Temporary illiquidity
The workbook's name for the period a rematerialisation request makes securities untradeable — starting the moment the DP accepts the request, not the moment the account is actually debited.
In plain language
Filing a rematerialisation request does not instantly turn electronic shares into paper. There is a gap in between, and during that gap the shares are stuck. They cannot be sold or delivered, because the physical certificates have not arrived yet.
The workbook gives this gap its own name: temporary illiquidity. It is temporary, because paper eventually arrives. It is illiquidity, because until it does, the holding is simply frozen.
How it works
From Chapter 7, section 7.4: when a rematerialisation request is sent, the securities in the client's account are not available for delivery or transfer immediately; the client must wait for the physical certificates to reach him before they can be sold — hence "temporary illiquidity." The trigger is the moment the DP accepts and sets up the RRF, not the moment the account is later debited on the R&T Agent's confirmation.
The full window can run to several weeks in an ordinary case: the DP forwards the RRF to the Issuer/RTA within seven days of accepting it, and the Issuer/RTA must despatch certificates to the client within 30 days of confirming the request — so illiquidity persists from the DP's acceptance of the RRF right through to the day the paper actually reaches the investor's hands.
A worked example
Mr Vaidya holds 500 shares worth Rs 6,20,000 and files an RRF on 1 June to rematerialise them. His DP accepts the RRF that same day, and from 1 June onward those 500 shares cannot be sold or delivered at all — even though the depository does not actually debit his account until the R&T Agent confirms, around 12 June. Certificates finally reach him by around 12 July, roughly six weeks after he filed the request.
If the share price falls from Rs 1,240 to Rs 1,060 during those six weeks, Mr Vaidya loses Rs 90,000 of value with no way to sell and cut the loss — that locked-in exposure is exactly what "temporary illiquidity" describes.
Why NISM asks about it
Chapter 7, section 7.4, names temporary illiquidity immediately after the RRF acceptance mechanics. Expect a question testing exactly when illiquidity begins — from RRF acceptance, a detail candidates often wrongly place at account debit instead.
Common exam traps
- Illiquidity begins the moment the DP accepts the RRF, not the moment the account is later debited — a gap of potentially several days.
- This concept is specific to rematerialisation, not dematerialisation or an ordinary pledge — it is the cost of converting out of electronic form.
- "Temporary" can still mean five to six weeks in practice — seven days to forward the RRF, then up to 30 more days to despatch certificates, one stage after the other.
Check yourself
1.Within how many days of a rematerialisation request should the client receive the physical securities?
- a)7 days
- b)15 days
- c)30 days
- d)45 days
Show the answer
Answer: (c) 30 days
The certificate of securities should be sent to the clients within a period of 30 days from receipt of such RRF by the Issuer or its R&T Agent, and equally the Issuer/R&T Agent should send the certificate to the BO within 30 days from the date of confirming the request in the depository system.
The distractors are all real deadlines from elsewhere in the chapter, which is why they are tempting:
- 7 days — the time within which the DP must forward the RRF (or the DRF) to the Issuer/RTA after accepting it from the client
- 15 days — the time within which the R&T Agent must confirm or reject a demat request from the date of receipt of physical shares, and the time within which the DP must remove objections
The practical consequence for the client is the temporary illiquidity: for up to 30 days he holds neither tradeable demat balance nor certificates.
2.A client lodges a rematerialisation request and asks whether he can continue to trade those securities in the meantime. What is the correct position?
- a)Yes, until the depository debits his account he may sell freely
- b)No — the securities are not available for delivery or transfer, and no trading is possible on securities sent for rematerialisation
- c)Yes, but only through off-market transfers
- d)Yes, provided he cancels the RRF before the pay-in deadline
Show the answer
Answer: (b) No — the securities are not available for delivery or transfer, and no trading is possible on securities sent for rematerialisation
When a rematerialisation request is sent, the securities in the client account will not be available for delivery/transfer immediately. The client will have to wait for physical certificates to reach him before they can be sold. The workbook adds it plainly in the process list: no trading is possible on the securities sent for Rematerialisation.
The workbook calls the effect temporary illiquidity, and it can last a while — the certificate of securities should be sent to the client within a period of 30 days.
Option C fails because the restriction is on the balance itself, not on a route. Option A misreads the mechanics: the balance is unavailable from the moment the request goes in, not from the moment of debit.
This is exactly the warning a DP should give before accepting an RRF, alongside the second one: the new certificates may not necessarily bear the same folio or distinctive numbers.
Where this is taught
Free preparation for NISM Series VIRelated terms
- RematerialisationThe reverse of dematerialisation — the demat account is debited and the issuer prints fresh physical certificates for the same quantity, to be despatched within 30 days.
- Jumbo lotA single certificate covering an entire rematerialisation request, one of two delivery options a client can choose on the RRF — the other being separate certificates in ordinary market lots.