are _____.
a) Non-transferable
b) Fungible
c) Bearer

12) _____ is a unique code given to a security.
a) IBM
b) BBM
C) ISIN

13) In India ISIN for corporate securities is allotted by _____.
a) NSDL
b) Central Govt.
c) State Govt.

14) _____ has to apply for ISIN.
a) Company
b) Depository participant
c) Depositors

15) _____ has to pay charges to maintain Demat Account.
a) Investor
b) Issuer
c) Depositor

16) NSDL is promoted by _____.
a) NSE
b) BSE
c) FTSE

17) CDSL is promoted by _____.
a) NSE
b) BSE
c) FTSE

Q.1 B) Match the pairs.

Group A	Group B
a) Bad Delivery	1) 1956
b) Depository Act	2) A 12 digit number/code.
c) ISIN	3) Connects Government and Bank.
d) Depository participant	4) Second Depository in India.
e) CDSL	5) The Issuer Company.
f) Depository	6) Problem faced in physical mode.
g) Beneficial owner	7) A 10 digit number/code.
	8) Connects Depositor and Investor.
	9) First Depository in the world.
	10) Custodian of securities in electronic form.
	11) Problem faced in electronic mode.
	12) 1996
	13) Government Organisation.
	14) The Investor.

Answers.
a. 6) Problem faced in physical mode.
b. 12) 1996
c. 2) A 12-digit number/code.
d. 8) Connects Depositor and Investor.
e. 4) Second Depository in India.
f. 10) Custodian of securities in electronic form.
g. 14) The Investor.

Balbharti Textbook Solutions for other subjects
Solution of all Chapters of SP
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8 – 9 – 10 – 11 – 12

Q.1 C) Write a word or a term or a phrase which can substitute each of the following statements.

1) This mode of holding securities may result in loss and theft of certificates.
Ans: Physical Mode

2) The organization which holds the securities in electronic mode.
Ans: Depository

3) This system eliminates storing of certificates.
Ans: Depository System

4) This system allows faster and easier transfer of securities.
Ans: Depository System

5) The oldest Depositor of India.
Ans: NSDL

6) The country where depository system started for the first time.
Ans: Germany

7) The registered owner of securities.
Ans: Beneficial Owner

8) The Agent of the Depository.
Ans: Depository Participant

9) This process converts securities into electronic form from physical form.
Ans: Dematerialisation

10) This process converts securities into physical form from electronic form.
Ans: Rematerialisation

11) This means securities are without distinctive identity number.
Ans: Fungibility

12) This is the unique code for security given in depository system.
Ans: ISIN

Q.1 D) State whether the following statements are true or false.

1) Physical mode of holding securities is risky.
Ans: True

2) Allotment of securities take longer time when in physical mode.
Ans: Ture

3) Transfer of securities is easier in electronic mode.
Ans: True

4) Bad delivery is likely in Depository System.
Ans: False

5) Depository system began in the USA for the first time in the world.
Ans: False

6) India has a multi Depository System.
Ans: True

7) Depository system is very similar to banking system.
Ans: True

8) DP is a constituent of Depository System.
Ans: Ture

9) DP is an agent of Depository.
Ans: True

10) A Bank can work as a DP.
Ans: True

11) DRF is required for conversion from physical to electronic.
Ans: True

12) ISIN is a unique code given to the specific securities.
Ans: True

Q.1 E) Find the odd one.

1. Elimination of storage of Certificates, Theft of Certificates, Torn Certificates.
2. NSDL, CDSL, NBFC
3. Depository, DP, RBI.
4. DP, BO, State Government.
5. Issuer, BO, Central Government.
6. DRF, RRF, PPF

Q.1 F) Complete the sentences.

1) Central location for keeping securities in demated form is Depository.

2) Freezing of debit/credit of securities is possible in Depository.

3) First Depository of the world started in the year 1947.

4) The Indian Depositor Act was passed in the year 1996.

