debentures, warrants, bonds, units of mutual funds, rights under collective investment
schemes and venture capital funds, Commercial paper Certificate of deposit, securised
debt, Money Market instruments and unlisted securities are eligible to be admitted to the
depository for dematerialization. A depository holds the Securities in electronic form. It
can be called a Bank for Securities. It dematerializes the Securities, i.e., it converts the
physical securities into book entry securities. In the process, physical Certificates are
eliminated altogether. When an Investor deposits his physical securities with a
depository, his account with the depository is credited for the deposit. The transfer is
affected electronically whenever he buys and sells his shares and his account will be
credited or debited accordingly. Shares in depository mode will be fungible; it means
shares will have no distinctive number in case of shares physically held. The Institution
which acts as a depository becomes the registered owner of the shares and the member
owning the shares in a Company will be treated as beneficial owner. The beneficial
owner continues to enjoy all the benefits like dividend, right shares, bonus shares, as well
as voting rights. A depository interfaces with the investors with the help of a Depository
Participant. A Depository Participant could be a public Financial Institution a defined in
Section 4 A of Co’s Act, 1956, Scheduled Banks, RBI approved foreign banks operating
in India, State Financial Corporation established under Section 3 of State Financial
Corporation Act, Institutions engaged in providing financial services, promoted by any of
the institutions mentioned above, either jointly or severally, custodians of securities who
are registered with SEBI, Clearing Corporation or clearing houses of Stock Exchanges,
Stock brokers registered with SEBI, NBFC’s having a net worth 50 lakhs or more,
provided they fulfill the admission criteria laid down by SEBI. A Depository Participant
is the representative of an Investor in the Depository System. He acts as an intermediary
between an Investor and the Depository.
As per the provisions of the ordinance, the holder of securities shall have an
option whether to remain in non-depository mode or shift to depository mode. Those
who would like to remain in non-depository mode shall hold the physical possession of
Certificates of Securities and the Investors who opt to hold securities under depository
mode shall open an Account with a Depository Participant. He gets an identification
number which serves as a reference point for all his transactions with that Depository
Participant. The process of dematerialization involves the following steps:
- The Investor has to fill up Demat Request Form provided by
the Depository Participant and surrender his share Certificate
duly cancelled by endorsing “surrendered for Demat”.