What is Dematerialisation?

Dematerialisation is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited in the investor’s account with his/her DP.

In order to dematerialise his certificates, an investor will have to first open an account with a DP and then request for the dematerialisation of his certificates, by filling up a dematerialisation request form (DRF) , which is available with his DP. The steps for dematerialisation are as follows:

• Fill a Dematerialisation Request Form (DRF) available from your DP.

• Submit your share certificates along with the above form.

• Please write "Surrendered for Dematerialisation" on the face of each certificate before you submit for dematerialisation.

• Before submitting your request of dematerialisation make sure that the shares have been registered in your name.

• Your DP will issue a statement of account confirming the credit of your holding of shares in electronic form
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Can I dematerialise any share certificate?

You can dematerialise only those certificates that are already registered in your name and belong to the list of securities admitted for dematerialisation on NSDL. Shares held in street names (blank transfers) cannot be dematerialised.
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Do my dematerialised shares have distinctive / certificate numbers?

No. Your dematerialised shares do not have any distinctive or certificate numbers. These shares are fungible- which means that 100 shares of a security are the same as any other 100 shares of that security.
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Can I dematerialise odd lot shares?

Yes. Odd lot shares certificates can also be dematerialised.
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If a investor has certificates belonging to same security, in the same order of holders, does he have to open as many accounts as the number of folios?

No. The investor can choose to have all securities deposited in a single account.
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Can an investor dematerialise his entire eligible securities through the same account?

Yes. The investor can choose to have all his securities deposited in a single account provided the securities have the same holding pattern.
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Can a sole holder of the share certificates add one more name as a joint holder at the time of dematerialising his share certificates?

No. However, if the investor wants to transfer the ownership from his individual name to joint name, he should first open an account as the sole holder (account A) and dematerialise the share certificates. He/she should then open another depository account. (account B) in which he/she is the first holder and the other person is the second holder and make an off market transfer of the shares from the account A to account B. The investor will incur a charge on this transaction. Alternatively, the certificates can be transferred to the joint ownership and then sent for dematerialisation.
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Can all DPs access all investors account details?

No. A DP cannot access the investor accounts of any other DP.
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Can an investor open a second account with another DP?

A client can choose to open more than one account with the same DP. In addition to this, he has a choice of opening accounts with more than one DP. However a broker can open just one clearing purpose, but he can still open multiple beneficiary accounts.
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Is it necessary for an investor to open account with the same DP as his broker for settling trades done through him?

There is absolutely no compulsion for the client to open his account with the same DP as that of his broker. Even if he/she has an account with another DP, he can carry out normal business with his broker. There is no loss in operational efficiency. But it is possible that opening account with his broker’s DP may work out to his advantage, as some DPs may offer special charge structure if the broker and his clients are dealing through him.
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Why does a broker have only one Clearing Member-Pool Account?

One clearing Member pool account is opened per card/stock exchange to settle trade in the dematerialised form. The clearing corporations/house just deals with one designated account for pay-in and pay-out and the broker’s clients know to which account they have to deliver and receive securities form.
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Why cannot a clearing member hold his personal holdings in his clearing member account?

A broker may deal in the depository system as a clearing member only through a special account, known as the Clearing member account. This account can be used only for clearing member account. This account can be used only for clearing purposes and not for holdings his own securities in it. As this is a transitory account, the securities held in this account are not eligible for corporate action. Therefore, the broker will have to open a separate beneficiary owner account to hold his investments.
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How long does the dematerialisation process take?

Dematerialisation normally takes about fifteen (15) days. However, this may extend to about 30 days if the number of certificates submitted is very large.
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Is dematerialisation compulsory?

No. According to Depository Act, 1996, an investor has the option to hold shares either in physical or in dematerialised form.
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• Arbitration: Settlement of claims differences or disputes between one member and another and between a member and his clients, authorised clerks, sub-brokers, etc., through appointed arbitrators. It is a quasi-judicial process that is faster and is an inexpensive way of resolving a dispute. The Exchange facilitates the process of arbitration between the members and their clients. After both the parties select the arbitrator and after due deliberation and after considering the merits of the case an award is given. In India, arbitration is governed by the arbitration and Conciliation Act, 1996.

• Auction: An auction is a mechanism utilised by the Exchange to fulfil its obligation to a counter party member when a member fails to deliver good securities or make the payment. Through auction, the Exchange arranges to buy good securities and deliver them to the buying broker or arranges to realise the cash and pay it to the selling broker.

• Bad delivery cell: When a delivery of shares turns out to be bad because of company objection etc., the investor can approach the bad delivery cell of the stock exchange through his broker for correction or replacement with good delivery.

• Bld and offer: Bid is the price of a share a prospective buyer is prepared to pay for a particular scrip. Offer is the price at which a share is offered for sale.

• Brokerage: Brokerage is the commission charged by the broker for purchase/sale transaction through him. The maximum brokerage chargeable, as stipulated by SEBI, is at present 2.5% of the trade value.

