Depository & Indian Contract Acts for Stock Market

I have come here to teach you about the stock Market. In the previous session, we had studied about what is SCRA Act or SEBI Act. What is their importance?

So, let's move ahead and discuss today's topic, which is Depositories and Indian Contract Act.

As to What is their importance? Ok!

So, let's begin with today's topic,

Depository and Indian Contract Act.

What is a Depository?

Meaning, it is one of the forms of Demat Account, I have already explained to you earlier, as to what is a demat account, which is not opened alone like this only,  it opens its account along with a Depository.

So, if I purchased the share it will be kept in the demat account, so who will check or maintain them in the demat account that the share have come or going, so what happens is that we have two depositories,

So, there are two depositories in our India,

One is NSDl, and the other one is CDSl,

Now, what is their work?

For instance, suppose that I bought the shares, these are two different companies having same work, but why are they different, because suppose there is one broker, who feels that he would like to open his account, only with NSDL, so if my clients buy shares it will go in the NSDL Depository,

Whereas there is some other broker who demanded to open his account with CDSl, meaning if his clients purchases shares it will go where?, It will go in CDSL depository,

Now, if I have stocks of NSDL, so my shares will be in NSDL Depository, so I will be transferred with the depositors of NSDl only, and you can also do the interchanging also, between NSDl and CDSL depository and transfer shares between them, so this is their work, now, Why are they appointed?.

That I have explained you earlier, that before they were using paper shares,

And when SEBI was powerfully enacted, it replaced all the papers and transferred the shares into the system of demat account.

Meaning, surrender your shares to the broker, and the broker what is he going to do?

He will open a demat account and transfer it there, so everyone would be under an electronic mode, this paper shares will be cancelled.

It doesn't mean that you also lost the ownership of the shares that you already had, as your shares will remain in an electronic mode, and this share from the paper would be transferred from there into your stocks,

Now, if you want to easily view your shares,that you bought many of them, and, here it is, then, the meaning of depositories is to dematerialise it, that is demat, paper shares into an electronic system.

Now, you open the account in a Depository, they also measure entry to entry, that is ledgers to ledgers, and easily monitor it, as to How much Shares has been purchased and who bought them.

Now, these orders I have already told you that it goes to the exchange, but when buying and selling gets confirmed then Where will it go? In the Depository.

Which I just told you about.

That is  NSDL and CDSL, now, there is no difference between demat to demat, as it is free of cost, meaning if I want to transfer my shares which was earlier in NSDL , to CDSl, it can easily be done, as it is freely transferable, but if I am selling and selling it to someone who has an account with NSDl, then there are charges incurred there,

What are these charges?

It is basically the money that is to be payed to a particular Depository to maintain your account, plus the charges that the broker will take from you, so these are the only charges, and beyond this nobody can take any charges from you.

Ok!

I hope you understood these things,

Now, What is an agreement? It is basically the rights, obligations, Depository, participants, meaning an agreement between two parties, whenever any shares goes into the demat account or depositories, so it's not kept like this, as there is an agreement or a contract note that is been created, where the order will be mentioned in the form, that this was the order that was placed, so this share came in my account, for which first I placed the order, then it got executed and after that it came in my account.

Now, services of the depository, meaning the depository promises to keep the shares safely and secure inor the account, and there is no problem that will come.

In a simple way if I explain you, whenever you open any bank account, it's not like the bank allows you to keep the money without any charges free of cost, they will take annual maintenance charges, sms charges, so they keep taking you xyz charges always,

So, what is depositories also, whenever you will keep the shares in the depository or sell them, then it will take a small amount that is 10 to 20 rupees extended payment which will be one time, weather I buy 1000 shares, 10000 shares or only one share, I will have to pay this only once at the time of keeping.

Registration Transfer Fees, Surrender Certificate, meaning suppose there was one broker of mine, whose account was in NSDl, he wants now to cancel his trading member licence, so he wants to surrender the certificate which was given  to him along with the account Depository, which he will have to surrender.

Meaning, he will be like my account is done, so my shares, my clients  transfer them to some other brokers,

Maybe it will happen with CDSL, or NSDL, so it is verified from broker to broker. Ok!

Next, is Securities in Depositories to be in fungible form, meaning it is not replaceable, that is I opened my demat account, somebody hacked it and take away all my shares, this will never happen, no body can take it.

That is it can only be with the beneficial owner of it.

Now, it can be transferred also, but only to your family relations, only then you can share to share transfer it, or if you want to  gift it, to your son, daughter, wife, xyz anybody, so within your own family, you can do that, but you will never be able to transfer in any third party relationship,

Pledge and Hypothecation, meaning suppose I had 10 lakh rupees, and with that I have taken all quality shares of different companies, now my money is exhausted, and now I want to trade, so What can I do?

You know the term mortgage, so suppose I have some gold and I want the need of cash immediately, so I will go to a gold Smith give him my 2 lakh rupees gold chain and ask him to lend some money, so he will not give 2 lakh completely, but give you 1 lakh , 1, 70 thousand, or any XYZ money,

Now, what will you do is that you will give it to a broker, and then he will lend you some money.

Now, the shares was of 10 lakh it's not necessary, that you will get complete 10 lakh, may be you will get 8 lakh, 7 lakh, 9 lakh or only 5 lakh, any such amount, which differs, and depends upon the quality of share that you have purchased, if the share is of good quality company, then you will be provided with complete pledged margin.

So, these are some of the acts of our Depository.

Now, is the time of Indian Contract Act,

The meaning of Contract I have already explained to you at the time of SCRA, meaning it is a standard contract between two parties, which is enforceable by law, meaning where everything is done properly, SEBI has all the information and  people have verified.

What is Standard Contract, meaning the business entities that have been formed, which is where we have started this company. These are our  rules and regulations, if you can follow these rules and regulations then only you can come to our company, and if you don't then no problem.

But our company will follow the standard, which you will have to follow, and we will not be able to make any changes in them.

Next, is Agency Contract, meaning,I have opened my company and have appointed some agency, that is I have given it my lawful act, that on my behalf these people will work.

Next, is sub-agent, that is the it is under the agency that we had,

Which means the main person of the agency, he has hired one more person under him,

So, these come under agencies.

So, these are the things that come in some contract acts.

Ok!

So, we will stop today's session here, and will meet in the next lecture.

If you have any doubts or queries,then you can post that in the comment section, and in this way your questions will reach us, and your comment will reach the other learners, the result of which, it will help in creating discussion of queries and solutions.

So, don't forget to post your comment in the discussion box.