Explain the need for, and role of depository systems in secondary markets. Explain the concept of custodial services.

In financial markets, depository systems play a crucial role in ensuring the smooth functioning of secondary markets. Secondary markets are where previously issued securities, such as stocks and bonds, are bought and sold. These markets provide liquidity and enable price discovery, making them essential for the efficient allocation of capital in the economy. The need for depository systems arises from the necessity to handle the transfer and settlement of securities efficiently, securely, and transparently.

Depository systems are institutions that facilitate the electronic holding and transfer of securities. They eliminate the need for physical certificates, reducing the risk of loss, theft, or forgery. Depositories hold securities in electronic form in a dematerialized (demat) format, which significantly simplifies the process of trading, clearing, and settling transactions. In the past, investors needed to hold physical certificates to prove ownership of securities, which was a cumbersome and _________ _______ ___ _______ _______ _____ ___ ____.
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