Dematarilization and Rematerialization of Shares

Dematerialisation of Shares:
Dematerialisation is the process wherein share certificates or other securities held in physical form are
converted into electronic form and credited to demat account of an investor opened with a depository
participant.
The demat account offers a number of benefits to the investor as he is not required to keep the shares
or other securities in safe custody eliminating the risk of fire, theft, loss in transit, delay in transfer, bad
delivery, fake or forged shares etc.
Several initiatives have been taken by SEBI to promote dematerialised or paperless trading, which can
go a long way in eliminating the risks of bad delivery and forged shares. It introduced compulsory
trading of shares in dematerialised form in specified scrips by institutional investors with effect from
January 15, 1998.
Subsequently, SEBI has made compulsory trading of shares of all the companies listed in stock
exchanges in demat form with effect from 2nd January 2002.
Hence, if the investor wants to trade in respect of the companies which have established connectivity
with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited
(CDSL), he may have to open a beneficiary account with a depository participant of his choice. The
procedure of opening a demat account with DP is similar to opening an account with a bank.
Steps Involved in Dematerialisation:

The following steps are involved in dematerialisation of shares:
1. The investor has to open a beneficiary account with a depository participant (DP) of his choice to hold
shares in demat form and undertake scripless trading.
2. Investor has to submit Demat Request Form (DRF) and share certificates to DP who in turn will check
whether securities are available for demat.
3. The investor should deface the share certificates by stamping ‘Surrendered for Dematerialisation’ and
DP will punch two holes on the name of the company and draw two parallel lines across the face of the
certificate.
4. Depository participant enters the demat requests in the system to be sent to depository. DP
despatches the physical certificates along with the demat request form to the Registrar and Transfer
Agent (TRA) or issuer company.
5. Depository records the details of the electronic requests in the system and forwards the request to
RTA or Issuer Company.
6. RTA or the issuer company on receiving the electronic request and the physical documents verifies
and checks them. Once the RTA/company finds that the documents are in order, dematerialisation of
the securities is electronically confirmed to the depository.
7. Depository credits the dematerialised securities to the beneficiary account of the investor and
intimates the DP electronically. The DP then issues a statement of transaction to the client.
An investor can close a demat account by giving an application in the prescribed form.
In case, there is any balance in the demat account sought to be closed, the
following steps are necessary:
(a) Rematerialisation of securities standing to the credit of the demat account; or
(b) Transferring the balance to the credit of another demat account with the same participant or with
some other participant.
Electronic Settlement of Trade:

(A) Procedure for Selling Dematerialised Securities:
The procedure for selling dematerialised securities in stock exchanges is similar to the procedure for
selling physical securities. The only major difference is that instead of delivering physical securities to
the broker, the investor instructs his depository participant (DP) to debit his demat account with the
number of securities sold by him and credit the broker’s clearing account.
The procedure for selling dematerialised securities is given below:
(i) Investor sells securities in any of the stock exchanges linked to depository through a broker.
(ii) Investor instructs his DP to debit his demat account with the number of securities sold and credit the
broker’s clearing account.
(iii) Before the pay-in day, broker of the investor transfers the securities to clearing corporation.
(iv) The broker receives payment from the stock exchange.
(v) The investor receives payment from the broker for the sale of securities in the same manner as
received in case of sale of physical securities.
(B) Procedure for Purchasing Dematerialised Securities:
The procedure for purchasing dematerialised securities is also similar to the procedure for buying
physical securities:
(i) Investor instructs DP to receive credits into his account in the prescribed form. There may be one
time standing instruction or separate instruction each time to receive credits.
(ii) Investor purchases securities in any of the stock exchanges linked to depository through a broker.
(iii) Broker receives payment from investor and arranges payment to clearing corporation.
(iv) Broker receives credit to securities in clearing account on the pay-out day.
(v) Broker gives instructions to DP to debit clearing account and credit client’s account.
(vi) Investor receives shares into his account by way of book entry.
Dematerialization Vs Rematerialization In India, the Securities and Exchange Board of India (SEBI)
instituted Depository Services, called as Dematerialization of the listed securities with the aim of
accelerating the share transfer function from sale, purchase and transmission. Dematerialization implies
the activity of transforming the physical shares into electronic form. The shares are transferred to the
investor’s account, through the depository participant.
After the dematerialization of securities, the investor has the option to convert the securities into
physical form, through the process of rematerialization. The organization that holds shares in electronic
form and offers services related to securities transaction is Depository.
BASIS FOR COMPARISON DEMATERIALIZATION REMATERIALIZATION
Meaning Dematerialization refers to the act of Rematerialization connotes the
Transferring physical shares to an act of converting shares held in
Equivalent number of shares in electronic electronic mode in the investors account
Form into investors account. Into the shares in physical form.
Shares Doesn't possess distinctive number Possess distinctive number
Form of Trading Paperless Paper
Account Maintenance Depository Participant Company

REMATERIALIZATION OF SHARES
Rematerialisation is the process by which a client can get his electronic holdings converted into physical
certificates. The client has to submit the rematerialisation request to the DP with whom he has an
account. The DP enters the request in its system which blocks the client's holdings to that extent
automatically. The DP releases the request to NSDL and sends the request form to the Issuer/ R&T
agent. The Issuer/ R&T agent then prints the certificates, despatches the same to the client and
simultaneously electronically confirms the acceptance of the request to NSDL. Thereafter, the client's
blocked balances are debited.
Features
 A client can rematerialise his dematerialised holdings at any point of time.
 The rematerialisation process is completed within 30 days.
 The securities sent for rematerialisation cannot be traded.
Procedure
 Client submits rematerialisation request form to DP
 DP intimates Depositary
 Depositary intimates the registrar/issuer
 DP sends RRF to the registrar/ issuer
 Registrar prints certificates and sends to investor
 Registrar confirms remat to depositary
 Investors account with DP debited

Dematarilization and Rematerialization of Shares

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Dematerialisation of Shares:

Steps Involved in Dematerialisation:

Electronic Settlement of Trade:

The procedure for selling dematerialised securities is given below:

(iv) The broker receives payment from the stock exchange.

time standing instruction or separate instruction each time to receive credits.

BASIS FOR COMPARISON DEMATERIALIZATION REMATERIALIZATION

Meaning Dematerialization refers to the act of Rematerialization connotes the

Transferring physical shares to an act of converting shares held in

Equivalent number of shares in electronic electronic mode in the investors account

Form into investors account. Into the shares in physical form.

Shares Doesn't possess distinctive number Possess distinctive number

Form of Trading Paperless Paper

Account Maintenance Depository Participant Company

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