The advent of automated trading in India brought with it several associated benefits such as transparency in trading and equal opportunity for market players all over the country but the problems related to settlement of trades such as high instances of bad deliveries and long settlement cycles continued.
As an answer to these settlement problems and in order to provide a safe and efficient system of trading and settlement, National Securities Depository Ltd. was inaugurated in November 1996.
NSDL was set up with an initial capital of INR one billion (USD 28 million), promoted by Industrial Development Bank of India (IDBI), Unit Trust of India (UTI) and National Stock Exchange of India Ltd. (NSEIL). Subsequently, State Bank of India, Oriental Bank of Commerce, Citibank NA, Standard Chartered Bank, HDFC Bank Limited, The Hongkong and Shanghai Banking Corporation Limited, Deutsche Bank, Dena Bank and Canara Bank have became a shareholder of NSDL.
An investor who buys securities from exchanges connected to NSDL may receive his delivery in the dematerialised form as dematerialised securities can be delivered in the physical segment at the option of the seller. Therefore, those investors who buy securities from these exchanges should necessarily open a depository account to take delivery of demat securities. Also, SEBI has made it compulsory for all categories of investors to settle trades in demat form with respect to a select list of scrips since January 4, 1999. Therefore, investors trading in these scrips will necessarily need a depository account to settle their trades. The list of scrips is being continuously expanded by SEBI. Therefore, every investor who trades in securities may have to open a depository account.