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D mat D mat Document Transcript

  • A small note of De materialization of shares:India has the largest number of listed companies in the world and the capital market is growing by leaps and bounds. The physical movement of share certificates and their transfer are fraught with a number of problems and are usually difficult and time consuming. Further, with the increase in the volumes of trading, there has been an increase in the number of BAD DELIVERIES (ie return of share transfer form due to non or improper filling up of share transfer form, discrepancy in the signature of the transferor etc.,) and this has introduced increased risks in settlement of trade. The De materialization of shares is to reduce or do away with the threat of wrong/forged signatures, stolen shares, fake certificates etc. De materialization of shares involves setting up of an electronic system with scripless trading and quick settlement cycle. After de materialization, the shares become FUNGIBLE ie, shares will be without any number and any share can take any other share’s place. In case of physical share certificates, a share certificate for a particular number of shares has a specific running number ( like 000100 to 000150) which is identifiable with a particular shareholder. In this new system of keeping ownership records in the form of electronic holdings , the physical movement of securities would be replaced by a book entry system, under which the ownership would betransferred by ELECTRONIC ENTRIES. The Depositories Act, 1996, makes a provision for the setting up of multiple depositories in India. At present there are now two Depositories, the National Securities Depository Limited (NSDL) and the Central Depository Services Ltd (CDSL). The investor has been granted an option of holding securities in a physical or dematerialized form. In the Depository system, the “Registered owner” means a Depository, whose name is entered as such(ie either as NSDL or CDSL) in the register of the ISSUER,ie the Company which issues the shares. Ie, it is the Depository’s name which will be in the companies’ records. The Register and the Index of “Beneficial Owners” maintained by a depository is deemed to be the index and register of members and the debenture holders of the Company. “Beneficial owner” means a person whose name is recorded as such with a Depository. All rights with respect to the securities held in the Depository will lie with the beneficial owner(Investor) and not with the depository, the depository acting as the registered owner only. The important advantage of the de mat is that when transacting through a depository, the investor will not be required to pay stamp duty on transfer of shares or the units of mutual funds within the depository. In the demat transaction, thus there are four parties, namely THE COMPANY(the issuer)- THE DEPOSITORY-THE DEPOSITORY PARTICIPANT-THE BENEFICIAL OWNER(ie the shareholders) The Depository will interface with the investors(ie shareholders) through market intermediaries called Depository Participants. The depository will hold the beneficial owner-level information through its network of Depository participants. This will facilitate proper distribution of benefits arising out of the investor’s holdings such as dividend, interest, bonus and rights as on a given record date by the Issuer Company. Every week, on Friday, the depository will furnish the company with the list of Beneficial owners electronically. If a company requires the list of the beneficiaries as on a day other than the Friday, it can get such a list as on the required day on payment of Rs.10,000/-.