5) Link between Depositor and Investor is Depository Participant.

6) Account of securities of the Investors is maintained by Depository Participant.

7) The process which converts physical securities in electronic form is Dematerialisation.

8) The process which converts digital securities in physical form is Rematerialisation.

9) The Issuer company must register with Depository.

10) The unique code identifying security is International Securities Identification Number (ISIN).

11) The first depository of India is National Security Depository Limited (NSDL).

Q.1 G) Select the correct option from the bracket.

I)

Group A	Group B
a) Dematerialization	1) Physical to electronic
b) Agent of Depository	2) DP
c) First depository of world	3) Germany
d) CDSL	4) 1999

II)

Group A	Group B
a) First depository in India	1) NSDL
b) Electronic to physical	2) Rematerialisation
c) Fungibility	3) No distinctive number
d) 12 digit code	4) ISIN

Q.1 H) Answer in one sentence.

1) What is Depository System?

Answer: Under Depositor System, securities are held in electronic form. The transfer and settlement of securities are done electronically.

2) Give examples of actions termed as corporate action.

Answer: Issue of Bonus shares, payment of dividend, offering of right shares, early redemption of debentures, etc. are examples of corporate actions.

3) When was Depository Act passed in India?

Answer: In India, Depository Act is passed in 1996.

4) What is a DP?

Answer: A Depository Participant (DP) is described as an agent of the depository. They are the intermediaries between the depository and the investors.

5) What is Dematerialisation?

Answer: Dematerialisation is a process whereby a client can get physical certificates converted into electronic mode.

6) What is Rematerialisation?

Answer: Rematerialisation is the process whereby a client can get his electronic holdings of securities converted into physical certificates.

7) What is ISIN?

Answer: International Securities Identification Number (ISIN) is a code that uniquely identifies a specific securities issue. ISIN consists of a 12 (Twelve) digit alpha-numeric code which is divided into 3 (Three) parts.

8) Name the depositories in India?

Answer: National Security Depository Limited (NSDL) and Central Depository Services Limited (CDSL).

Balbharti Textbook Solutions for other subjects
Solution of all Chapters of SP
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8 – 9 – 10 – 11 – 12

Q.1 I) Correct the underlined word/s and rewrite the following sentences.

1) Electronic mode of holding securities is risky.
Answer: Physical.

2) Allotment and Transfer of securities is time-consuming in electronic mode.
Answer: Physical Mode.

3) Banking system leads to a scrip less capital market.
Answer: Depository.

4) Storage of Certificates is not required in Physical mode of holding.
Answer: Electronic

5) India has a single Depository system.
Answer: Multi

6) Depositor Participant in India has to register under the partnership act.
Answer: SEBI Act

7) Demat accounts are opened and maintained by the Depository.
Answer: Depository Participant

8) Securities are fungible in Physical mode.
Answer: Electronic

9) ISIN is a code given to a company.
Answer: Securities

10) ISIN of Indian Government securities is issued by NSDL.
Answer: RBI

Q.1 J) Arrange in proper order

1)
a) Gets Statement of Accounts
b) Open Demat Account
c) Submit DRF
Answer: (b) Open Demat Account (c) Submit DRF (a) Gets Statement of Accounts

2)
a) Investor (BO) submits application for securities to issuer company.
b) Depositor intimates the DP about crediting BO’s Account.
c) Issuer company gives details of allotment to Depository.
Answer: (a) Investor (BO) submits application for securities to issuer company. (c) Issuer company gives details of allotment to Depository (b) Depositor intimates the DP about crediting BO’s Account.

Q.2 Explain the following terms / concepts.

1) Depository system

Answer: a) Under Depositor System, securities are held in electronic form. The transfer and settlement of securities are done electronically.
b) The Depository System maintains accounts of the shareholder, enables transfer, collects dividends, bonus shares, etc. on behalf of the shareholder.
c) This system is also called a scripless trading system.

