Dematerialization and Rematerialization

Dematerialization and Rematerialization

Dematerialization and Rematerialization are two processes that are used in the Depository System to convert physical securities into electronic form and vice versa.

Dematerialization refers to the process of converting physical securities, such as stock certificates or bond certificates, into electronic form. The physical securities are surrendered to the depository participant (DP) who sends them to the registrar and transfer agent of the issuer. The registrar and transfer agent then verify the securities and issue an electronic equivalent, which is credited to the investor’s demat account. Dematerialization eliminates the need for physical handling of securities, which reduces the risk of loss or theft and makes trading more efficient.

Rematerialization, on the other hand, refers to the process of converting electronic securities back into physical form. This process is useful when an investor wants to hold physical certificates instead of electronic ones. The investor needs to fill out a rematerialization request form and submit it to their DP. The DP then forwards the request to the registrar and transfer agent of the issuer, who verifies the request and issues physical certificates, which are sent to the investor.

Dematerialization

A need was felt for introduction of scripless depository system of securities movement, one of the methods for preventing all the problems that occur with physical securities is through dematerialization that facilitates the holding of securities in electronic form and enables transactions to be processed by book entry.  India has adopted the demat route culminating in the promulgation of Depositories Ordinance, 1995 and later in the Depositories Act, 1996(with effect from september20, 1995). 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).

Once the shares are dematerialized, they lose their identification features in terms of share certificate distinctive number.  Title to the securities owned is in terms of numbers of securities and not in terms of distinctive numbers, certificate numbers etc.

Rematerialisation

Rematerialisation 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 rematerialized 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 Agents through his DP in the prescribed Rematerialisation Request Form (RRF).

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