Swati(1)3rd Sem
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Transcript of Swati(1)3rd Sem
8/4/2019 Swati(1)3rd Sem
http://slidepdf.com/reader/full/swati13rd-sem 1/13
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Dematerialisation (“Demat” in short form) signifies conversion
of a share certificate from its physical form to electronic form
for the same number of holding which is credited to your demat
account which you open with a Depository Participant (DP).
Dematerialisation is a process by which the physical share
certificates of an investor are taken back by the Company and
an equivalent number of securities are credited in electronic
form at the request of the investor. Prior to dematerialisation the Indian stock markets have faced
several problems like delay in the transfer of certificates,
forgery of certificates etc. Dematerialisation helps to overcome
these problems as well as reduces the transaction time ascom ared to the h sical se ment.
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What is a Depository? A Depository (NSDL & CDSL) is an organisation like a Central
Bank where the securities of a shareholder are held in the
electronic form at the request of the shareholder through the
medium of a Depository Participant.
If an investor wants to utilise the services offered by a
Depository, the investor has to open an account with theDepository through a Depository Participant.
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Who is a Depository Participant? Similar to the brokers who trade on your behalf in and outside
the Stock Exchange; a Depository Participant (DP) is your
representative (agent) in the depository system providing the
link between the Company and you through the Depository.
Your Depository Participant will maintain your securities
account balances and intimate to you the status of your holding
from time to time.
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According to SEBI guidelines, Financial Institutions like
banks, custodians, stockbrokers etc. can become participants in
the depository.
A DP is one with whom you need to open an account to deal in
electronic form. While the Depository can be compared to a
Bank, DP is like a branch of your bank with whom you can
have an account.
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How does the Depository System
operate? The Depository System functions very much like the banking
system. A bank holds funds in accounts whereas a Depository
holds securities in accounts for its clients.
A Bank transfers funds between accounts whereas a Depository
transfers securities between accounts. In both systems, the
transfer of funds or securities happens without the actual
handling of funds or securities.
Both the Banks and the Depository are accountable for the safekeeping of funds and securities respectively.
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Procedure for converting the
physical shares into electronic form To convert the shares into electronic form the investor
should open an account with any of the depository participants. For opening an account the investor hasto fill up the account opening form. An accountnumber (client ID) will be allotted after signing theagreement which defines the rights and duties of theDP and the investor wishing to open the account. Theclient ID along with the DP ID gives a uniqueidentification in the depository system. Any number of depository accounts can be opened.
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After opening an account with the DP the investor shouldsurrender the physical certificates held in his name to adepository participant. These certificates will be sent to the
respective companies where they will be cancelled afterdematerialization and will credit the investors account withthe DP. The securities on dematerialisation will appear asbalances in the depository account. These balances can betransferred like the shares held in physical form.
Dematerialised shares are in the fungible form and do nothave any distinctive or certificate numbers .The securitiesin the demat can again be converted into physicalform which is called as rematerialisation.
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Problems of Dematerialisation. Prior to dematerialization there was almost a gap of three months
between application date and listing of shares .Dematerialisation hasreduced this gap to a great extent. But quick money brings with itself ahost of problems. Current regulations prohibit multiple bids orapplications by a single person.But the investors open multiple demataccounts and make multiple applications to subscribe to IPO's in thehope of getting allotment.
The recent IPO allotment scam proves that even a highly automatedsystem is not the solution to prevent malpractices, if there is laxity. Thescam of Yes bank and IDFC reveal that the investor banker has failed to
weed out multiple applications either direct or benami. Not only theinvestor banker the DP and the depository failed to detect the largenumber of demat accounts opened with the same address but differentnames. Lack of coordination between banks, DP's, brokersdepositories, registrars and investment bankers and clarity of theirroles has given rise to such problems.
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benefits of having a demat
account Trading in the shares of the Company is now under the
compulsory demat segment.With SEBI making demat
mandatory on most of the traded scrips, electronic transaction
will be the only way everyone will trade.
No stamp duty for transfer of securities in the electronic form.
In case of transfer of physical shares, stamp duty of 0.5 percent
is payable on the market value of shares being transferred.
All risks associated with physical certificates such as delays,loss, in transit, theft, mutilation, bad deliveries, etc. eliminated.
Your shares can be kept in the “Frozen Mode” by your
Depository Participant under your specific instructions.
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The concept of an “odd lot” in respect of dematerialized shares
stands abolished, i.e. in the demat mode, market lot becomes
one share.
Shares bought or sold are transferred in your name on the very
next day of pay out. In case of physical shares, transfer of
ownership takes 30 days or sometimes even more.
No, there is no need for a Transfer deed in order to get your
share certificates dematerialised
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Remedial measures* To prevent the sprouting of fictitious demat accounts at DP's the allotment of shares should be checked thoroughly.
*The concerned DP should strictly enforce the Know your client (KYC) normsrather than relying on bank documents and verification of brokers.
* DP's should be asked to give monthly figure of accounts opened for thepublic.
* Coordination and Clear definition of roles is important to weed out
manipulations.Though dematerialisation has several benefits the recent scam has thepotential to adversely affect the confidence of retail investors in the capitalmarket .To reap the benefits of dematerialisation SEBI, as a regulator has toplace a system that is alert and vigilant against unjust gains.
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