A depository is a banking unit that acts as a repository for securities. Also, sometimes a depository means cells in a bank in which they store gold, money, jewelry and other valuables. But in this article we will talk about the first definition, that is, about a participant in the securities market.
What is the depository for?
A custodian banking unit is responsible for accounting and custody of such securities as, for example, stocks. It also helps to control the transfer of ownership from one owner to another. That is, if brokers and dealers are involved in the transactions themselves, the depository division records that the transaction has taken place and the ownership of these securities has been transferred to the new owner.
How it works?
In order to become a depositor, that is, an owner of a custody account, a depositary agreement must be concluded with a financial institution. A custody account is all records in the aggregate related to stocks, bonds and other securities of a particular depositor. They can act as a private individual or legal entity. Such an account displays absolutely all transactions that have ever been performed with securities.
When a person purchases shares, a separate account is opened in the depository in his name, and all his securities will be listed in it. So they will be subject to and protection. Thus, the depository is a repository of such records, which contains all the securities belonging to a person or legal entity. They can be both in physical (paper) form, and in electronic.
What can a securities depository do?
The most basic operations that a client who has opened a custody account can perform, in addition to the storage and accounting of certificates, concern their purchase, sale and gift.
In addition, the client has the opportunity to transfer securities to other depositories or registers, and also, upon request, receive reports on his savings and dividends. Securities can be left as collateral for loans. Then the depository can both impose and remove burdens on the paper.
The depository is also the assistant who credits the owner of the securities with his income on them, that is, dividends. He is also responsible for the safety of entrusted securities, helps protect against theft and fraudsters.
Services provided by the depository
They are divided into main and accompanying. The former include storing the certificates themselves , financial calculations, providing information on joint-stock companies, re-registering property rights, drawing up reports and other documents.
Supporting services are as follows: market research and analysis, asset lending, reporting on investment activities, etc.
Types of Depositories
In the Russian Federation, about half a million organizations are licensed to be professional participants in the securities market, which is growing more and more actively. Based on the total value of the securities held by the depository, the ratings of the largest and most reliable are compiled annually. The highest degree of reliability is indicated by the three letters “AAA”.
In addition, depositories are divided into different types according to their purpose.
The Settlement Depository is engaged in settlements on transactions in the securities market.
Custodial provides services directly to asset holders only. It is already divided into specialized depository and non-specialized. The first deals with the accounting and control of mutual funds, as well as with private pension funds of various companies. The second, in addition to fulfilling its standard and basic functions, can be an intermediary in the management of securities entrusted to this depository.
There is a central depository. He controls the entire securities market in a country or any particular region, makes all financial calculations. There are such depositories both abroad and in Russia. According to various criteria, such a status is assigned only to a single legal entity in a country or region. In Russia, a central depository has recently appeared in comparison with the West and is located in Moscow. Since 2012, it has been National Settlement Depository CJSC. He is engaged in conducting operations on securities accounts of securities holders when these participants carry out transactions through various organizers of trading on the securities market, that is, when trading on the stock exchange.