Constituents of the Depository System

The depository system works because several distinct parties each play a defined role. The Maharashtra HSC Secretarial Practice syllabus expects a student to identify each constituent and explain what it does.

1. Depository. The depository is the organisation that actually holds securities in electronic form on behalf of investors and records the ownership of those securities, transferring them by book-entry. India has two depositories:

• National Securities Depository Limited (NSDL) — India's first depository, promoted by institutions including IDBI and UTI along with the National Stock Exchange (NSE), and operational since 1996.
• Central Depository Services Limited (CDSL) — India's second depository, promoted by the Bombay Stock Exchange (BSE) along with banks, and operational since 1999.

A depository does not deal directly with individual investors; it works through Depository Participants.

2. Depository Participant (DP). A Depository Participant is an agent of the depository — typically a bank, a stockbroker, or another SEBI-registered financial institution — through which an investor actually accesses depository services. An investor cannot open an account directly with NSDL or CDSL; they must open a demat account with a DP, who is registered with SEBI and linked to a depository. The DP is the investor's day-to-day point of contact: opening/closing the demat account, processing dematerialisation and rematerialisation requests, and executing debits/credits to the account on instructions from the investor or the stock exchange settlement system.

3. Beneficial Owner (BO). The Beneficial Owner is the investor who is the real, economic owner of the securities held in electronic form in a demat account, even though the depository is the registered holder in the company's records. All the rights of ownership — dividends, bonus shares, rights entitlements, voting rights — belong to the Beneficial Owner; the depository's role is only to hold and record the securities on the BO's behalf.

4. Issuer Company. The issuer company is the company that has issued the securities (shares, debentures, etc.) in the first place. Before a company's securities can be dematerialised, the company itself must enter into an agreement with a depository (through its RTA) making that depository eligible to hold its securities electronically. …