market-oriented system of paperless settlement of securities transactions various
issues needs to be addressed:(1) The issue which is keeping the Retail Investors away form the depository
system is the agency risk. As far as the retail investor is concerned, the
risk perception in the new system is no less (if not more) then what it is in
the present system of trading and settlement. Infact in the present system
his risk is diversified among various player (Brokers, Registrar, Postal
System etc.) and limited in scope while in the proposed system all eggs
would be in 1 basket, i.e., the Depository Participant. Even if the
Depository Participant is a reputed Bank, the retail Investor does not feel
confident until adequate and effective insurance coverage is provided.
(2) Cash benefits cannot be disbursed electronically. They will be sent by
Post, so the risk of loss in transit still has to be borne by the Investor.
(3) There are charges for account opening, dematerialization,
rematerialisation, etc., Besides this, Investors who intends to hold their
investment in dematerialization form have to pay custody charges to the
Depository Participant. All this may deter retail investors from taking
advantage of the System.
(4) The option to the existing shareholders not to opt for depository system
may keep many securities in Physical Form. Statistics show that in India
almost 40% of the shares are not sold. Indian shareholders may not like to
part with their shares for a mere Computer entry purely out of sentimental
reason.
(5) A large number of transactions are not accounted for and both the buyers
and sellers may not be comfortable with their names appearing in
Computer Printouts. The fear of Tax Authorities may outweigh the
disadvantages of the time consuming transfer facilities.
(6) The Infrastructure available for trading in Demat shares is thoroughly
inadequate. Even in some of the major towns it is difficult to open a
Demat account, it is practically impossible for those living in smaller
towns. All these Investors along with their funds will be driven out of the
market if trading in Demat shares is made compulsory.MEASURES TAKEN BY THE GOVERNMENT TO BOOST DEMAT
TRADING
In order to attract more and more Investors towards Depository System, the
Government, Reserve Bank of India, SEBI, and NSDL have taken several
measures:- Public awareness programmes have been launched to enhance awareness
among market participants especially Investor’s and Traders, about the benefits
Of holding and trading shares in Demat form.
To encourage retail Investors to invest in Demat equity/debt, R.B.I has decided
to increase the ceiling to Rs.20 lakhs if the advances are secured by Demat shares.
The minimum margin required against such shares has been reduced to 25%.