• Carry forward trading: Carry forward trading has evolved in response to local needs in India and it refers to the trading in which the settlement is postponed to the next account period on payment of contango charges (known as ‘vyaj badla’) in which the buyer pays interest on borrowed funds or the backwardation charges (known as ‘undha badla’) in which the short seller pays a charge for borrowing securities.

• Circuit breakers: It is a mechanism by which Exchanges temporarily suspend the trading in a security when its prices are volatile and tend to breach the price band.

• Clearing: Clearing refers to the process by which all transactions between members is settled through multilateral netting.

• Company objection: an investor sends the certificate along with the transfer deed to the company for transfer. In certain cases the registration is rejected because of signature difference, or if the shares are fake, forged or stolen etc. In such cases the company returns the shares along with a letter which is termed as a company objection.

• Cum-bons: The share is described as cum-bonus when a potential purchaser is entitled to receive the current bonus.

• Cum-rights: The share is described as cum-rights when a potential purchaser is entitled to receive the current rights.

• Day order: A day order, as the name suggests, is an order which is valid for the day on which it is entered. If the order is not matched during the day, at the end of the trading day the order gets cancelled automatically.

• Dematerialisation: Dematerialisation is the process by which shares in the physical/paper form are cancelled and credit in the form of electronic balances are maintained on highly secure systems at the depository.

• Ex-bons: The share is described as ex-bonus when a potential purchaser is not entitled to receive the current bonus, the right to which remains with the seller.

• Ex-rights: The share is described as ex-rights when a potential purchaser is not entitled to receive the current rights, the right of which remains with the seller.

• Forward trading: forward trading refers to trading where contracts traded today are settled at some future date at prices decided today.

• Good-bad delivery: A share certificate together with its transfer form which meet all the requirements of title transfer from seller to buyer is called good delivery in the market.
  Delivery of a share certificate, together with a deed of transfer, which does not meet requirements of title transfer from seller to buyer is called a bad delivery in the market.

• Jumbo certificate: A jumbo share certificate is a single composite share certificate formed by consolidating/aggregating a large number of market lots.

• Market lot: Market lot is the minimum number of shares of a particular security that must be transacted on the Exchange. Mulitples of the market lot may also be transacted.

• No-delivery period: Whenever a book closure or record date is announced by a company, the Exchange sets a no-delivery period for that security. During this period, trading is permitted in that security. However, these trades are settled only after the no-delivery period is over. This is done to ensure that investor’s entitlement for corporate benefits is clearly determined.

• Odd lot: A number of shares that are less than the market lot are known as odd lots. These shares are illiquid in nature, as they cannot be transacted on the Exchange.

• Order driven trading: It is a trading initiated by buy/self orders from investors/ brokers.

• Over the counter trading: trading in those stocks which are not listed on a stock exchange.

• Pay-In: Pay-in day is the designated day on which the securities or funds are paid in by the members to the clearing house of the Exchange.

• Pay-out: Pay-out is the designated day on which securities and funds are paid out to the members by the clearing house of the Exchange.

• Price band: the daily/weekly price limits within which price of a security is allowed to rise or fall.

• Price rigging: When a person or person acting in concert with each other collude to artificially increase or decrease the prices of a security, that process is called price rigging.

• Quote driven trading: trading where brokers/market makers give buy/sell quote for a scrip simultaneously.

• Record date: Record date is the date on which the beneficial ownership of an investor is entered into the register of members. Such a member is entitled to get all the corporate benefits.

• Rematerialisation of shares: It is the process through which shares held in electronic form in a depository are converted into physical form.

• Screen based trading: When buying/selling of securities is done using computers and matching of trades is done by a stock exchange computer.

• Settlement: It refers to the scrip-wise netting of trades by a broker after the trading period is over.

• Settlement guarantee: Settlement guarantee is the guarantee provided by the clearing corporation for settlement of all trades even if a party defaults to deliver securities or pay cash.

• Splitting/Consolidation: The process of splitting shares that have a high face value into shares of a lower face value is known as splitting. The reverse process of combining shares that have a low face value into one share of higher value is known as consolidation.

• Spot trading: Trading by delivery of shares and payment for the same on the date of purchase or on the next day.

• Stop transfer: The instruction given by a registered holder of shares to the company to stop the transfer of shares as a result of theft, loss etc.

• Trade guarantee: Trade guarantee is the guarantee provided by the clearing corporation for all trades that are executed on the Exchange. In contrast the settlement guarantee guarantees the settlement of trade after multilateral netting.

• Trading for delivery: Trading conducted with an intention to deliver shares as opposed to a position that is squared off within the settlement.

• Transfer deed: A transfer deed is a form that is used for effecting transfer of shares or debentures and is valid for a specified period. It should be sent to the company along with the share certificate for registering the transfer. The transfer deed must be duly stamped and signed by or on behalf of the transferor and transferee and complete in all respects.

• Transmission: Transmission is the lawful process by which the ownership of securities is transferred to the legal heir/s of the deceased.