Question

Explain the advantages of the Depository System to the companies.

Explain the advantages of the Depository System.

Answer 1

1. Reduced Administrative Costs: 

   1. Eliminates the need for printing, handling, and storing physical share certificates.

   2. Reduces the costs associated with postage, registration, and courier services.

   3. Example: Companies save on costs related to issuing new share certificates, sending dividend cheques, and managing physical share transfers.

2. Improved Efficiency and Speed:

   1. Faster processing of securities transactions, including allotment, transfer, and redemption.

   2. Reduces the time required for issuing securities and transferring ownership from weeks to just a few days.

   3. Example: Immediate transfer of shares on stock exchanges leads to better liquidity.

3. Reduced Risk of Fraud and Theft:

   1. Eliminates the risk of loss, theft, forgery, and damage to physical certificates.

   2. Prevents the misuse of stolen or fake share certificates.

4. Simplified Record-Keeping and Compliance:

   1. Provides accurate and up-to-date shareholder records, simplifying compliance with regulatory requirements.

   2. Facilitates easier corporate governance and management of shareholder data.

5. Easier Corporate Actions Management:

   1. Simplifies corporate actions like bonus issues, rights issues, and stock splits.

   2. Reduces the chances of errors in maintaining shareholder records.

   3. Example: Dividend distribution and stock splits are automatically updated in shareholders' accounts.