
Dematerialization (DEMAT)
Dematerialization (DEMAT) is the move from physical certificates to electronic bookkeeping. Through dematerialization, so-called DEMAT accounts allow for electronic transactions when shares of stock are bought and sold. The use of dematerialization and DEMAT accounts is comparable to using a bank and bank accounts to maintain one’s assets rather than personally storing and exchanging paper money each time a transaction is made. The benefits of dematerialization can also include increased security and surety of transactions and the elimination of steps that could slow down the process of clearing transactions. Dematerialization (DEMAT) is the move from physical certificates to electronic bookkeeping.

What Is Dematerialization (DEMAT)?
Dematerialization (DEMAT) is the move from physical certificates to electronic bookkeeping. Actual stock certificates are then removed and retired from circulation in exchange for electronic recording.



How Dematerialization Works
With the age of computers and the Depository Trust Company, securities no longer need to be in certificate form. They can be registered and transferred electronically.
The introduction of dematerialization allowed for accounts to be updated automatically and swiftly.
In earlier eras, transactions at stock exchanges were conducted by traders who shouted buy and sell prices. The deals were recorded on paper receipts. After the markets closed, the paperwork would continue in order to properly register all the transactions.
The Benefits of Dematerialization
Through dematerialization, so-called DEMAT accounts allow for electronic transactions when shares of stock are bought and sold. Within a DEMAT account, the certificates for stocks and other securities of the user are held as a means for seamless trades to be made.
The introduction of dematerialization served to eliminate such a paper-oriented process. Furthermore, by adopting electronic bookkeeping, this allowed for accounts to be updated automatically and swiftly.
Dematerialization applies not only to stocks, but also to other forms of investment such as bonds, mutual funds, and government securities. The use of dematerialization and DEMAT accounts is comparable to using a bank and bank accounts to maintain one’s assets rather than personally storing and exchanging paper money each time a transaction is made.
Using a debit card at a store creates a digital record of purchase and the amount is deducted from the cardholder’s account. Funds are exchanged between buyers and sellers without paper currency. Likewise, with dematerialization, the stock transactions are completed without physical certificates.
Brokers or other intermediaries will typically retain the electronic records of the transactions associated with the assets.
If the holder of a physical, paper bond or other security wishes to dematerialize the document, they usually surrender the certificate with an intermediary. They should receive some sort of electronic notification that the record has been dematerialized and they may proceed with conducting transactions.
Some assets — for example, publicly traded shares — require a DEMAT account to engage in trades and other transactions. This is because markets now operate through electronic transactions rather recorded on paper.
The benefits of dematerialization can also include increased security and surety of transactions and the elimination of steps that could slow down the process of clearing transactions. Errors can be avoided that might otherwise be introduced in the handling of physical records. There might also be some savings by eliminating paperwork that may have included processing fees.
Related terms:
Custody-Only Trading and Example
Custody-only trading is a system in which shares must be registered to the holder by name and can only be traded in physical form. read more
Decentralized Market
In a decentralized market, technology enables investors to deal directly with each other instead of operating from within a centralized exchange. read more
Digital Transaction
A digital transaction is a seamless system involving one or more participants, where transactions are effected without the need for cash. read more
Depository Trust Company (DTC)
The DTC or Depository Trust Company is one of the world's largest securities depositories. Learn how the DTC lowers risks and costs for investors. read more
Depository Trust and Clearing Corporation (DTCC)
Established in 1999, the Depository Trust and Clearing Corporation (DTCC) is a holding company that consists of five clearing corporations and one depository. read more
Holder of Record
A holder of record is the person who is the registered owner of a security and who has the rights, benefits, and responsibilities of ownership. read more
Mutual Fund
A mutual fund is a type of investment vehicle consisting of a portfolio of stocks, bonds, or other securities, which is overseen by a professional money manager. read more
Share Certificate
A share certificate is a written document verifying a stockholder owns shares of a company; this paper stock certificate has largely been phased out in the digital age. read more
Stock Certificate
A stock certificate proves the holder has ownership in the company, as it displays the number of shares owned, the date of purchase, a corporate seal, and other confirmations of identity. read more