2) Dematerialization

Answer: a) Dematerialisation is a process whereby a client can get physical certificates converted into electronic mode.
b) The client has to surrender the certificates along with the Demat Request Form (DRF).
c) The DP forwards these to the Depositor who in turn forwards them to the Issuer. After confirmation from Issuer, the Depositor will credit the securities in the Demat A/c with DP.

3) Rematerialization

Answer: a) Rematerialisation is the process whereby a client can get his electronic holdings of securities converted into physical certificates.
b) The client has to give a written request in the form of RRF (Remat Request Form) to the DP. The DP forwards the RRF to Issuer and the Depository.
c) The Issuer prints the certificates and sends them to the client and simultaneously confirms the acceptance of Remat request to the Depository.

4) Fungibility

Answer: a) Fungibility means the state of being interchangeable. Some financial assets are fungible while some are not fungible.
b) The securities held in Demat/Electronic form are fungible.
c) They are interchangeable, substitutable and cannot be distinguished from each other. Securities bear no notable features like distinctive number, certificate number or folio number.

5) ISIN

Answer: a) International Securities Identification Number (ISIN) is a code that uniquely identifies a specific securities issue. ISIN consists of a 12 (Twelve) digit alpha-numeric code which is divided into 3 (Three) parts.
b) ISIN is a standard numbering system that is accepted globally.
c) In India, issuing ISIN to securities is assigned b SEBI to NSDL (for demated shares) SEBI works as NN A in India.

Q.3 Study the following case/situation and express your opinion.

1) Mr. Z holds 100 shares of Peculiar Co. Ltd. in Physical mode and wishes to convert the same in electronic mode :

a) Mr. Z holds a Saving Bank Account with CFDH Bank Ltd. Can he deposit his shares in this account for Demat?
Answer: No, Mr. Z cannot deposit his shares in his bank account for Demat.

b) What type of account is needed for the same ?
Answer: A Demat account is needed to convert physical shares into electronic shares.

c) Is it the RBI that will be the custodian of shares of Mr. Z after demating?
Answer: No, RBI cannot act as the custodian of shares of Mr. Z. The bank can act as a custodian.

2) Mr. R holds 100 shares of Peculiar Co. Ltd. in Demat mode :

a) He wants to transfer one share each to his wife, daughter, and son. Can he do so?
Answer: Mr. R can transfer one share each to his wife, daughter, and son. For that, they must have a Demat Account.

b) Does he need to submit DRF or DIS if he wants to transfer his shares?
Answer: If Mr. R wants to transfer his shares, he has to submit DRF or DIS to Depository Participants.

c) Can he nominate his wife in his Demat account?
Answer: Yes, Mr. R can nominate his wife in his Demat account. Every Individual Investor can avail nomination facility.

3) Mrs. Z wishes to open a Demat account in her name :

a) Can she open the account going to Mumbai office of NSDL?
Answer: No, Mrs. Z cannot open the account going to the Mumbai office of NSDL. Because NSDL is depository. She can open an account with DP.

b) Is she required to pay for opening of account and its maintenance?
Answer: Yes, Mrs. Z is required to pay for opening of account and its maintenance.

c) Does she have to send the shares to respective company for demating?
Answer: No, Mrs. Z. is not required to send the shares to the respective company for demating.

4) Mr. L wants to demat his 25 shares of Peculiar Co. Ltd. bearing certificate No. 100 and distinctive No. 76-100.

a) Which form is he required to fill as a written request to the DP?
Answer: Mr. L has to fill and submit the DRF form and certificates to the DP.

b) Does he have to fill instrument of transfer if he wishes to transfer the same after demat?
Answer: Mr. L is not required to fill instrument of transfer if he wishes to transfer the same after Demat.

c) Does he have to quote certificate no. and distinctive no. if he wishes to transfer his shares after it is in demat form ?
Answer: The securities in Demat form are fungible. They do not have any certificate no. and distinctive no. Therefore Mr. L is not required to quote certificate no. and distinctive no. if he wishes to transfer his shares after it is in Demat form.

