In India, the regulator for the securities market in India known as Securities and Exchange Board of India (SEBI) that controls all organisations related to the capital markets. The Stock Exchange, as well as the two central depositories of India, is instrumental in conducting trading. To initiate a Demat account, depositories and the Stock Exchange are critical in facilitating the trading of shares.
Stock market regulators
To ensure that the securities market is regulated, it is the responsibility of the following departments to monitor the market continuously. These include:
- Department of Economic Affairs (DEA)
- Department of Company Affairs (DCA)
- Reserve Bank of India (RBI)
- Securities and Exchange Board of India (SEBI)
The role of SEBI as a regulator and a governing body
As the regulatory authority in India, the principal functions of SEBI include
- Safeguarding the investors’ interests in the securities market
- Encouraging the growth of the securities market
- Monitoring and regulating the security
What is a Depository
An organisation that maintains securities, inclusive of company shares, mutual funds, bonds, government securities, the ventures etc., of the investors in an electronic format is known as a depository. The two main depositories in India are the National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) registered with the SEBI. The depository holds the investors’ security at the request of the investors a registered depository participant.
What is a Depository Participant (DP)
A depository participant is a certified agent appointed by the depository to render its services to investors. These could include banks, registered trading members with SEBI and financial institutions. According to the provisions of the SEBI act, a DP can offer depositories related services only after being certified by SEBI as a registered member. To avail the services provided by the depository, you need to open a Demat account with any of the depository participants. For instance, reputed depository participants such as brokerage firms, banks and financial institutions registered with the depository and the SEBI, such as Kotak Securities offer a 3-in-1-account that link the for Demat account with the trading account to trade at ease.
What must you look for in a Depository Participant
- Competitive transaction fees
- Minimal charges to transfer from one Demat account to another
- Waiver of all costs if shares are maintained in a pool account
- Does not demand a separate Demat account
- Permits the maintenance of stocks in the pool account to be used as margin for trading
A Demat account also known as dematerialised account if the electronic platform where is all your stocks or shares from companies are held in an electronic format. These accounts are similar to the passbooks that you receive from a bank when you open an account with them. With the help of a Demat account, you can seamlessly buy and sell shares of various organisations online, without the need of physical intervention. Any trading activity that occurs in the Demat account is recorded, just as it would be with a banking account.
A Depository Participant is your intermediary between you and the depository. Since you cannot directly interact with the NSDL or the CDSL, you will need to ally with a DP such as Kotak Securities to open and maintain a Demat account.