DEMATERIALISATION OF SHARES

By FIBIN T H RAKESH

What is a share?
Portion of Capital. A share is a share in the share capital of a company.

What is Dematerialization?

Dematerialization (Demat in short form) signifies conversion of a share certificate from its physical form to electronic form for the same number of holding which is credited to your DEMAT account which you open with a Depository Participant (DP).

Who is a Depository Participant (DP)?

A Depository Participant (DP) is your representative (agent) in the depository system providing the link between the Company and you through the Depository. Your Depository Participant will maintain your securities account balances and intimate to you the status of your holding from time to time.

According to SEBI guidelines, Financial Institutions like banks, custodians, stockbrokers etc. can become participants in the depository.
A DP is one with whom you need to open an account to deal in electronic form. While the Depository can be compared to a Bank, DP is like a branch of your bank with whom you can have an account.

How does the Depository System operate?

The Depository System functions very much like the banking system.

A bank holds funds in accounts . A Bank transfers funds between accounts.

Depository holds securities in accounts. A Depository transfers securities between accounts.

In both systems, the transfer of funds or securities happens without the actual handling of funds or securities. Both the Banks and the Depository are accountable for the safe keeping of funds and securities respectively.

How can one dematerialise securities?

Surrender certificates for dematerialisation to your DP.
DP intimates to the Depository regarding the request through the system. DP submits the certificates to the registrar of the Issuer Company. Registrar confirms the dematerialisation request from depository. After dematerialising the certificates, Registrar updates accounts and informs depository regarding completion of dematerialisation.

Depository updates its accounts and informs the DP.

DP updates the demat account of the investor.

Benefits of availing depository services?

A safe and convenient way to hold securities Immediate transfer of securities No stamp duty on transfer of securities Elimination of risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc. Reduction in paperwork involved in transfer of securities

Reduction in transaction cost

Even one share can be traded

General Details
At present two Depositories viz. National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) are registered with SEBI. The minimum net worth stipulated by SEBI for a depository is Rs.100 crore.
As on August 31, 2011, a total of 821 DPs (276 NSDL, 545 CDSL) are registered with SEBI. An investor can open more than one account in the same name with the same DP and also with different DPs. The demat account cannot be operated on "either or survivor" basis like the bank account.

General Details (contd..)

Dematerialised shares be converted back into physical shares by a processes known as Rematerialisation.
Just like a Bank, the Depository Participant will give you a Pass Book or a Statement of Holdings. The Statement of Holdings will be despatched to you periodically by the Depository Participant. In case of any discrepancy in the Statement of Holdings, you can contact your Depository Participant. If the discrepancy cannot be solved at the Depository Participants level, you should approach the Depository concerned for clarification.

General Details (contd..)

Your holding statement or pass-book cannot be used by anybody else for trading in your account.

There are absolutely no restrictions on the number of DPs you can open accounts with.
The DPs may fix some minimum limit of securities that one should keep in their account.

What is a Depository?
A depository is an organisation which holds securities (like shares, debentures, bonds, government securities, mutual fund units etc.) of investors in electronic form at the request of the investors through a registered Depository Participant.

It also provides services related to transactions in securities.