Introduction
The importance of a Demat and trading account cannot be emphasised enough since they are the main platform through which traders can begin their trading journey. With technology working overtime and providing more convenient alternatives to everything, the Demat account opening process is no exception. Now, you can easily open a Demat and trading account by simply visiting the official page of your chosen stockbroker and completing the process plugged onto a computer to carry out traders through the Demat and trading account, they can simply use their smartphone to do the needful.
However, this wasn’t how it all began. The Demat and trading account had quite humble beginnings and that is exactly what we will be looking at here; the evolution of both these accounts and how they have had an impact on Indian finance.
How it Began
Before 1991, it was only through physical stock markets that investors could make their investments, carry out trades and purchase securities. This was done in the form of physical share certificates; pieces of paper, if misplaced, had very little chance of being recovered. Because of the nature of the physical share certificates, the physical stock market saw a lot of failed trades, frauds and time-bound trading issues. All these issues combined made the Indian government take certain steps towards dematerialising all share certificates.
What this essentially meant was that all the physical documents like the share certificate, would be converted to digital form, thus eliminating the need to hold any physical share certificates at all.
How It Progressed
Post the introduction of the process of Dematerialization of the physical share certificate in 1991, the progress of this process was monitored by two main entities. Here’s a step by step breakdown of how the process progressed.
The NSDL
- The first entity that was responsible for monitoring the progress of the dematerialisation process was the NSDL or the National Securities Depository.
- The main aim behind setting up NSDL was to support the overall economic development of the country, which also included the monitoring of the dematerialisation process.
- The core responsibility of the NSDL with respect to the dematerialisation process was to set up and maintain the right kind of infrastructure to support the integration of the securities being dematerialised.
- This infrastructure should also consider the international standard in place when working through the process.
- With the help of the NSDL, traders were eventually able to reduce various issues like delay in trading time, unnecessary costs in trades and the potential of risks.
- This, in turn, helped make the stock market trading in India much safer than what it was like prior to the Demat account opening process began.
The CDSL
- It was in 1999 that the Central Depository Services Ltd or CDSL was formed.
- The primary promoter of the CDSL was BSE or the Bombay Stock Exchange.
- While NSDL was a lone venture, CDSL, on the other hand was a joint venture
- Many national banks like SBI, Bank of Baroda and Union Bank of India being the main collaborators.
- Banks like HDFC and Standard Chartered also chose to take part in this venture.
- The aim of CDSL, however, was very similar to the NSDL; to ensure investors could trust and depend on their Demat and trading account without having to worry about the issues that used to come with physical shares trading.
- To add to this, it also ensured that the entire process was cost-effective for traders.
Conclusion
There is no doubt that the Demat and trading account make for a crucial component of the online trading process. So today, when questions like ‘What is a trading account’ get asked, or the Demat account opening process is analyzed, they all lead back to one thing; the importance of the dematerialisation of securities.