QUESTION: What do you mean by depository and dematerialization? Also explain the procedure of dematerialization of securities?
ANSWER: DEPOSITORY: Depository in a firm wherein the securities of an investor are held in electronic form in the same way a bank holds money. It carries out the transactions of securities by means of book entry, without any physical movement of the securities. The depository based settlement system is also called ‘book entry transfer settlement’
Depository acts as a defact owner of the securities logged with it for the limited purpose of transfer of ownership. It functions as the custodian of securities of its clients.
At present there are two depositories in India:
- NSDL
- CDSL
DEMATERIALIZATION: Dematerialization is a process by which the physical share certificates of an investor are taken back by the Company and an equivalent number of securities are credited in electronic form at the request of the investor. An investor will have to first open an account with a Depository Participant and then request for the dematerialization of his share certificates through the Depository Participant so that the dematerialized holdings can be credited into that account.
PROCEDURE OF DEMATERIALIZATION OF SECURITIES:
The following steps are involved in dematerialization of securities:
Step: 1
Client/Investor submits the DRF (Demat Request Form) and physical certificates (to be dematted) to the DP.
DP checks whether the securities are available for demat.
Client defaces the certificate by stamping “Surrendered for Dematerialization”.
DP punches two holes on the name of the company and draws two parallel lines across the face of the certificate. This ensures that your shares are not lost in transit or misused till credit is received by you in your demat account. The DP upon receipt of the shares and the DRF, will issue the client an acknowledgement and will send an electronic request to the company.
Step: 2
DP enters the demat request in his system to be sent to NSDL DP dispatches the physical certificates along with the DRF to the R&T
Step: 3:
DP dispatches the physical certificates along with the DRF to the R & T Agent.
Step: 4
NSDL records the details of the electronic request in the system and forwards the request to the R&T Agent.
Step: 5
R&T Agent, on receiving the physical documents and the electronic request, verify and check them. Once the R&T Agent is satisfied. dematerialization of the concerned securities is electronically confirmed to NSDL.
Step: 6
NSDL credits the dematerialized securities to the beneficiary account of the investor and intimates the DP electronically.
Step: 7
The DP issues a statement of transaction to the client.
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