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Central Depository Services Limited (CDSL)

About Central Depository Services Limited (CDSL)

  • CDSL is a government-registered share depository, similar to the state-owned counterpart National Securities Depository Ltd (NSDL).
  • Role: Formed in 1999, CDSL is a Market Infrastructure Institution or MII that is deemed as a crucial part of the capital market structure, providing services to all market participants, including exchanges, clearing corporations, depository participants, issuers and investors.
  • Promoters: The Central Depository Services Limited (CDSL) is promoted by the Bombay Stock Exchange, State Bank of India, and the Bank of India.

Read about: Regulatory Framework

Central Depository Services India: What are Share Depositories

  • Share depositories hold shares in an electronic or dematerialized form and enable securities transactions, playing a similar role as banks in handling cash and fixed deposits.
  • While banks keep customers’ cash in electronic form, share depositories help consumers store shares in a dematerialized form.
  • Regulation:  The Depository Act of 1996 regulates the establishment and operation of a depository in India. SEBI is the governing body that regulates the functioning of any depository.

 

Central Depository Services Functions of Share Depository

  • Selecting depository participant (DP): The first step involves selecting a DP, who will act as intermediary between security depository and investor.
    • The DP is an authorized agent of CDSL who acts as a link between the investor, the stock exchange and the issuing company. Stockbrokers are eligible to function as DP.
  • Demat account: After providing relevant documents to the DP, the CDSL provides a Demat account, which will be needed in availing the services of CDSL and also aid trading in stocks and other securities.
  • Transfer of security: As soon as a payment will be made from a registered Demat account to a company, the securities are transferred to the account and stored in depository.
    • Selling of security is also similar. As soon as the investor sells the security, transaction details are captured and payment is credited within T-2 settlement cycle.

 

Central Depository Services Benefits of Share Depository

  • Fast transfer: Depository holds security in electronic form, allowing for its easy transfer between seller and buyer.
  • Safety: Depository maintains and safeguards the securities on behalf of the investors. These investors do not need to spend time on its maintenance.
  • Liquidity creation: Depositories offer mortgages or loans against securities held by investors which may be used for the purchase of other securities.
  • Easy investment: The process of investment in share market has been simplified with the introduction of depository. There is no need for the procedure to change ownership.
  • Faster settlement: The depository enables T-2 rolling settlement, which is faster than the traditional method using physical share certificate.
  • Reduction in brokerage: Transfer of securities through depositories reduces the back office paper work. As a result, the brokerage charged by brokers is also reduced considerably.

 

Central Depository Services Limited and NSDL Limited

  • NSDL is India’s first & largest depository. It was set up on November 8, 1996, formed with the purpose of handling the securities held in dematerialized form in the Indian capital market.
  • National Securities Depository Limited (NSDL) is promoted by the National Stock Exchange, Industrial Development Bank of India, and Unit Trust of India.
Central-Depository-Services-Limited-UPSC
Central-Depository-Services-Limited-UPSC

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