Dematerialised securities provide a lot of benefits compared to physical securities because then the investor will not have to worry about safekeeping the security certificates or about forged security certificates.
As per SEBI regulations any public issue of more than Rs. 10 Crore has to be in the dematerialised forms. A depository offers the service of holding the securities in electronic form and when the ownership of the securities change, then change their records to reflect the changed ownership.
Currently, there are two operational depositories in India- National Securities Depository Ltd. (NSDL) & Central Depository Services (I) Ltd. (CDSL).
WHAT IS DEMATERIALISATION?
Dematerialisation is the process of converting physical securities to electronic form.
PROCEDURE OF DEMATERIALISATION
The process of dematerialisation involves the investor, depository participant, the issuer or the R&T agent and the depository
Note: A depository participant (DP) is a representative of the depository and acts as a bridge between a depository and investor.
Note: A R&T agent or Registrar or Transfer agent registers and maintains the records of investor transaction. Some R&T agents in India are Computer Age Management Services (CAMS) and Karvy.
So, what are the steps:
1. The registered owner of the security (client) applies to a depository participant using a ‘Dematerialisation Request Form’ (DRF) and surrenders security certificates. The owner has to deface the certificates and write ‘Surrendered for Dematerialisation’ on them.
2. After scrutinisation of the form and the certificates, The DP will issue an acknowledgement slip duly signed and stamped. Then the DP will request the depository and the issuer/R&T agent electronically and a ‘Dematerialisation Request Number’ will be generated.
The DP will send the DRF with the DRN on it along with the physical securities to the R&T agent.
3. The issuer/R&T agent will verify the DRF and the certificates along with the authorization of the DP. The issuer/R&T agent may partially or completely reject the application in case of an incomplete application, fake /stolen/duplicate certificates, mismatch of signatures, etc.
After ratification, the issuer/R&T agent will destroy the physical certificates. Records of such certificates will be entered in a ‘Register of Destroyed Certificates’.
4. If everything is in order, client demat account will be credited with the securities and the DP will inform the client.
If the dematerialisation is rejected, the issuer/R&T agent will send an objection memo to the DP. The DP has 15 days to remove the objection. If the objection is not removed within 15 days, the issuer/R&T agent may reject the application and return DRF along with security certificates.
WHAT IS REMATERIALISATION?
Rematerialisation of securities is the process of converting securities from the electronic form in a demat account to physical certificates.
PROCEDURE OF REMATERIALISARION
1. The owner (client) submits a Rematerialisation Request to the DP.
2. The DP then will verify the application, match the signature on the form with their records and check whether the client has enough balance.
3. If everything is in order, the DP then generated a ‘Rematerialisation Request Number (RRN)’ and the request is forwarded to the issuer/R&T agent.
4. The issuer/R&T agent may reject the application completely or partially and raise an objection. If the application is accepted, then the issuer/R&T agents will print and dispatch the physical certificates to the client.
5. The DP informs the client about the changes in the demat account balance.