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Dematerialisation

Dematerialisation is the process of converting According to the Depositories Act, 1996, an

the physical form of shares into electronic form.




investor has the option to hold shares either in physical or electronic form .The process of converting the physical form of shares into electronic form is called dematerialisation or in short demats. The converted electronic data is stored with the depository from where they can be traded.

Procedure for converting the physical shares into electronic form.




Open an Account with any of the Depository participant Allotment of client id to the Investor The client ID along with the DP ID gives a unique identification in the depository system Surrendering of the physical certificates to the DP The Certificate is sent to the respective company The Investors DP Account is credited in 15 days time

 

There is no risk due to loss on account of fire, theft or mutilation. There is no chance of bad delivery at the time of selling shares as there is no signature mismatch. Transaction costs are usually lower than that in the physical segment. The bonus /rights shares allotted to the investor will be immediately credited into his account. Share transactions like sale or purchase and transfer/transmission etc. can be effected in a much simpler and faster way.

Advantages of dematerialisation

Trade Clearing and Settlement in Stock Markets

Clearing and settlement is a post trade activity. The transactions in secondary market pass through three distinct phases, Trading, Clearing and Settlement.

  

Entities involved in the process of Clearing


     

The clearing corporation Clearing members Custodians Clearing Banks Depositories The Professional clearing member

Clearing Corporation


The first clearing corporation to be established

in the country and also the first clearing corporation in the country to introduce settlement guarantee is the National Securities Clearing Corporation Ltd. (NSCCL), a wholly owned subsidiary of NSE. NSCCL was incorporated in August 1995.

Clearing Members


Clearing Members are responsible for settling

their obligations as determined by the clearing corporation. They do so by making available funds and/or securities in the designated accounts with clearing bank/ depositories on the date of settlement.

Custodians


Custodians are clearing members but not

trading members. They settle trades on behalf of trading members, when a particular trade is assigned to them for settlement.


As on date, there are 13 custodians empanelled with NSCCL.

Clearing Banks


Clearing banks are a key link between the

clearing members and Clearing Corporation to effect settlement of funds. Every clearing member is required to open a dedicated clearing account with one of the designated clearing banks.

Depositories


Depository holds securities in dematerialized

form for the investors in their beneficiary accounts. Each clearing member is required to maintain a clearing pool account with the depositories. He is required to make available the required securities in the designated account on settlement day.

Professional Clearing Member




NSCCL admits special category of members

known as professional clearing members (PCMs). PCMs may clear and settle trades executed for their clients (individuals, institutions etc.). In such cases, the functions and responsibilities of the PCM are similar to that of the custodians

Clearing and settlement process at NSE

1. Trade details from Exchange to NSCCL 2. NSCCL notifies the trade details to clearing % who affirm back. Based on the affirmation, NSCCL applies multilateral netting and determines obligations. 3. Download of obligation and pay-in advice of funds/securities. 4. Instructions to clearing banks to make funds available by pay-in time. 5. Instructions to depositories to make securities available by payin-time. 6. Pay-in of securities (NSCCL advises depository to debit pool account of custodians/CMs and credit its account and depository does it)

7. Pay-in of funds(NSCCL advises Clearing Banks to debit account of custodians/CMs and credit its account and clearing bank does it) 8. Pay-out of securities (NSCCL advises depository to credit pool account of custodians/CMs and debit its account and depository does it) 9. Pay-out of funds (NSCCL advises Clearing Banks to credit account of custodians/CMs and debit its account and clearing bank does it) 10. Depository informs custodians/CMs through DPs. 11. Clearing Banks inform custodians/CMs

Depository and Depository participants

A bank or company which holds funds or

securities deposited by others, and where exchanges of these securities take place. The two depositories in India are the National Securities Depository Ltd (NSDL) and Central Depository Services (India) Ltd (CDSL).


In the depository system, securities are held in

depository accounts, which is more or less similar to holding funds in bank accounts. Transfer of ownership of securities is done through simple account

NSDL
   

Incorporated in December 1995 Now more than One crore Demat Accounts Largest Depository in India Promoters of NSDL

- IDBI - UTI - NSE

CDSL


CDSL received the certificate of

commencement of business from SEBI in February, 1999.




All leading stock exchanges like the National

Stock Exchange, Calcutta Stock Exchange, Delhi Stock Exchange, The Stock Exchange, Ahmedabad, etc have established connectivity with CDSL.

CDSL was promoted by Bombay Stock

Exchange Limited (BSE) in association with Bank of India, Bank of Baroda, State Bank of India and HDFC Bank.

 

Why Depository Elimination of bad deliveries


Elimination of all risks associated with physical certificates No stamp duty Faster disbursement of non cash corporate benefits like rights, bonus, etc. Reduction in brokerage by many brokers for trading in dematerialised securities Reduction in handling of huge volumes of paper Elimination of problems related to change of address of investor Ease in portfolio monitoring