Sumita is a professor in a reputed business institute. While explaining the procedure of stock exchange trading, she shared with her students that many years back she had bought 200 shares of a leading automobiles company. As per the settlement procedure she paid for the shares and received the share certificates in physical form. However, when she had sent those certificates to the company to get them endorsed in her name, she was informed by the company that those certificates were duplicate. Therefore, in order to protect the investors from many such malpractices, now only screen based trading is done and dematerialisation is compulsory. In context of the above case: (a) What is screen based trading? (b) Give the meaning of ‘dematerialisation’. State any two of its advantages.
Answers
(a) SCREEN BASED TRADING
Screen based trading. Form of trading that uses modern telecommunication and computer technology to combine information transmission with trading in financial markets.
(b) 1- DEMATERIALISATION
Dematerialisation offers flexibility along with security and convenience. Holding share certificates in physical format carried risks like certificate forgeries, loss of important share certificates, and consequent delays in certificate transfers. Dematerialization eliminates these hassles by allowing customers to convert their physical certificates into electronic format.
2- ADVANTAGES OF DEMATERIALISATION
The risks pertaining to physical certificates like loss, theft, forgery and damage are eliminated completely with a DEMAT account. The lack of paperwork enables quicker transactions and higher efficiency in trading. ... A DEMAT account holder can buy or sell any amount of shares.