Dematerialisation

2. Submitted by:
Sruthi.S
2nd M.com (S3)
Roll.no:7525
TKMCAS.

3.  Inorder to overcome the various problems associated with
dealing in physical shares , suchas:-
•problems of theft, fake and/or forgedtransfers.
•share transfer delays due to signature mismatches.
•much paperwork.
•time consuming process
cost of transfer (stamp duty), etc.
 The govt. of India in 1996, enacted the Depositories Act 1996 to start
depository services in India.
Introduction

4.  According to the Depositories Act 1996, Depository
means:-
• A company formed and registered under the
Companies Act, 1956 and
• Which has been granted a certificate of
registration under the SEBI ACT, 1992.
 The first depository was set way back in 1947 in
Germany.
Introduction

5. Depository System
 Depository Systemis also known as “Scripless Trading
System”.
 It is an organisationwhichholds the securities of a
shareholder in the formof electronic accounts
(dematerialised form), in the same way a bank holds the
money.
 A custodian of its clients’ securities.
 Interfaces with its investors through its agents called
“depository participants”.

6. Who is a depository participant?
 A depositoryparticipant(DP)is anagentofthedepository
whois authorisedtoofferdepositoryservicestoallthe
investors.
 DPis theintermediarybetweentheinvestor andthe
depository.
A DPhastoberegisteredwithSEBI.
 A DPis justlikea branchofa bank.
 AninvestorcanopenanaccountthroughtheDPonlyknown
as demata/c.

7. Who can be a depository participant?
A Public Financial Institution.
A Scheduled Commercial Bank.
A Foreign bank operating in India with the
approval of RBI.
State Financial Corporations.
A Clearing house or Clearing corporations.
Non-banking Financial Companies.
Stock-brokers.
Custodians.
A Registrar to an issue or Share transfer
agent.

9. Features of depository system in
India
Type of ownership
Fungibility
Free transferability
No stamp duty
Indemnity against loss

10. Forms of depository
Dematerialised
Immobilised

11. A Bank – A depository An analogy
Bank Depository
 Holds funds in an account. Holds securities in an account.
Transfers funds between
accounts on the instruction of
the accountholder.
Transfers securities between
accounts on the instruction of
the accountholder.
 Facilitates transfer without
having to handle money.
Facilitates transfer of ownership
without having to handle
securities.
 Facilitates safekeeping of
money.
Facilitates safekeeping of
securities.

12. Objectives of depository
Reduce the
time for
transfer of
securities.
Avoid the
risk of
settlement
of
securities.
Enhance
liquidity
and
efficiency.
Reduce
transaction
cost for the
investor.
Create a
system for
central
handling of
securities.

13. Constituents of Depository System
• There are basically four participants:-
Depository
Depositor
y
Participan
t
The Issuing
Company
The
Investor

14. The depository process
Opening an
account
Dematerialistion
Rematerialisation
Distributing
dividend
Closing an
account

15. Opening an account
Choosing a
depository
participant.
Obtaining the
relevant
account
opening form
from the
chosen DP.
Getting into
an agreement
with the DP
(Client-DP
Agreement).
Obtaining a
client account
number or
client ID
number.

16. Sample

17. Dematerialisation
 The process of converting share certificates
or other securities held in physical form into
electronic form is called dematerialisation.

18. Dematerialisation process

19. Rematerialisation
 The process of conversion of dematerialised
holdings back to physical certificates is called
rematerialisation.

20. Rematerialisation Process

21. Depositories in India
The depository model adopted in India is a
multi-depository system where there are various
entities providing depository services.
 At present, there are two depositories registered
with SEBI.

22. • National Securities
Depository Limited
• Central Depository
Services (India) Limited

23.  First andthe largest depository in India – established in
1996.
 It is a public limited company formed under the
Companies Act,1956.
 NSDL interacts with investors and clearing members
through market intermediaries calleddepository
participants.
SHCILis the first depository participant registeredwith
NSDL.

24. Promoters of NSDL

25. Shareholders of NSDL

26.  CDSL is the second depository in India.
 CDSL commenced its operations in 1999.
 The objective of CDSL is to provide convenient,
dependable and secure depository services at
affordable cost.
 PSU disinvestments can be done through CDSL
system.
 CDSL has a unique centralised database.

27. Promoters of CDSL

28. Shareholders of CDSL

29. Functions of NSDL and CDSL
 Maintenance of individual investors’ beneficial
holdings in electronicform.
 Dematerialisation and rematerialisation of securities.
 Account transfer for settlement of trades in electronic
shares.
 Facility for freezing or locking of investor accounts.
 Facility for pledge and hypothecationof securities.

30. Benefits of depository services
 A safe and convenient way to handle securities.
 Immediate transfer of securities.
 No odd lot problem.
 Nomination facility.
 Holding investments in equity and debt instruments in a
single account.
 Reduction in paperwork.
Reduction in transaction cost.
 Elimination of risks associated with physical certificates.

31. Drawbacks of depository system
in India
Multiple- depository model
Absence of clearing and settlement corporations
Lack of interest in demat trading among retail
investors
Existence of differential rates
Chances of counterfeiting

32.  ISIN identifies a security.
 It is issued by the International Standards Organisation.
 It is a 12-character alpha-numerical code.
 ISIN identifies only the security; neither the exchange on which
it trades nor the ticker symbol.
 In India, the task of issuing ISIN of various securities is
assigned to NSDL by SEBI.
 In case of govt. securities, it is done by RBI.
 eg: INE 475C 01 012.
International Securities
Identification Number (ISIN)

33. Delivery Instruction Slip (DIS)
 All demat transactions involve use of DIS.
 This is equivalent to the cheque book of a bank account.
 DIS is filledby the client while giving delivery instructions
to the DP.
 Upon submission of DIS, the DP processes the DIS and
debits the client’s account with the no:of shares.
 Simultaneously, the target demat account is creditedwith
the sme no:of shares.

34. Sample of DIS

35. Reference
 Indian Financial System– Bharati V Pathak
 Financial Markets and Services- N Gordon & K Natarajan
 www.slideshare.com
 www.slideserve.com
 www.authorstream.com
 www.wikipedia.com
 www.google.com