This article will explain two key terminologies and the difference between the two of them. Now, what are these two terms? These are: Depository and Depository participant, respectively.
Let’s get to it then! A Depository is a place or an entity, that aids an investor to buy and sell (trade) financial securities, like bonds and stocks, in a paper-less or dematerialised fashion.
So, what does it really do? A Depository is a link between the listed companies on our indices (Sensex and Nifty 50) and the agents or brokers, who ultimately sell the securities to investors. The securities are issued to investors via Depository participants.
Depository participants (DPs) are essentially the agents of the Depository. They are the mediators between the investors and the Depository. Banks, brokers, stock trading platforms, online stock trading companies and other financial institutions eligible as per SEBI (Securities and Exchange Board of India) norms, are different kinds of Depository participants. An act called Depositories Act governs the relationship between a Depository and a Depository participant once they have made an agreement under the act.
There are two Depositories in India that provide the indices a link to investors: National Securities Depository Limited (NSDL) and Central Securities Depository Limited or CDSL. All the securities being traded are kept there in a dematerialised or electronic format.
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