Dematerialisation & Depository

Business
A K Sinha
 Dematerialisation
• Dematerialization is a process by which physical certificates of an
investor are converted into electronic form and credited to the
account of the depository participant.
• Dematerialized securities ('Demat' in short) are securities that are
not on paper and a certificate to that effect do not exist.
• They exist in the form of entries in the book of depositories,
registered with SEBI.
• It is mandated that every Initial Public Offer (IPO) made by a listed
company in the excess of Rs. 10 Crores has to be issued in
dematerialized form by complying with the requisite provisions of
the Depositories Act, 1996.
• Investors can dematerialize only those certificates that are already
registered in their names and are in the list of securities admitted
for dematerialization.(Marketable Securities)
 Necessary Requisites for
Dematerialisation
• 1. Investors should have a depository account.
2. Securities should be from the eligible list of
securities issued by the depository.
3. Securities must be in the name of the
account holders and owned by him.
4. Separate demat requisition form is required
for each issuer company.
5. DRF should be signed by all the holders so
as to match specimen signature.
 Advantages
• Demat system not only provides smooth and hassle-free
way of dealing in shares, it also does away with all the
associated tensions.
• Bad deliveries are minimized
• Postal delays and loss of shares in transit is prevented
• Immediate transfer of shares
• No stamp duty on transfer
• Less paper work (reduction in huge volumes).
• Faster settlement cycles and payouts.
• The demat system totally avoids the associated heartburns
arising from theft of shares, mutilation, forgery, counterfeit
shares and loss of shares during a natural calamity.
 Agencies in Depositories
• India has chosen the concept of
multi-depositories.
• Presently, there are two depositories
registered with SEBI;
• National Securities Depository Limited (NSDL)
• Central Depository Service (India) Limited
(CDSL)
National Securities Depository Limited
(NSDL)
• NSDL is a public limited company incorporated
under the Companies Act, 1956. Four
renowned institutions participate in it.
• Unit Trust of India (UTI),
• Industrial Development Bank of India (IDBI),
• National Stock Exchange of India (NSE),
• State Bank of India (SBI)
 NSDL
• Constituents of depository comprise of clearing
corporation, brokers, clearing member, registrar and
transfer agents, company or issuer, stock exchange,
bank depository participant and investors.
• All are electronically linked to the main depository for
the settlement of trades and to perform a daily
reconciliation of all accounts held with NSDL.
• NSDL is managed by Board of directors headed by a
managing director
• Governed by Rules and by-laws.
 Central Depository Service (India)
Limited (CDSL)
Main functions of this agency are centralized database
and accounting.
Major participant in CDSL are LIC, GIC and BSE.
This agency is set up with the object to keep in mind to
accelerate growth of scripless trading, with major
thrust of individual participation and creating
competitive environment, responsible to the users
interests and demands to enhance liquidity.
CDSL aims to retain the entire data of the investors in the
central database of CDSL.
 Objectives
• Within time information is available to
issuers/registrar's and share transfer agents.
• Companies can monitor critical holdings, e.g., holding
of FIIs and FIs, investment companies, etc., by using up
the parameters through their front-end terminals.
There is no other database in the system to reconcile.
• No additional security or storage cost of data or critical
database residing at the front-end terminals with the
issuers/registrars.
• Recover only the annual maintenance charges.
 Process of Demating Shares
• One has to open an account with a Depository Participant (DP) by filling up an
Account Opening Form and signing a “Participant-Client Agreement”.

• Then a unique client ID number will be given, which must be quoted in all
correspondence with the DP.
• Thereafter, one has to fill up and submit a Dematerialization Request Form (DRF)
provided by the DP duly signed by all the holders and surrender the physical shares
intended to be dematted to the DP.
• The DP upon receipt of the shares and the DRF will issue an acknowledgement and
will send an electronic request to the Company/ Registrars and Transfer Agents of
the Company through the Depository for confirmation of demat.
• The DP will simultaneously surrender the DRF and the shares to the Company /
Registrars and Transfer Agents of the Company with a covering letter requesting the
Company to confirm demat.
• When the beneficial owner submits the shares for dematerialization, his DP will
deface the share certificates with the stamp “SURRENDERED FOR
DEMATERIALISATION”. This ensures that shares are not lost in transit or misused till
credit is received in demat account.
 Rematerialisation
• Rematerialisation is a process, by which a client can get his
electronic holdings converted back into the physical holdings, i.e.,
he can get back the physical form of share certificates.
• To get the certificate back, he has to fill up a remat request form
and submit it to its depository with whom he has an account.
• The new certificates may not necessarily bear the same folio or
distinctive numbers as previously existed.
• The facility to rematerialise again is offered to all those scrips
which are eligible for demat in the depositories` list of securities
available for dematerialisation.
• The whole process of rematerialisation is completed within 30
days from the receipt of request.
• This shows how speedy the electronic system works – that being
the essence of today's business where the prices of scrips change
many times a day.
Thanks