Q.Explain the role of dematerialisation and the depository system in the trading of securities.

Before dematerialisation, every share trade meant physically moving paper certificates — a slow, risky process the depository system was built to remove. …

Under the Depositories Act, 1996, share certificates that were once issued and transferred in paper form are now overwhelmingly held in electronic (dematerialised/demat) form.

A depository is an institution that holds investors' securities electronically and enables their transfer through simple book entries, removing the risks of loss, theft, forgery and delay that came with physically moving paper certificates. An investor accesses the depository system through a Depository Participant (DP) — an agent of the depository, typically a bank or broking firm — with whom the investor opens a demat account, much as one opens a bank account to hold money. …

Confusing a Depository Participant (the investor-facing agent, e.g. a bank/broker) with the depository itself (the institution that actually holds the elect …