Definition of 'Dematerialization (DEMAT)'
There are several benefits to dematerialization. First, it reduces the cost of issuing and storing securities. Second, it makes it easier to trade securities, as they can be transferred electronically between parties. Third, it reduces the risk of fraud, as paper certificates can be counterfeited.
Dematerialization is not without its challenges. One challenge is that it can be difficult to track the ownership of securities that are held in electronic form. Another challenge is that it can be difficult to enforce the rights of investors who hold securities in electronic form.
Despite these challenges, dematerialization is becoming increasingly common. In the United States, for example, the vast majority of securities are now held in electronic form. This trend is likely to continue as technology advances and the cost of dematerialization continues to decline.
Here are some additional details about dematerialization:
* Dematerialization is also known as "decertificated" or "book-entry" trading.
* The process of dematerialization is typically carried out by a central securities depository (CSD).
* A CSD is a financial institution that holds securities in electronic form on behalf of investors.
* CSDs are regulated by governments and securities regulators.
* Dematerialization has been a key factor in the growth of the global financial markets.
* It has made it easier for investors to trade securities and has reduced the cost of doing business for financial institutions.
Overall, dematerialization is a positive development that has made the financial markets more efficient and secure.
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