The paper based ownership and transfer of securities was a major drawback of the Indian securities markets since it often resulted in delay in settlement and transfer of securities, leading to bad delivery‘, theft, forgery etc. The rapid growth in number and volume of transactions in the securities markets further highlighted the limitations of handling securities in the physical/ paper mode. As a result, in line with the developments in the securities industry worldwide the paper based settlement and clearing system was replaced with depository system or scrip less trading system. This transition was facilitated by the Depositories Act, 1996.

Objectives:

(a) Making securities of public limited companies freely transferable subject to certain exceptions;

(b) Dematerializing the securities in the depository mode.

(c) Providing for maintenance of ownership records in a book entry form. In order to streamline the settlement process, the Act envisages transfer of ownership of securities electronically by book entry without making the securities move from person to person.

The terms used in the Act are defined as under:

(a) Beneficial owner means a person whose name is recorded as such with a depository. 

(b) Depository means a company, formed and registered under the Companies Act, 2013 and which has been granted a certificate of registration under sub-section (1A) of section 12 of the SEBI Act, 1992.

(c) Issuer means any person making an issue of securities.

(d) Participant means a person registered as such under sub-section (1A) of section 12 of the SEBI Act, 1992.