Sebi may mandate issuance of new securities in demat form after stock split

To encourage demat holding of securities, Sebi on Tuesday proposed mandating listed companies to issue securities only in demat form following stock split, consolidation of face value of shares, and merger or demerger.

In case 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 suspense escrow account for dealing with such securities, Sebi proposed in its consultation paper.

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 such securities only after dematerialising these securities.

Accordingly, to progress towards greater dematerialisation of securities and to prevent fresh creation of physical securities by listed entities, Sebi felt that the existing security certificates are converted into demat form and no new physical security certificates are created.

"In order to achieve the objective as stated... It is proposed to amend Sebi (LODR) Regulations, 2015 to mandate issuance of securities only in demat form in case of sub-division/split/consolidation of face value of securities and scheme of arrangement to encourage demat holding of securities," the regulator said.

Additionally, the regulator has 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.

The Securities and Exchange Board of India (Sebi) has sought comments till February 4 on the proposals.