What Is Dematerialization (DEMAT)
Dematerialization (DEMAT) is the move from physical certificates to electronic bookkeeping. Actual stock certificates are then removed and retired from circulation in exchange for electronic recording. DEMAT accounts are required by some trading institutions due to the fact they are the most accurate form of record keeping. Dematerialization was designed to offer more security, as well as increased speed, to financial trades. It has become the norm in bookkeeping for financial institutions. Dematerialization is actually a move away from physical certificates to electronic bookkeeping. This type of process is required by many trading institutions because it is considered to be the most accurate form of record keeping. In fact, US markets have been required to hold DEMAT accounts since 1992 as a result of the Securities Exchange Commission (SEC)’s Rule 17Ad-13.
How Dematerialization Works
In today’s high-tech world of computerized securities, this process is now done electronically. In the case of stocks, the Depository Trust Co (DTC) is the place where most stocks are held. Here, transactions are recorded with an electronic bookkeeping method called Dematerialization (Demat). Transactions transfer ownership from one party to another without any material evidence that physical shares ever existed in the first place. In the days before computers and the Depository Trust Company, stock certificates had to be transported to companies, brokers, and investors. It was a long, expensive process in which securities were delivered by bus, train, or plane. It required very careful handling. The Depository Trust Company changed all of that. Now securities can be recorded and transferred electronically.
Benefits of Dematerialization
Dematerialization allows for electronic transactions when shares of stock are bought and sold through online trading. Adopting electronic bookkeeping allows for accounts to be updated automatically and swiftly. Within a DEMAT account, the certificates for stocks and other securities of the user are held as a means for seamless trades to be made. When it comes time to sell stock and shares that have been purchased on the market, you need to handle this through a designated account. This is to ensure that these securities are held as collateral while they are on the market, with no way for them to be stolen or otherwise illegally transferred. When it comes time to exchange stocks and securities within an account, the modern process of dematerialization allows these assets to be electronically exchanged without the need for paper ledgers.Â
Electronic storage of securities, known as dematerialization, or DEMAT for short, provides owners with the ability to trade securities electronically. The process removes the need for physical stock certificates to be traded between investors, exchanged by companies when shares are issued, and re-registered each time a share is sold. Securities are held in a digital account and are simply transferred between accounts when they change hands. One of the main benefits of dematerialization is efficiency: it makes trading securities faster by eliminating paper transactions and the delays involved in transferring paper certificates. You use your debit card at the store, and the amount is deducted from your account. The transaction record is created digitally. This is much like dematerialization, in which the stock transactions are completed without physical certificates. The buyer’s account is debited with the cost of the stocks and holder’s account is credited with shares electronically.