Depository

A depository is a financial institution that holds and manages securities on behalf of investors. In the Treasury market, the depository system is an important infrastructure that facilitates the settlement and clearing of Treasury securities transactions.

The depository system for Treasury securities is managed by the Federal Reserve Bank of New York, which acts as the depository for the U.S. government’s securities. The depository system provides several key services to investors, including:

Safekeeping of securities: The depository system ensures the safekeeping of Treasury securities by holding them in custody on behalf of investors. This eliminates the need for investors to physically hold the securities, which can be cumbersome and risky.

Settlement of transactions: The depository system facilitates the settlement of Treasury securities transactions by transferring ownership of the securities from the seller to the buyer. This ensures that investors receive the securities they have purchased and that sellers receive payment for the securities they have sold.

Clearing of transactions: The depository system also facilitates the clearing of Treasury securities transactions by matching buyers and sellers and ensuring that all transactions are properly documented and recorded.

Payment of interest and principal: The depository system also facilitates the payment of interest and principal on Treasury securities by ensuring that payments are made to the correct investors on the correct dates.

Overall, the depository system plays a critical role in the Treasury market by providing a safe and efficient infrastructure for the settlement and clearing of Treasury securities transactions. This helps to ensure the smooth functioning of the market and to maintain investor confidence in Treasury securities as a safe and reliable investment.

The scrip-based system of securities transactions involves enormous paper work involving certificates and transfer deeds. Every securities transaction in the physical scrip-based system is required to be accomplished by physical movement of securities certificates along with transfer deed and registration with the company. The process beginning with the purchases of securities till getting the certificates duly transferred and endorsed in the name of the buyer is quite complex and time consuming.