A tripartite agreement with a depository is a legal document that outlines the relationship between three parties – the depository, the participant, and the beneficiary. This agreement is crucial for smooth functioning of securities transactions, especially in India, where depository participants (DPs) act as intermediaries between investors and depositories. In this article, we`ll delve deeper into what a tripartite agreement is, what its scope is, and why it`s essential for investors.
What is a Tripartite Agreement with a Depository?
To understand the tripartite agreement, it`s important to know what a depository is. In the context of financial markets, a depository is an entity that holds securities (shares, bonds, etc.) in electronic form. It`s like a bank for securities where investors can deposit their holdings and trade them electronically. In India, there are two depositories – National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).
A depository participant (DP) is an agent of the depository who offers depository services to investors. The DP is the link between the investor and the depository and maintains the investor`s securities account. The DP can be a bank, broker, or financial institution.
Now, a tripartite agreement is a legal agreement between three parties. In the case of a tripartite agreement with a depository, the three parties are the depository, the participant (DP), and the investor (beneficiary). This agreement defines the rights and obligations of each party and outlines the procedures for various transactions related to the investor`s securities account.
What is the Scope of a Tripartite Agreement with a Depository?
The scope of a tripartite agreement with a depository includes the following:
1. Account Opening: The agreement outlines the procedure for opening a securities account with the depository through a participant.
2. Securities Transactions: The agreement specifies the procedures for buying and selling securities using the investor`s securities account.
3. Pledging of Securities: The agreement defines the procedure for pledging securities as collateral for loans or credit facilities.
4. Corporate Actions: The agreement specifies the procedures for corporate actions such as dividend payments, bonus issues, and rights issues.
5. Depository Charges: The agreement outlines the charges that the depository and the DP can levy on the investor for various services such as account opening, dematerialization, and rematerialization of securities.
Why is a Tripartite Agreement with a Depository Essential for Investors?
A tripartite agreement with a depository is essential for investors for the following reasons:
1. Protection of Investor`s Rights: The agreement defines the investor`s rights and obligations, which protects the investor from any mismanagement or misconduct by the DP or the depository.
2. Streamlined Transactions: The agreement outlines the procedures for various transactions related to the investor`s securities account. This helps in smooth and hassle-free execution of securities transactions by the investor.
3. Accountability: The agreement holds the depository and the DP accountable for any mismanagement or misconduct related to the investor`s securities account.
A tripartite agreement with a depository is an important legal document for investors who trade in securities electronically. This agreement defines the rights and obligations of all parties involved in the transactions related to the investor`s securities account. It`s essential for investors to understand the scope of the agreement and its importance in protecting their rights and streamlining securities transactions.