Central Depository Services Limited (CDSL) is India’s second Depository (NSDL being first) to hold shares and securities in dematerialised form (electronic form) and classified as market (capital market) infrastructure company.
In the depository system, securities are held in depository accounts, which is more or less similar to holding funds in bank accounts. Transfer of ownership of securities is done through simple account transfers. This method does away with all the risks and hassles normally associated with paperwork. Consequently, the cost of transacting in a depository environment is considerably lower as compared to transacting in certificates.
Depository serve to the investors through its agent called Depository Participant , who opens Demat Account of Investors and also execute their instructions with regard to transfer, pledge, un pledge, invocation, lien, rematerialization, dematerialization etc.
CDSL received SEBI approval in February,1999 and commenced operation in July 1999, three year after NSDL at Mumbai, financial capital of India. CDSL was initially promoted by BSE Ltd. which has thereafter divested its stake to leading banks as 'Sponsors' of CDSL.
Background:
Till the year 1996, Although India had a century old active capital market, Physical(paper based) Shares based settlement of trades caused substantial problems like bad delivery of shares on account of fake shares, stolen shares, forged signature etc., delayed transfer of shares in the name of Buyer, Issuance of shares or certificate by Companies more than actual issued capital (excess share).
All the above problem were serious risk to the market and hurdle to the further development of Capital Market in India. This led to enactment of Depositories Act in August 1996 and paved the way for establishment of NSDL, the first depository in India.
CDSL second depository of India, was set up with the objective of providing convenient, dependable and secure depository services at affordable cost to all market participants.
To promote use of electronic form of securities and to encourage investor for dematerialization of existing physical paper based shareholding, Depository Act, 1996 exempted all depository based electronic transfer of shares and securities from Stamp Duty, which was 0.25 percent of the value of the securities.
Depository aims to ensure the safety and soundness of Indian marketplaces by developing settlement solutions that increase efficiency, minimise risk and reduce costs.