Page 125 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Indian Financial System

Notes Demat attempts to avoid the time consuming and complex process of getting shares transferred
in the name of buyers as well its inherent problems of bad deliveries, delay in processing/
fraudulent interception in postal transit, etc. Dematerialisation of shares is optional and an
investor can still hold shares in physical form. However, he/she has to demat the shares if he/
she wishes to sell the same through the Stock Exchanges. Similarly, if an investor purchases
shares, he/she will get delivery of the shares in demat form.
The Depositories Act, 1996 has been enacted to regulate the matters related and incidental to the
operation of Depositories and demat operations. Two Depositories are in operation - National
Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).
The operations in the Depository System involve the participation of a Depository, Depository
Participants, Company/Registrars and Investors. The company is also called the Issuer.
The Depositories (NSDL/CDSL) will provide the list of demat account holders and the number
of shares held by them in electronic form on the Record date to the company/registrar (known
as Benpos). On the basis of Benpos, the company concerned will issue dividend warrants in
favour of the demat account holders. The rights of the shareholders holding shares in demat
form are at par with the holders in physical form. Hence you will be eligible to get the Annual
Report and will have the right to attend the AGM as a shareholder. First, one shall have to open
an account with a Depository Participant (DP) and get a unique Client ID number.
Thereafter, one has to fill up a Dematerialisation Request Form (DRF) provided by the DP and
surrender the physical shares intended to be dematted to the DP. The DP upon receipt of the
shares and the DRF, will send an electronic request to the Company/Registrars through the
Depository for confirmation of demat. Each request will bear a unique transaction number. The
DP will simultaneously surrender the DRF and the shares to the Company/Registrars with a
covering letter requesting to confirm the demat. The Company/Registrars after necessary
verification of the documents received from the DP and if found in order will confirm demat to
the Depository. This confirmation will be passed on from the Depository to the DP, which holds
the account. After receiving this confirmation from the Depository, the DP will credit the account
with the shares so dematerialised. The DP will hold the shares in the dematerialised form
thereafter on your behalf. And you will become beneficial owner of these dematerialised shares.

Self Assessment

Fill in the blanks:
1. The objective of a ………………… is to provide for the maintenance of ownership records
of securities in an electronic book entry from.
2. ……………………. signifies conversion of a share certificate from its present physical
form to electronic form for the same number of holding.

3. A ………………………. is the agent of the Depository and is the medium through which
the shares are held in the electronic form.
4. A bank transfers funds between accounts whereas, a Depository transfers …………………
between accounts.
5. ……………… services offers a secure, convenient and paperless way to keep track of
investments in shares and other security instruments over time, without the hassle of
handling paper based transcripts.
6. A Depository (NSDL and CDSL) is an organisation like a Central Bank, i.e. Reserve Bank
where the securities of an investor are held in electronic form, through………………… .

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