To encourage demat holding of securities, Sebi on Tuesday proposed to make it mandatory for listed companies to issue securities only in demat form after share split, consolidation of face value of shares and merger or demerger.
In case an investor does not have a demat account, the issuing companies will be required to open a separate demat account with a suitable property ledger or escrow account for dealing with such securities, Sebi suggested in its consultation paper.
Dematerialization of securities has several benefits, including reducing fraud and counterfeiting, eliminating loss and damage to securities, faster and more efficient transfers, improved transparency and regulatory oversight, reduction of legal disputes, cost reduction for investors and companies, etc.
Considering this, while Sebi encourages holding of securities in demat form by the investors, currently some investors are holding securities in physical form.
While it is legal to hold securities in physical form, an investor cannot sell or transfer such securities until these securities are dematerialized.
Accordingly, in order to make progress towards greater dematerialization of securities and to prevent fresh creation of physical securities by listed entities, Sebi opined that the existing security certificates were converted into demat form and no new physical security certificates were created.
“To achieve the stated objective… It is proposed to amend the Sebi (LODR) Regulations, 2015 to make mandatory issuance of securities only in demat form in case of sub-division/split/consolidation of the nominal value of securities and arrangements to encourage demat holding of securities,” the regulator said.
In addition, the regulator has proposed changes to certain provisions of the LODR (Listing Obligations and Disclosure Requirements) standards. This includes the requirement to maintain the “proof of delivery” regarding the indication of “minor difference in the signature”, and a major difference in signature or unavailability of the signature must be omitted.
The Securities and Exchange Board of India (Sebi) has sought comments on the proposals till February 4.