Mumbai: The Securities and Exchange Board of India (Sebi) is considering a new regulation that would require all shares to be issued in dematerialized (demat) form when a company undergoes a split or consolidation of its share face value. This proposal also extends to corporate restructuring situations.
The motivation behind this initiative is the various advantages associated with holding shares in demat form, such as the elimination of risks tied to physical certificates, including loss, theft, damage, and fraud. Sebi has released a consultation paper on this matter, inviting public feedback until February 4.
Despite Sebi’s ongoing efforts to encourage investors to hold their shares in demat accounts, some investors continue to possess physical share certificates. For those without demat accounts who are allotted shares in demat format due to splits, consolidations, or restructuring, the companies involved will be required to set up separate demat accounts or suspense escrow accounts to keep track of ownership for these investors, according to the consultation paper.
The benefits of demat shares highlighted by Sebi include enhanced fraud protection, safeguarding against physical damage, quicker transfers, improved transparency, better regulatory oversight, reduced legal disputes, and lower costs for both investors and companies. To promote comprehensive dematerialization and put a stop to the issuance of new physical securities by listed companies, Sebi has deemed it necessary to convert existing certificates into demat form and prohibit the creation of new physical share certificates.
Sebi plans to amend the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, to mandate that securities are only issued in demat format in the case of share splits, subdivisions, or consolidations and corporate restructuring, thus encouraging a shift towards demat holdings.
Additionally, the regulator is proposing amendments to the LODR regulations to eliminate the requirement for maintaining ‘proof of delivery’ for notifications related to minor signature variations or instances where a signature is unavailable.
