Scripless trading on the stock market is a child of modern technology.It has been on the scene for quite sometime in the stock markets of the developed countries, but has arrived in India only lately.To facilitate its growth and development in India, the Government of India laid down the broad legal framework by getting the Depositories Act enacted in August, 1996.
The earlier system of trading revolved around movement of paper at all stages i.e. purchases, sales, and transfer. Bad deliveries due to fake, forged and stolen shares and signature variations have resulted in driving away the small investors from the capital market.In 1991, India opened up its economy and liberalisation and globalisation became the guiding principles of economic policies.The investment market was opened up to Foreign Institutional Investors(FII's).The Government of India then decided to set up a fully automated high technology model exchange and, thus, the National Stock Exchange(NSE) was formed.The NSE offered screen-based trading which became popular and captured large volumes of trade.To facilitate this, scripless trading was introduced.The first depository in the country i.e. National Securities Depository Limited (NSDL) was thereafter set up in November 1996.
A depository is an organisation which holds secutities of investors in the form of electronic accounts.In a depository system, transfer of ownership of securities is done through simple account transfers.Just as one can hold funds in a bank account and transfer funds accross accounts without actually handling cash, one can hold securities in a depository aacount and transfer secutiries accross depository accounts, without actually handling share certificates.The introduction of depository system has come as a great relief to investors, since trading in electronic form eliminates the problems that are normally associated with physical certificates like bad delivery, loss in transit, etc.