SEBI proposes mandatory issuance of new securities in demat form post-stock split, mergers
Jan 14, 2025
SEBI is encouraging investors to hold securities in demat form to ensure minimal risk and maximise safety; at present, a few investors still hold securities in physical form.
Capital markets regulator Securities and Exchange Board of India (SEBI) on Tuesday, January 15, proposed mandating listed companies to issue securities only in demat form following the stock split, consolidation of the face value of shares, and merger or demerger. The market watchdog's new proposal aligns with its constant endeavour to encourage demat holding of securities.
SEBI proposed in its consultation paper that if an investor does not have a demat account, the issuer companies will be required to open a separate demat account with a suitable ledger of ownership or a suspense escrow account for dealing with such securities. SEBI has sought comments till February 4 on the proposal.
SEBI mulls mandating issuance of new securities in demat
Dematerialisation of securities has several benefits, including reduction of frauds and forgery, elimination of loss and damage of securities, faster and more efficient transfers, improved transparency and regulatory oversight, mitigation of legal disputes, cost reduction of investors and companies, etc.
Considering this, while SEBI is encouraging holding of securities in demat form by the investors, at present a few investors hold securities in physical form. Although it is legally permissible to hold securities in physical form, an investor can sell or transfer them only after dematerialising them.
Accordingly, to progress towards greater dematerialisation of securities and to prevent the fresh creation of physical securities by listed entities, Sebi felt that the existing security certificates should be converted into demat form, and no new physical security certificates should be created.
"To achieve the objective as stated... It is proposed to amend SEBI (LODR) Regulations, 2015 to mandate the issuance of securities only in demat form in case of sub-division/split/consolidation of the face value of securities and scheme of arrangement to encourage demat holding of securities," said the regulator.
The market watchdog proposed modifications to certain provisions of LODR (Listing Obligations and Disclosure Requirements) norms. This includes the requirement of maintaining the "proof of delivery" relating to the intimation of "minor difference in the signature" and major difference in signature or non-availability of signature should be omitted.
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