Easing Demat Norms

Random trades in small volumes have been reported in these three weeks, as evidently sellers could not find a counter party and vice versa at the going price. This is for the simple reason that being large investors for the long haul and not necessarily given to sentiment trading these institutions typically find themselves all on the same side of the counter at any given point of time. Obviously, without the participation of agents holding a contrary view, there is no market.

Hence, Sebi has been forced to relent. It has now said that delivery in demat form will constitute good delivery for trades done in the physical segment. This is an ad hoc solution opening a one-way street between the two segments. Institutions can sell in the physical segment but still deliver demat shares on completion of trade. The choice lies with the receiver of the shares to either keep them in demat form or demand a conversion to physical form. This is well within the original scheme of things, as it was made clear all through that anyone wanting a physical conversion would get it. As not all recipients would force a conversion, the latest Sebi measure should bring in more voluntary adherents to the demat trading form. But institutions still cannot buy on the physical side in the specified scrips. This is not a happy situation as they cannot pick up cheap bargains on the physical side, even if no matching trades are available on the demat side.

Progress towards demat has been slow. On the last count, no more than 57.13 per cent of the floating stock in the eight specified scrips was dematerialised. For the market as a whole, the demat stock amounts to only 12 per cent. Corporates are said to be dragging their feet over dematerialisation as they fear that any element of coercion would drive investors away from the stock. Dematerialisation also reduces the scope for price manipulations by managements. To take dematerialisation forward, it is necessary to mount a public campaign targeting the small investor, explaining the benefits of demat. Without a critical mass made up equally of small investors and institutions, attempts to force the pace could boomerang.