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The traditional system of script based dealing in shares involves enormous paper work and is time consuming. The process begins with buying share certificates in paper form and ends with getting the certificates endorsed in the buyer's name. It also involves problems like bad deliveries, forgery and fake certificates, tearing / mutilation due to bad handling, loss of certificates, delay in receipt due to huge volumes being handled by postal department, etc.
The Depository System aims at facilitating script less trading and settlement of securities in dematerialised form. It eliminates the problems associated with physical securities and enables faster settlement / transfer and reduction in transaction costs like brokerage, postage, etc. There is no stamp duty to be paid by the buyer.
Depository System is prevalent in many advanced markets and has been playing significant role in development of integration of the markets.
A Depository is an organization where the Securities of a shareholder are held in the Electronic form at the request of the shareholder through a 'Depository Participant'.
It is the intermediary appointed by Depository where the Investor opens his Demat Account for Dematerialising / Rematerialising securities whenever required and his account of securities transactions is maintained in the same way like a bank account.
The Company or its Registrar and Transfer Agent is the third link in the process. Complete details of physical shareholding along with relevant data are available with the Company or its R&T Agent who handles the transfer related activities. The share certificates submitted for Demateriaisation are sent by the Depository Participant to the Company or its R&T agent for completing the dematerialization process.
The Investor or the Shareholder who is holding shares in the Company as beneficial owner. Shares of specified companies including HPCL can traded by investors only in Demat form as specified by SEBI.
Dematerialisation is a process by which the physical certificates of an investor are taken back by the Company or its Registrars and an equivalent number of securities is electronically credited in the demat account of that investor. In other words, the shareholding gets converted from physical form to that of electronic form.
For Dematerialisaion of securities, an investor will have to first open an account with a Depository Participant and then submit request for dematerialisation of the securities in a specified form alongwith relevant certificates. The demat request alongwith the certificates is forwarded by DP to the Company or its Registrar who after due verification will confirm the dematerialization and the investor's account with his Depository Participant will get credited to the extent of shares applied for demat. However, in the records of the Company or its Registrar the Depository's account will get credited as it is holding the securities on behalf of the investor, and the name of the investor is shown in records as beneficial owner of shares.
The entire process of Dematerialisation has to be completed within a period of 21 days from the date of receipt of demat request by Depository Participant (DP).
Whenever there is any Corporate Action, like, distribution of dividend or issue of bonus shares, the company will obtain the shareholding position of dematerialised shares from the Depository through a Beneficial Position statement called BENPOS, and then issue Corporate Benefits to shareholders on that basis.
Rematerialisation is a process of converting electronic share holding back into the physical holding. The Depository Participant should be given a request for Rematerialisation in a specified form who in turn will forward the same to the Depository. The Depository after verifying that the investor has necessary securities balance, will intimate the company or its Registrar accordingly, who in turn, will print the relevant certificate and despatch the same to the investor.
The entire process of Rematerialisation has to be completed within a period of 30 days from the date of receipt of Remat request.
The DPs charge for certain items like:
Investors should carefully choose a DP after evaluating various factors like:
HPCL has entered into an agreement with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) for dematerialisation of shares. Trading of HPCL's shares in Demat form commenced effective 18.9.1997. The connectivity for dematerialisation of warrant conversion shares was established with effect from August 21, 1998. With the SEBI's announcement regarding compulsory trading by institutions in Demat form effective 1.6.98 and for all investors effective 15.2.99 the depository system has assumed greater significance.