Key Terms in Share Dematerialization

With the Ministry of Corporate Affairs making dematerialization (“Demat”) of securities mandatory for all companies, excluding small companies, many individuals, especially those new to the process, are finding the terminology and steps overwhelming. To ease this, we’ve focused on explaining the key terms involved in the dematerialization process. By understanding these terms, first-time users will have a clearer understanding of each step, making the entire process much simpler and more manageable.

1. Issuer: The term ‘Issuer’ refers to the company whose securities (such as shares or other securities) are being dematerialized. 

2. RTA (Registrar and Transfer Agent): The RTA acts as an intermediary between the Depositories and the Company, facilitating the maintenance of securities in dematerialized form. They handle the record-keeping and ensure that the dematerialised securities are properly managed.

3. DP (Depository Participant): A DP is an intermediary between the investor and the Depositories. They assist investors with tasks such as transferring securities between Demat accounts, converting securities from physical to Demat form, and providing any necessary support related to Demat securities.

4. Depositories: In India, the two primary depositories are NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited). These depositories process all Demat applications and provide support to investors, issuers, and intermediaries involved in the process.

5. Demat Account: An account where the securities are held in electronic (dematerialized) form. This eliminates the need for physical certificates. Whenever securities are credited or debited, such as when you buy or sell securities, those transactions are reflected in your Demat account after the necessary processing. 

6. ISIN (International Securities Identification Number): The ISIN is a 12-character alphanumeric code used to uniquely identify financial instruments like shares, bonds, or other securities. Based on its unique characteristics, each type of security is assigned its own ISIN. The company applies for the ISIN through the RTA.

7. Corporate Action: A corporate action refers to any activity that is carried out to credit securities to the Demat account holders after the ISIN has been assigned. Essentially, it’s the official process that ensures securities are transferred to Demat accounts once the Issuer has completed the allotment.

8. DP ID: The DP ID is a unique 8-digit identification number assigned to each DP. This ID helps identify them in the system. The DP ID is used to track all transactions related to an investor’s Demat account and ensures that securities are properly managed and transferred.

Note: DP ID starting with ‘IN’ signifies that the Depository Participant (DP) is associated with NSDL. 

9. Client ID: The Client ID is a unique 8-digit identification number assigned to each Demat account held by an investor. This ID helps track and manage all securities credited to or debited from the account. Whenever the account holder conducts a transaction, such as transferring or selling securities, the Client ID is referenced to ensure the proper handling and processing of those securities.

10. BENPOS (Beneficiary Position Statement): The statement shows the securities held in Demat account of the investors, categorized by their ISIN, whether securities are in Demat form with CDSL or NSDL, or physical form. It is updated periodically and also whenever securities are transferred. The statement is emailed to the issuer’s registered email ID to provide details of the current holdings in the Company as of a specific date.

11. DIS (Delivery Instruction Slip): A DIS is a form used to transfer securities between two Demat accounts. It serves as an instruction to the DP to move securities from one account to another, such as during a sale or transfer. The DIS ensures that the transaction is processed correctly and securely.

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Darshana Chauhan

Principal Associate | Compliance | darshana@treelife.in

Manages compliance for acquisitions, fundraising, and due diligence with meticulous execution. Ensures adherence to the Companies Act and FEMA while delivering seamless regulatory solutions.