5) Mr. S holds 50 shares of Peculiar Co. Ltd. in Demat form. The company has declared a dividend of Rs 5/- per share and a Bonus of 1:1 to its shareholders.

a) How will Mr. S get his dividend?
Answer: The account of Mr.S is automatically credited for dividends by the company through corporate actions.

b) Will he get a Bonus share in Physical or Demat?
Answer: Mr. S will get bonus shares in Demat mode. His account is automatically credited by the company through corporate actions.

c) Who is entitled to dividend and Bonus: Mr. S or the depositor? (NSDL in this case)
Answer: Mr. S is the beneficial owner and therefore he is entitled to get dividend and bonus shares.

Q.4 Distinguish between the following.

1) Dematerialization and Rematerialization

Points	Dematerialization	Rematerialization
1) Meaning	Process of converting Physical certificates of securities into electronic form.	It is the process of conversion of electronic form of securities into physical form.
2) Conversion	Here, the paper form of securities is converted into digital/ electronically held securities.	Here, the electronic records are converted into physical/paper form securities.
3) Use of Form	It uses ‘DRF’ Viz. ‘Dematerialization Request Form’ from Investor to the DP.	It uses ‘RRF’ viz Rematerialization Request Form’ from Investor to the DP.
4) Sequence	This is an initial process. It is a primary and Principal function of the depository.	This is a reverse process. It is a secondary and supporting function of depository. Already demated securities are remated.
5) Identification of Securities	Demated securities have no distinctive numbers. They are fungible.	Remated securities will have certificate and distinctive numbers as issued by company.
6) Securities Maintenance Authority	Depository is the custodian of securities and records.	The issuing company is the record keeping authority. Securities are maintained b the investor.
7) Difficult of Process	Demat is an easy process. Also its not a time consuming process.	Remat is not only a time consuming but also a complex process.

Q.5 Answer in brief.

1) Explain the disadvantages of physical mode of holding securities.

Answer:

(A) Physical mode of holding securities: It means securities are held in the form of paper certificates. It has following disadvantages :

1) Risk:
Certificates of papers can be lost, damaged, torn, stolen, misplaced during transit, etc.

2) Efforts in Duplicating:
Obtaining duplicate certificates (if original certificate is lost) involves time, effort, and money.

3) Delay in allotment of securities:
Allotment of new securities takes a longer time.

4) Delay in Transfer and Transmission of securities:
More time is involved in transfer and transmission of securities as it involves actual handling of physical certificates.

5) Risk of Bad Delivery:
Delivering certificates that are torn, forged, etc. creates problems in buying and selling of securities.

2) Explain any four advantages of Depository system to Investor.

Answer: Following are the advantages of Depository System to Investors:

1) Elimination of Risk: All risks associated with physical certificates like delays, lost, theft, mutilation, bad deliveries, etc. are totally eliminated.

2) Safety: It is the safest and secure way of holding securities. The entire system functions under the Depositor Act and is monitored b SEBI. e.g. The Investor can keep his account in a ‘Freeze / Lock’ mode to avoid/prevent unexpected debit or credit or both by giving instructions to the DP.

3) Easy Transfer of shares:
(a) Efforts in filling transfer forms and lodging the documents is eliminated.
(b) Also the stamp duty levied on transfer of physical shares is not applicable.
(c) Processing time in transfer of securities is reduced and neither the securities nor the cash is tied/held up for unnecessarily long time.

4) Updates and Intimation: The investor is provided with the status of the holdings and transactions by DP and occasionally by the Depository too.

5) Security against Loan: Dematerialised securities are preferred b banks and financial institutions as security against loan.

6) No concept of ‘Lots’: The system of odd and even lot stands abolished. The market lot is one share for dematerialized securities.

3) Explain four advantages of Depository system to the Company.

Answer: Following are the advantages of Depository System to Companies:

1) Up-to-date Information: The up-to-date information about investors is provided by the depository.

