The Indian capital market has consistently been active and has played a significant role in the advancement and expansion of the country’s economy. The frequency of everyday transactions at the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), which continue to draw prospective investors into the share trading community, either for long term or short term rewards, is evident of the fact that trading in India continues gaining momentum with each passing day.
But when did it all began?
How was the Indian population made aware of the changing dynamics in the share trading & market scenario?
The secret lies in the widely transformative era of India – the 90s!
90s in India is widely regarded as the time when technology made huge leaps and bounds in the country. Â Since the modern investor was on their way to achieve digital literacy, the DEMAT system was thus enabled. It allowed for the transparency in the trading process while also eliminating dangers that had previously been connected to subpar delivery.
DEMAT, or the conversion of equities held in paper form to electronic form, also removed the hassle of excessive and pointless paper work.
The Indian capital market gradually began to modernize after 1991, when transformative steps began to sweep the India, particularly in the areas of trading and settlement.
The development of the DEMAT, a completely automated trading system, marked the beginning of a new era in trading. It also eradicated the fear of losing out on important certifications that may have been damaged or discarded due to the poor quality of postal service and deliveries in India, especially back then.
The Beginning of the DEMAT – An Evolutionary Process
The process of dematerializing is initiated the moment a stockbroker opens a DEMAT account. The steps involved between converting the physical certificates required while trading, were converted into electronic and fungible versions, as a result of the DEMAT trading account. The functions of a DEMAT account were somewhat comparable to opening a bank account.
Since its development, the DEMAT account has significantly reduced the issues of forged and mismatched signatures, encroached shares, duplicated share certificates, and other transfer issues that resulted in numerous arbitration lawsuits and other conflicts with potential as well as confirmed investors.
Depositories Act of 1996 – A Catalyst in the History of DEMAT
The Indian Government, much like the West, advocated for a highly technical and fully automated approach for all stock market trades and exchanges. With regards to that, the DEMAT account was established. It offered:
- Screen-based trading
- Depositories as the solution to all investor issues with the adoption of the Depository Ordinance 1995.
Taking a step further, the Depositories Act of 1996’s execution helped maintain the popularity of the depository concept and ensued success in the Indian markets. It also made trading and settlement, earlier a time consuming and laborious process, much easier.
But what exactly is the Depository system and how did it help turn the tides in favor of DEMAT?
Let’s find out in the following section.
The Evolution of Depositories & DEMAT
The National Securities Depository Ltd. (NSDL)
NSDL continues to be India’s first and biggest depository.
The role played by National Securities Depository Ltd. (NSDL), must be taken into account in any conversation regarding dematerialization. Some national organizations that were primarily in charge of overseeing the nation’s economic growth was heralded by the NSDL.
- Its principal goal was to create and maintain an infrastructure that complied with requirements set by international organizations for trading securities in DEMAT form.
- The soundness and safety of the Indian capital market was ensured by NSDL through the use of adaptable and transformative technology solutions.
- It also created appropriate settlement solutions, which boosted and continues to boost the efficiency, lowers risk, and lowers expenses for the overall trading process.
The processing of securities transactions via book entries has also been made possible by NSDL. The NSDL’s agent, also known as a Depository Participant, provides the necessary services to all investors.
Central Depository Services Ltd. (CSDL)
The CSDL was inaugurated in in February 1999.
The CSDL began as an effort undertaken by leading nationalized banks like SBI, Bank of Baroda, Bank of India, and Union Bank of India participated in the joint project together with Standard Chartered Bank and HDFC Bank.
The main goal of the CDSL continues to be the following
- Offer investors reliable, practical, and safe depository services at an affordable price.
- Connection to all other significant Indian stock exchanges, including the MCX Stock Exchange, NSE, and BSE Ltd.
- The Depository Partner in this case, provide the investor with the balance that is displayed in the investor’s profile and is documented with the CDSL.
The Depository Partner in most cases will send the investor a statement of account with information on their assets and operations helping them make further investment decisions.
DEMAT accounts are a fantastic all-in-one option for keeping a variety of securities, including investments in both stock and debt instruments, mutual funds, and gold ETFs.