The advent of the communication/information revolution has resulted in an innovation of sorts. Electronic trade has replaced the physical trade in commodities and the industry is now talking about virtual trade. It is now possible to
trade by commodity value. Dematerialization is the process of converting the value of commodities held in the physical form (cheques) into an electronic format. Dematerialization of holdings is not mandatory.
According to the recent Act passed by the government, an investor can hold commodities either in physical or dematerialized form. This law actually gives freedom to an investor to hold commodities either in demat form or in physical form or hold the same partly in demat and partly in physical form.
Dematerialization has the following implications:
• The investor no longer holds commodities in the physical form. The dematerialized commodity do not have any distinctive or certificate numbers and are now identified by the value held by the regulatory authority
• Any amount of commodity can also be dematerialized
• The company and its registrar and transfer (R & T) agent do not have the details of the investors holding the commodity in demat form. If they require the details, they have to request the databank of the regulatory authority
• The regulatory authority communicates the details of the bulk of commodity converted into demat form at the exchange where it is listed and traded
• The investor can only dematerialize commodities from that belonging to the list of commodities admitted for dematerialization and are registered in his name
• Commodities held in a pseudo name for market delivery will not be accepted for dematerialization
• An investor that has opted for this change can thereafter trade only in dematerialized commodities