2) Reduction in costs and efforts: Costs, efforts and time involved in printing and distribution of certificates in cases of new issues, bonus, transfers, etc. is saved.

3) Better Investor-Company Relationships: The complaints arising out of loss of certificates, signature differences, long lapses of time in executing requests, etc. are substantially reduced. It leads to better communication with investors and increased goodwill for the company.

4) International Investment: Under Depositor System, better and quicker services can be provided and this attracts investments from abroad.

4) Explain Depositor as constituent of Depository System.

Answer:
1) It is an organization like the Central Bank where securities are held in electronic form
at the investor’s request.
2) It also provides different services related to different transactions in such securities.
3) It is responsible for the safe-keeping of the investor’s securities.
4) There is no direct access of investors with the Depository.
5) It works as a link between the company and investors.

5) Explain DP as the constituent of Depository system.

Answer: Depository Participant (DP):

1. It is the agent of Depositor
2. DP is registered under the SEBI Act. It enjoys rights and obligations as specified under SEBI (Depositor and Participants) Regulations of 1996.
3. It is an intermediary appointed by Depository.
4. DP acts as a link between Depositor and the investor.
5. It directly deals with customers. It sends statements of accounts periodically.
6. It functions like a securities bank.
7. It facilitates Dematerialisation.
8. It credits securities in the event of Rights Issue, Bonus Issue, etc.
9. It handles instant transfers of pa-outs like dividend, interest, etc.
10. It settles trade electronically.
11. Following can work as DP’s :
    a) Financial Institutions
    b) Banks
    c) Approved Foreign Banks
    d) Custodians : Responsible for overseeing operations of assets/fund.
    e) Stock Brokers
    f) Clearing Corporation
    g) NBFC (Non-Banking Financial Compan)
    h) Registrar to an Issue or Share Transfer A gents
12. The DP maintains account of securities of each investor.
13. The DP has a unique number for identification.

Balbharti Textbook Solutions for other subjects
Solution of all Chapters of SP
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8 – 9 – 10 – 11 – 12

Q.6 Justify the following statements.

1) Electronic holding of securities is safer than physical holding.

Answer:
a) Under a depository system securities are held in electronic form.
b) All risks associated with physical certificates like delays, lost, theft, mutilation, bad deliveries, etc. are totally eliminated.
c) It is the safest and most secure way of holding securities.
d) It offers scope for paperless trading by using state-of-art technology.
e) It leads to the elimination of storage and handling of certificates.
f) Therefore, Electronic holding of securities is safer than physical holding.

2) Depository provides easy and quicker transfer of shares.

Answer:
a) Under a depository system securities are held in electronic form.
b) The transfer and settlement of securities done electronically.
c) Efforts in filling transfer forms and lodging the documents is eliminated.
d) Also the stamp duty levied on the transfer of physical shares is not applicable.
e) Processing time in the transfer of securities is reduced and neither the securities nor the cash is tied/held up for unnecessarily a long time.
f) Hence, Depository provides easy and quicker transfer of shares.

3) Depository system results in reduced time, cost and efforts.

Answer:
a) Under a depository system securities are held in electronic form.
b) The transfer and settlement of securities done electronically.
c) Processing time in the transfer of securities is reduced and neither the securities nor the cash is tied/held up for unnecessarily a long time.
d) Costs, efforts, and time involved in printing and distribution of certificates in cases of new issues, bonus, transfers, etc. is saved.
e) Efforts in filling transfer forms and lodging the documents is eliminated.
f) Also the stamp duty levied on the transfer of physical shares is not applicable.
g) Hence, the Depository system results in reduced time, cost and effort.

4) Depository system is very similar to the Banking system.

Answer:
a) Banking system keeps the money safe. Similarly, the Depository system keeps the securities safe.
b) In bank funds are held in accounts having unique numbers. Similarly, Securities are held in accounts having
unique IDs.
c) Like banks, There is no physical handling of securities during allotments, transfers, etc.
d) In the banking system The transfer of funds between accounts is done. Similarly, in the Depository system, The transfer of securities between accounts is done.
e) Hence, the Depository system is very similar to the Banking system.

