Rematerialisation

A beneficial owner has the right to walk back out of the depository at any time. Rematerialisation is how: the account is debited for the quantity requested, and the issuer or its R&T Agent issues physical certificates for the equivalent number of securities.

The request goes on a Rematerialisation Request Form (RRF), submitted to the DP, who checks that there is sufficient free or locked-in balance to honour it. Note that the securities go to the issuer's register, not just to a printer — the holder's name is entered in the Register of Members of the company.

The reason to know this process is not that anybody does it often. It is that the workbook uses it to make a point about liquidity, and that point is examined.

The RRF is entered by the DP, which generates a Rematerialisation Request Number (RRN). In NSDL a second authorised person — not the one who keyed it — verifies and releases the request to the depository; CDSL does not have this release step. The DP forwards the RRF to the issuer or R&T Agent within seven days of accepting it, and the depository intimates R&T Agents of pending requests daily.

On the R&T Agent's acceptance the depository debits the client's account, and the certificates must reach the client within 30 days.

Two consequences follow immediately.

First, no trading is possible on securities sent for rematerialisation. From the moment the request is set up the quantity is unavailable for delivery, and the client must wait for paper to arrive before selling. The workbook calls this temporary illiquidity, and names it.

Second, the new certificates may not bear the same folio or distinctive numbers the investor had before dematerialising. Fungibility destroyed that link, and rematerialisation does not restore it.

A shareholder holds 500 shares at Rs 1,240 — Rs 6,20,000 — and wants them back in paper.

For roughly six weeks Rs 6,20,000 of holding cannot be sold at all. If the price falls to Rs 1,060 in that window, the Rs 90,000 of loss is unavoidable — there is nothing to deliver against a sale. That is what temporary illiquidity costs, and it is the whole reason the workbook mentions it.

A second detail worth planning for: the shareholder wanted one certificate for the whole quantity. The RRF asks whether the certificates should come as a jumbo lot for the entire quantity or in market lots — a choice the client makes on the form, not afterwards.

Chapter 7 (Functions of DP — Dematerialisation) covers rematerialisation in section 7.4. Expect the 30 days for despatch of certificates and the seven days for the DP to forward the RRF, the jumbo-lot versus market-lot option, and above all the temporary illiquidity point — that securities under a remat request cannot be traded.

• 30 days is for the certificates to reach the client; seven days is for the DP to forward the form. Both numbers are in the same paragraph and are routinely swapped.
• The new certificates need not carry the old folio or distinctive numbers. Rematerialisation does not undo fungibility.
• Securities under remat cannot be sold. They are unavailable from the moment the request is set up — not from the moment the account is debited.
• Separate RRFs are needed for free and locked-in securities, for different lock-in reasons, for each ISIN and for each paid-up value, exactly as for demat.
• Rematerialisation needs sufficient free or locked-in balance. A pledged balance cannot be rematerialised out from under the pledgee.
• In NSDL a different person must verify and release the RRN from the one who entered it. That maker-checker release step does not exist in CDSL.