When the shares are handed over to the depository system, the shares get immobilized as they are no more with the shareholder in physical form.
Notification by Stock Exchange
The stock exchange concerned where the shares are listed will come out with a notification for the dematerialization of shares.
The shareholder will obtain the Dematerialisation request form from the Depository Participant. This form will contain details about the name of the company, folio number and the distinctive number of the shares which are given for dematerialization. The form will be signed by either the single owner if it is held so or by joint owners, when they are held jointly.
Registering of shares
When the D.P hands over the securities to the depository, the securities will be sent to Share Registrar who will register the depository name and the particulars of shares. But, before doing this, the ownership of the securities should be verified with the company and hence, this procedure will take some time.
In case the signature in the requisition form does not tally with the specimen signature held by the company, then the request for dematerialization will be rejected as it amounts to bad delivery.
Crediting the investor account
In the last stage, the Depository will inform the D.P the details of shares registered in the name of the shareholder concerned. On this basis, the D.P will send the Statement of Account, to the customer shareholder.
This completes the dematerialization procedure. We can explain this in the following diagram:
We have so far discussed about the sale and purchase of securities in the secondary market. But when a shareholder applies for a company security in the primary market, he will mention his ID Account number in the application form.