Depositories act like banks for securities and are basically custodians of demat accounts which are required to hold shares and other securities or to trade in them.
An investor needs to open a demat account through any depository participant, which can be a brokerage firm, for dematerialisation of his holdings and transferring securities.
There are two depositories in India -- NSDL and CDSL -- and they are considered among the most important infrastructure institutions for Indian capital markets.
A suggestion for putting in place a policy for orderly winding down of depositories has been made by Sebi's Depository System Review Committee, which includes Sebi officials as also industry and independent experts.
Also Read
In its Action Taken Report on recommendations of this panel, the regulator has said that an "appropriate policy in this regard would be framed after examining the need for amendment in applicable laws and regulations."
Such winding-down can occur in cases like voluntary winding up by a depository, a depository going bust due to general business risk, fraud at their end, or a depository being wound up due to regulatory action or court order.
"In Indian depository micro structure, there are two depositories. In the event of failure, disruption or winding up of one depository, all the demat accounts and securities held with stressed depository can be potentially moved to another depository without affecting the interest of investors," the panel felt.