Financial Matters - Dematerialisation

One of the methods for preventing all the problems that occur with physical securities is through dematerialization (demat). India has adopted the demat route in which the book entry is made electronically against securities that are cancelled. The share certificates are shredded (i.e., its paper form is destroyed) and a corresponding credit entry of the number of securities (written on the certificates) is made in the account opened with the Depository participant (DP).

Each security is identified in the depository system by ISIN and short name. For example, a person owing 100 shares in ABC Ltd. in physical form will record his ownership as below:

Company Name: ABC Ltd.

No. of Shares:100

Distinctive Nos.: 932654701 to 932654800

Certificate No.: ABC001263

Folio No.: A658542

International Securities Identification Number (ISIN):

Each of the securities dematerialized in the NSDL depository bears a distinctive ISIN – an identification number. International Securities Identification Number (ISIN) is a unique identification number for each security issued in any of the international standards organization (ISO) member countries in accordance with the ISIN standard (ISO 6166).

Securities that can be dematerialized:

The entire depository system in India is governed by the rules made by the market regulator – SEBI. According to the SEBI (Depositories and participants) Regulations, 1996, the following securities are eligible for holding in dematerialized form.

1) Shares, scripts, stocks, bonds debentures, debenture stock or other marketable securities of similar nature of any incorporated company or body corporate including underlying shares of ADRs and GDRs.

2) Units of mutual funds, rights under collective investment schemes and venture capital funds, commercial paper, certificate of deposit, securitised debt, money market instruments and unlisted securities.

A list of securities available for demat in NSDL depository is made known to all DPs by way of circulars sent through email.

Physical form of securities can be converted into book entry form in NSDL depository system only if the company which has issued the securities, has entered into an agreement with NSDL to offer demat facility.

PROCEDURE FOR DEMATERIALISATION

Client / investor submits the DRP (Demat Request Form) and physical certificates to DP.DP checks whether the securities are available for demat. Clients defaces the certificates by stamping ‘Surrender for Dematerialization’. DP punches two holes on the name of the company and draws two parallel lines across the face of the certificate.

DP enters the demat request in his system to be sent to DEPOSITORY.DP dispatches the physical certificates along with DRF to the R & T agent.

Depository records the details of the electronic request in the system and forwards the request to the R & T agent.

R & T agent, on receiving the physical documents and the electronic request, verifies and checks them. Once the R & T agent is satisfied, dematerialization of the concerned securities is electronically confirmed to Depository.

Depository credits the dematerialized securities to the beneficiary account of the investor and the DP electronically the DP issues a statement of transactions to the client.

RE-MATERIALISATION:

Rematerialization is the exact reverse of dematerialization. It refers to the process of issuing physical securities in place of the securities held electronically in book-entry form with a depository. Under this process, the depository account of a beneficial owner is debited for the securities sought to be re- materialized and physical certificates for the equivalent number of securities is / are issued.

A beneficial owner holding securities with a depository has a right to get his electronic holding converted into physical holding at any time. The beneficial owner desiring to receive physical security certificates in place of the electronic holding should make a request to the issuer or its R & T Agent through his DP in the prescribed re-materilization request form (RRF).

Upon receipt of the request, the DP verifies the balance available to the extent of the request contained in the RFR and electronically intimates the request to the depository.

The depository there up on blocks the balance of the DP and intimates the RFR to the issuer or the RTA.

Upon the acceptance of the RFr, the issue company or the RTA issues share certification within 30 days.