Weak Firms May Get A Breather On Demat Front

A Securities and Exchange Board of India (Sebi) committee has suggested that the compulsory settlement of shares of companies which are sick, BIFR cases or with low market value, in demat form is not cost effective and, hence, such firms should not be included in compulsorily demat list.

The Sebi working group on dematerialisation headed by C B Bhave, managing director, National Securities Depositories Ltd (NSDL), has put out the report for public feedback.

Further, in addition to the present facility that up to 500 shares can be sold in physical form, small value shares, say, up to market value of Rs 10,000 may also be allowed to be sold in physical form.

In case demat requests remain pending with an company or registrar and transfer agent (RTA) for more than 60 days, such companies should be penalised by Sebi and the directors of such companies should be held personally liable, the report has stated.

The report has also added that companies should continue to bear at least a substantial part of the cost of dematerialisation, which will provide some relief to the investors. The report said that Sebi may evolve a formula for determination of charges payable by companies and its distribution to the depositories, on an appropriate basis so that the benefit, thereof, can be passed on to shareholders equitably.

Further, simultaneous transfer-cum-demat scheme should be abolished as it has outlived its utility and is prone to misuse. This would save the investors from complying with the formalities of dematerialising such shares. Further, both depositories and exchanges should make efforts to clarify to the investors that it is not compulsory to hold securities in the demat form and that a window for selling physical shares exists.

In case one of the joint holders dies or transmission by operation of law for individuals and the shares are transferred to a new account opened by the survivor(s), depositories do not levy any charges to depository participants (DPs).

Further, Sebi may be requested to examine from a legal angle whether a DP has the right to dispose off securities, in case the DP has exhausted the amount of advance or other safeguards and the client does not pay its charges, which he had agreed to pay as per the agreement entered into with the DP.

DPs may have account closing charges at their discretion. However, if a DP introduces account closing charges for the first time, it should give sufficient time to existing clients to close their accounts as per the old terms.