5) DP is an important constituent of Depository system.

Answer:

1. It is the agent of Depositor. It is an intermediary appointed by Depository.
2. DP is registered under the SEBI Act. It enjoys rights and obligations as specified under SEBI (Depositor and Participants) Regulations of 1996.
3. DP acts as a link between Depositor and the investor.
4. It directly deals with customers. It sends statements of accounts periodically.
5. It functions like a securities bank. The DP maintains account of securities of each investor.
6. It facilitates Dematerialisation.
7. It credits securities in the event of Rights Issue, Bonus Issue, etc.
8. It handles instant transfers of pa-outs like dividend, interest, etc.
9. It settles trade electronically.
10. Hence, DP is an important constituent of Depository system.

6) Depository system allows both : Physical to electronic and electronic to physical conversion.

Answer:
a) Depository is an organization like the Central Bank where securities are held in electronic form at the investor’s request.
b) Depository system convert physical certificates into electronic and electronic into physical.
c) Dematerialization is a process whereby a client can get physical certificates converted into electronic mode.
d) Rematerialization is the process whereby a client can get his electronic holdings of securities converted into physical certificates.
e) All risks associated with physical certificates like delays, loss, theft, mutilation, bad deliveries, etc. are totally eliminated.
f) Hence, the Depository system allows both: Physical to electronic and electronic to physical conversion.

7) ISIN is necessary component of Demat.

Answer:

1) It is a code that uniquely identifies a specific securities issue.
2) ISINs in any country are allotted by that country’s NNA (National Numbering Agency)
3) ISIN is a standard numbering system that is accepted globally.
4) In India, issuing ISIN to securities is assigned by SEBI to NSDL (for demated shares) SEBI works as NNA in India.
5) For Government securities, allotment of ISIN is done by the RBI.
6) ISIN consists of a 12 (Twelve) digit alpha-numeric code which is divided in 3 (Three) parts.
7) The company has to apply for ISIN for its securities with documents like prospectus.
8) Hence, ISIN is necessary component of Demat.

Q.7 Answer the following

1) What is Depository System and explain its advantages.

Answer:
Under Depositor System, securities are held in electronic form. The transfer and settlement of securities are done electronically. The Depositor System maintains accounts of the shareholder, enables transfer, collects dividends, bonus shares, etc. on behalf of the shareholder. This system is also called as scripless trading system.

In India, the Depositor System was introduced b passing the Depositor Act in 1996. Under this Act, a competitive multi-depositor system consisting of two depositories, viz. NSDL and CDSL were set up. It will be of interest to note that the world’s first Depositor was set up in 1947 in Germany.

Advantages of Depository System to Investors:

1) Elimination of Risk: All risks associated with physical certificates like delays, lost, theft, mutilation, bad deliveries, etc. are totally eliminated.

2) Safety: It is the safest and secure way of holding securities. The entire system functions under the Depositor Act and is monitored b SEBI. e.g. The Investor can keep his account in a ‘Freeze / Lock’ mode to avoid/prevent unexpected debit or credit or both by giving instructions to the DP.

3) Easy Transfer of shares:
(a) Efforts in filling transfer forms and lodging the documents is eliminated.
(b) Also the stamp duty levied on transfer of physical shares is not applicable.
(c) Processing time in transfer of securities is reduced and neither the securities nor the cash is tied/held up for unnecessarily long time.

4) Updates and Intimation: The investor is provided with the status of the holdings and transactions by DP and occasionally by the Depository too.

5) Security against Loan: Dematerialised securities are preferred b banks and financial institutions as security against loan.

6) No concept of ‘Lots’: The system of odd and even lot stands abolished. The market lot is one share for dematerialized securities.

