What are depositories and what are they for?
Greetings dear readers!
Few people know what a depository is, why it is needed in the stock market, how the process of storing securities is organized, and other features of obtaining and transferring certificates to clients.
- What it is
- What is it needed for
- The difference between a registrar and a depository
- Types of depositories
- What is a nominee account
- Pros and cons of depository banks
- What is the price
What it is
Most of the securities on the stock exchange are in circulation in electronic form. When buying shares or bonds, you do not get the papers themselves, but the right to them, which is fixed by a digital code.
A depository is a repository that contains physical certificates for a security, while their owners are constantly changing. It is enough just to deposit an electronic entry into the deposit account.
What is it needed for
It is the depository organization that is listed in the register of companies. At the same time, she is not the owner of the Central Bank, but only a nominal holder responsible for storing other people's shares. Such organizations do not have the right to dispose of securities in any way without the consent of their direct owner.
In addition to storage, the duties of depositories include:
- opening of client accounts for the transfer of the Central Bank;
- registration of property rights upon change of owner;
- obtaining and transferring certificates to the Central Bank;
- maintaining client confidentiality;
- provision of dividend payments on shares.
Accounts for clients (depositors) are opened on the basis of a depo agreement or depository agreement.
Functions and responsibilities
There are hundreds of millions of shares in circulation on the stock market, and each company has them. Holders in this turnover are also hundreds of thousands, each receives dividend income from their securities. The responsibility of the depositaries is precisely to control who, how much and how will receive remuneration.
Transfer of coupon income on bonds, dividends on shares, redemption of securities, participation in the voting of shareholders — all these are the functions of depository organizations.
How does it work
Depositories operate according to a scheme resembling a cashless settlement. You make bank transactions, but in reality the funds are not credited to the account, are not counted off with each purchase to transfer them to the seller. Only the numbers on the balance change.
The money is transferred to the national settlement depository (NSD). There, eligibility is checked and money is transferred according to the share of ownership. After that, the money is divided between clients with withholding tax payments on the income received.
Examples of depositories
To engage in depository activities in Russia, you need to register a legal entity and obtain an appropriate license from the Bank of Russia. The requirements for applicants are quite strict: at least 20 million personal capital, modern equipment, the presence of accounting accounts, qualified workers with a permit (issued after passing a special exam).
What is a repository and how is it different from a depository
In short, the repository is responsible for collecting and registering data on REPO agreements, OTC financial instruments. Only a broker can choose a suitable organization engaged in such activities. That is, a repository is the same storage, but only information.
The difference between a registrar and a depository
The registrar also takes into account the rights to securities, but unlike the depository, it is aimed at relations with the issuer — companies that issue securities.
In particular, the registrar provides the issuer with a list of persons entitled to participate in the general meeting of shareholders or the right to receive dividends.
Types of depositories
Based on the functions they perform, depositories are divided into the following types:
- Ordinary exchange. They are responsible for the storage of securities, accounting for rights to them, control over their transfer when buying or selling, and so on.
- Specialized, or registrars. They perform the main functions of depositories and monitor the legitimacy of transactions.
What is a nominee account
To record rights to securities, registrars open various types of accounts: owner account, trustee account, nominee account , etc.
The nominee account is intended for «intermediate» holders of securities — as a rule, this is a central depository or just a depository. This account serves as a link between the registrar and the custodians.
Pros and cons of depository banks
Of the minuses, it is worth noting the lack of flexibility in work, as they strictly follow the rules established by law. From the pros:
- works directly with the shareholder;
- the company ensures and protects the rights of shareholders;
- control the receipt of dividends on the Central Bank according to equity participation.
Due to the conduct of activities specifically with the owners of the securities, the depository not only confirms the rights of the holders, but also takes them into account. In addition, clients are protected from misconduct by share issuers and registrars.
What is the price
Services of depositories are paid according to tariffs taking into account the following criteria:
- Fixed fee.
- Minimum bid.
Tips for choosing a reliable depository
If an account is needed only as a means to maintain confidentiality and the Central Bank, then preference is given to those firms that perform these particular services. There are depositories that combine both functions. In any case, you should read the agreement carefully to make sure that the company does not have the right to speculate in the client's shares.
How to change depository
According to the law, the broker, when revoking the license of the Central Bank, must inform the client about the termination of work one month in advance. Securities in this case are transferred to another depositary account according to the relevant instruction.
- A depositary is a licensed participant in an organized market that keeps records of securities transactions and ownership rights.
- The Central Securities Depository is a connecting node for receiving and providing information about securities traded on the stock exchange, as well as their owners.
- The depositary performs a protective function. If the broker goes bankrupt, the investor does not lose his portfolio of securities. After all, the data about the owner is still contained in the depository. Then he simply transfers the papers to a new depository at the direction of the client.
- The depository helps the investor to exercise the rights of a shareholder — to vote, nominate candidates, participate in the buyback of shares. To do this, the shareholder sends an order to the depository.
- The depository can be changed and transferred to another with the entire portfolio. To do this, you need to evaluate the feasibility and calculate the costs.
- Before choosing a depository, you need to check the availability of a license, reputation and property status of the depository.
In fact, depository activities make it easier for many market participants not only to store assets, but also to manipulate them in any way. With the help of the depositary, if necessary, the purchase and sale, transfer or assignment of ownership rights to any type of securities is carried out.
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