Now that widespread use of the depository system has been ensured with compulsory dematerialisation of all major and heavily traded stocks, the focus of capital markets establishment, especially the regulatory authority, is now on the depository's fixed costs as well as the final cost payable at the retail level. There has been much criticism of the present cost structure which critics say is loaded against the small investor, who now incurs a cost to maintain his portfolio while it was not so before. While that is true, there are a number of inherent benefits of the depository system that outweighs any incremental costs.The only aspect of criticism that needs a remedy is the extent to which costs can be cut and how best it can be achieved without endangering efficiency within the depository system. There is inherent competition among depository participants.
It is this inherent competition that can be exploited while cutting costs. Costs will have to be tackled at the point nearest to the individualaccount holder, which is the DP. DPs with a critical mass of clients will be obviously able to offer lower annual charges, either of custody, dematerialisation or even transactional.
The maximum charge that can be levied on an account-holder by a DP should be a subject of regulation. Eventually smaller DPs will disappear and a consolidation of DPs should not mean monopolistic charges. Another point that should be introduced is some form of arbitration mechanism between the account holder and DP. For example, in case of some technical or other irregularity at DP's end the cost of a short delivery at an auction is now borne by the individual concerned. This should not be the case. Such irritants must be ironed out as soon as possible in order to improve the system's efficiency.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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