7) Nomination Facility: Individual Investors can avail of nomination facility. This simplifies the process in the event of the death of the investor.

8) Automatic Credit: The account of investor is automatically credited/debited in case of a change initiated by the company which impacts the securities. This is called ‘Corporate Action’. Few examples which can be termed as Corporate Action are Payment of Dividend, Issue of Bonus Shares, Offering of Rights Shares, Early Redemption of Debentures, Mergers and Acquisitions, etc.

Advantages of Depository System to Companies:

1) Up-to-date Information: The up-to-date information about investors is provided by the depository.

2) Reduction in costs and efforts: Costs, efforts and time involved in printing and distribution of certificates in cases of new issues, bonus, transfers, etc. is saved.

3) Better Investor-Company Relationships: The complaints arising out of loss of certificates, signature differences, long lapses of time in executing requests, etc. are substantially reduced. It leads to better communication with investors and increased goodwill for the company.

4) International Investment: Under Depositor System, better and quicker services can be provided and this attracts investments from abroad.

2) Explain the constituents of Depository system.

Answer:
Under Depositor System, securities are held in electronic form. The transfer and settlement of securities are done electronically. The Depositor System maintains accounts of the shareholder, enables transfer, collects dividends, bonus shares, etc. on behalf of the shareholder. This system is also called as scripless trading system.

All operations under the Depository System is performed by Depository with the help of its constituents as explained below

(1) The Depository

1) It is an organization like the Central Bank where securities are held in electronic form at the investor’s request.
2) It also provides different services related to different transactions in such securities.
3) It is responsible for the safe-keeping of the investor’s securities.
4) There is no direct access of investors with the Depository.
5) It works as a link between the company and investors.

(2) Depository Participant (DP)

1. It is the agent of Depositor
2. DP is registered under the SEBI A ct. It enjoys rights and obligations as specified under SEBI (Depositor and Participants) Regulations of 1996.
3. It is an intermediary appointed by Depository.
4. DP acts as a link between Depositor and the investor.
5. It directly deals with customers. It sends statements of accounts periodically.
6. It functions like a securities bank.
7. It facilitates Dematerialisation.
8. It credits securities in the event of Rights Issue, Bonus Issue, etc.
9. It handles instant transfers of pa-outs like dividend, interest, etc.
10. It settles trade electronically.
11. The following can work as DP’s :
    a) Financial Institutions
    b) Banks
    c) Approved Foreign Banks
    d) Custodians : Responsible for overseeing operations of assets/fund.
    e) Stock Brokers
    f) Clearing Corporation
    g) NBFC (Non-Banking Financial Compan)
    h) Registrar to an Issue or Share Transfer Agents
12. The DP maintains account of securities of each investor.
13. The DP has a unique number for identification.

(3) The Beneficial Owner (BO)

1. The BO is the investor of securities who has availed the services of Depositor Participant.
2. BO is entitled to all rights, benefits and is subject to all liabilities with respect to securities held by Depository.
3. The BO can also be called as client of Depositor and DP.
4. BO Client is required to open a Demat account with the DP for electronic holding of securities. BO has to pa charges to the DP for availing the services of DP.
5. BO is given a unique account number in which securities are held.

(4) The Issuer Company

1. It means the company which has issued the securities which are dematerialized.
2. It must register with the Depository.

Balbharti Textbook Solutions for other subjects
Solution of all Chapters of SP
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8 – 9 – 10 – 11 – 12

12th Commerce SP Textbook Solution

Chapter Name	Solution Link
1) Introduction to Corporate Finance	Click Here
2) Sources of Corporate Finance	Click Here
3) Issue of Shares	Click Here
4) Issue of Debentures	Click Here
5) Deposits	Click Here
6) Correspondence with Members	Click Here
7) Correspondence with Debenture holders	Click Here
8) Correspondence with Depositors	Click Here
9) Depository System	Click Here
10) Dividend Interest	Click Here
11) Financial Market	Click Here
12) Stock Exchange	Click Here

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