When you buy shares from a company, the company issues a share certificate which indicate your name and the number of shares you bought. That is the documentary evidence of your shareholding in the company. But the advent of computers and electronic devises has made it possible to keep information in electronic form, which can always be printed on paper whenever necessary.
Thus, the authorities of the stock market introduced the electronic documentation of shares, whereby the information about shares owned by investors is kept in electronic form. For this purpose the Central Securities Clearing System (CSCS) was established to create electronic account for each shareholder (CSCS Account) where information regarding the number of shares and of which companies is kept. Thus, the CSCS Account statement became documentary evidence of share ownership in the stock market.
Consequently, investors do not need to keep their shares in paper form, as represented by share certificates. You can put all your shares in CSCS Account, and hence avoid the risk associated with share certificates.
For example physical certificates can wear out with time, can be stolen, and may be misplaced to mention a few of the problems associated with this. Besides, during the period of boom, those who have their shareholding in electronic form can take advantage of the season by selling and making capital gain, unlike those that still retain their physical certificates.
When you put all your shares in the CSCS Account, which is an electronic account, it is said that you have 'dematerialised' your shares. Hence the process of transforming your shares from share certificates to the CSCS Account is called DEMATERIALISATION. The following are the procedures for dematerialise your shares.
Open an account with a stockbroker. For the account opening, you will be required to provide the stockbroking firm with a valid means of identification and evidence of last utility bill paid.
Thereafter, you will be asked to fill an account opening form. This will be forwarded to the CSCS for opening of an account for your shares. On successful completion of the process, a CSCS account number will be issued with which you can monitor your shares' account.
Next, take the share certificate(s) you want to dematrialise to your stockbroker. You will be asked to fill a Transfer Form where you will provide information about the name of the company whose shares you want to dematerialise, number of shares you own, and a sample of your signature.
This is then is forwarded to the Registrar of the Companies that issued the shares, who will confirm your signature against the one they have in their system. Once your signature is confirmed, they will communicate your shareholding in the respective companies to the CSCS, who will then record the information in your CSCS Account. Thus your shares have been transformed to electronic form.
The whole process takes between two weeks to three months depending on the stockbroking firm. It is important to state here that dematerialisation attracts some cost, which vary depending on the stockbroking firm.