When stock trading went online . . .

Today, it is a practical reality that you can arrange delivery of securities (shares) sold anytime, anywhere to anyone by the ‘click’ of a mouse. In the near future, it will be possible to trade in securities and settle the accounts from the convenience of a sitting room or via a laptop. This is made possible because of the Internet facility. The depository is responsible to deliver and receive securities traded at the stock exchanges, by the business partners of the depository. It does not deal with the financial aspects of the settlement of the trade.

Dematerialization of securities (shares) commenced with the Stocks@Click. A beginning was made in the late 1990s, with the legislation of the ‘Depository Act’. The securities are now a nettized product. With the advent of automated forex trade, there are more players in the financial market today.

Consider the concept of depositories. A depository means a place where anything is deposited. It can be anything and can include securities, physical goods, cash or valuables. We have safe deposit vaults where we deposit our valuables for safe custody but under our control. This is also a form of depository. Internationally there are two systems to hold securities.

• The first is to hold securities in a physical form. The ownership can be transferred by any means, even through the electronic media. This is also known as ‘immobilization of securities’. This system is followed where the physical volume of securities is low, for example, bullion.
• The second system is to retain the details of the security holding in an account by using an electronic format that is similar to maintaining an account with a bank. This is known as ‘Dematerialization of securities’. This system is followed where the volume of securities is substantial.

With the phenomenal growth of the capital market during the last decade and the increase in trading activity in the stock market, the volume of paper being exchanged has increased exponentially and will continue to increase. This was one of the primary reasons for the popularity of the ‘dematerialization depository route.