Sebi chairman DR Mehta stressed the need for establishing early interconnectivity between the two depositories due to competition and for speedier expansion of the depository infrastructure in the country. Further, it was stressed that while on the one hand the depositories should be adequately compensated for the services they rendered, on the other, the interest of the investors should be paramount. It was recognised that issues relating to interconnectivity and the charges for transfer between depositories should be determined keeping in viewthese basic factors.

The connectivity between the two depositories hinges on putting in place the software for the interface between the two entities.

Both the sides are trying to ensure that connectivity can be put in place at the earliest. Sebi, too, is keen to get the connectivity in place soon so that investors who have dematerialised their shares with CDSL can transact in their shares.

In a statement to the press, Sebi pointed out that the two depositories would, for now, follow the settlement model earlier agreed upon by them. This model envisages that settlement of market transactions will be started by asking the clearing members to open accounts in both depositories and the clearing house or corporation effecting the same pay-out of shares of each depository as a pay-in of shares in that depository.

Sebi has further decided that later CDSL would be free to adopt the alternate mode suggested by BSE's clearing house which envisages on-market inter-depository settlement based on the instructionsof the clearing house or clearing corporation to the depositories, and subsequent transmission of information to the registrar and share transfer agent. This might call for some changes in the software of NSDL as well. The software experts of the two depositories would work out the details of the changes to be made and determine the implementation within three months.

The Sebi release states that the inter-depository transfer is essential for the smooth functioning of the market and charges, if any, levied by a depository for such transactions, would have to take into account the interest of the investors.

The committee deciding on charges for inter-depository transfers will submit the report to Sebi in three months and the charges for inter-depository transfer are recommended by the Committee and approved by Sebi, the charges for inter-depository transfer would be deferred. If in the opinion of the committee as approved by Sebi, some charges are to be levied for any inter-depository transfer this wouldbe paid by the depositories to each other retrospectively.

In a recent interview to The Financial Express, CB Bhave had outlined the reasons for the delay in connectivity, saying that the systems of both the depositories are starkly different and hence developing a software for their interface is taking time.

However, Sebi's worry is that some investors have threatened to go to court if steps are not taken to ensure that they can trade in the shares that they have dematerialised.

Sebi had allowed CDSL to commence operations before its connectivity with NSDL could have been put in place. Hence, even though some investors did dematerialise their shares with CDSL, they cannot trade in them even three months after CDSL was given the certificate of commencement.

Till recently, the delay was being attributed to absence of a nod from the Department of Telecommunications (DoT) to connect the two networks. This nod has come in the form of an I-Net connectivity being accorded by DoT but the trouble now is tobuild an interface between the two networks.

CDSL managing director PV Maiyya declined to comment on Friday's decision. NSDL managing director CB Bhave was unavailable for comment.