Technology Behind Demat Account

Jessica Foreman
November 1, 2018
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A demat account is an online account which records the electronic storage and transfer of shares on behalf of investors. Each investor has a unique demat ID which should be quoted for the purpose of transfer of securities on the markets. The demat account replaces the physical transfer of shares which was prevalent in earlier times. The older system was susceptible to risks of fraud, theft, misplacement and spoilage. With electronic transfers, trading has become a lot more convenient for both buyers and sellers of shares.

Technology has played a major role in providing a seamless and coordinated trading experience to traders and brokers. The trading and investing environment have become more dynamic and open for even novice traders to enter the markets. Investors can open demat account online by a simple online application procedure with the help of a broking agency. An application form has to be filled in and general ID proofs have to be provided for demat account opening.

The errors in transacting in share trading have reduced to a great extent. Earlier, the particulars of shares such as the number of shares, face value and name of investor was recorded on paper and transferred physically. Simple details like contact number and address of the investor if changed, had to go through a long process for editing historical records. Also, the companies had to be kept in a loop regarding changes in ownership of the security. Here are the ways by which technology has impacted demat accounts and trading:

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  • Low risk: Demat accounts eliminate the risks of theft, spoilage, or defacing of shares, as they are stored and transferred electronically. As these risks are reduced, traders feel more secure while transacting in the secondary capital markets, as compared to earlier times. The risk of losing property or ownership of the shares purchased, due to unfair circumstances is reduced greatly.
  • Online security: The technology employed behind the construction of a demat account, provides online security and safety nets to users. Various softwares such as firewalls, anti-virus and anti malware programs provide adequate cover for online trading.
  • Online record keeping: As the records are entirely shifted to the computer from the traditional pen and paper, maintenance and upkeep of records has become a lot easier. Traders can easily trace the history of past transactions, date wise and value wise from their demat account records. The companies invested in can also be viewed easily with a click of a button.
  • Electronic storage and transfers: The demat account technology ensures smooth transfers in an instant. When a seller sells shares to a buyer, they get transferred to the buyer’s demat account immediately. Also, storage of share investments is easier in an electronic form, where traders do not have to worry about physical share certificates.
  • Artificial Intelligence: Automation of various functions such as account opening, shares documentation and transfers, fund accounting, and fund transfers have been developed on the basis of artificial intelligence and machine learning. AI is nothing but the technologies which make machines smarter and more ‘cognitive’. This can include simple functions such as speech recognition and subsequent command implementation.
  • Analytics: Broking agencies aid investors to open demat account online. As a part of market research, they employ analytics and allied tools to gauge the market. The demat account is designed in a way which is user-friendly and easy to operate. Considerable analytics has been used in the technological development of the account, for ease in operation.
  • Linkages possible: Technology of the demat account is flexible to enable a seamless and coordinated trading experience to the traders. It can be linked to the trading account and the bank account for the smooth transfer of shares and funds, between buyers and sellers.

The demat account is an advanced trading tool, developed and encouraged since recent times. It has brought in a radical shift in trading activity, and fostered greater financial inclusion. The working of the demat account is based upon smart technology with the objective of providing convenience and safety of conducting transactions by traders.

Despite its safety features, the online trading is susceptible to hacker attacks and malware threats. In case any unusual trading activity is noticed by the trader/ broker, the demat account also has the additional technological feature of being frozen. Freezing the account stops all activity until further instruction by the user. This feature provides further security to the users.

It is based on a simple yet superior technology which enables traders or their brokers to view, monitor and take action on the shares in their portfolio. Users of the demat account can buy or sell shares with the click of a button, in mere seconds. The user interface is easy to decipher and understand, and even novice traders can get acquainted with the demat account at a fast pace.

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