Sebi proposes compulsory demat share issuance during stock-split

MUMBAI: Sebi is proposing to issue all shares in demat mode in case a company splits or consolidates the face value of its shares. The regulator is also proposing to issue demat shares in case of corporate restructuring.
The inherent benefits of demated shares, mainly elimination of risks associated with physical certificates that is loss, theft, mutilation and fraud etc is prompting Sebi to put up such a proposal. The regulator has issued a consultation paper and the public could send their comments on it till Feb 4.
For years, Sebi has been pushing investors to hold shares in demat mode. Yet, some investors still hold their shares in physical form.
In case of investors who do not have demat accounts are allotted shares in demat form due to split, consolidation or restructuring, the company issuing the shares in demat form ill have to create a separate demat account or suspense escrow account with ownership records for investors who lack demat accounts, Sebi’s consultation paper said.
In the same paper, Sebi said that holding shares in demat form offers numerous advantages, including fraud prevention, protection against physical damage, swift transfers, enhanced transparency, better regulatory supervision, reduced legal conflicts, and lower costs for both investors and organisations.
To advance towards comprehensive dematerialisation and prevent new physical securities issuance by listed entities, Sebi determined that existing certificates should be converted to demat form, halting the creation of new physical certificates.
“It is proposed to amend Sebi (LODR) Regulations, 2015 to mandate issuance of securities only in demat form in case of sub-division, split, (or) consolidation of face value of securities and scheme of arrangement to encourage demat holding of securities,” the regulator said.
The regulator also suggested modifications to LODR provisions, including removing the requirement for maintaining ‘proof of delivery’ for notifications about ‘minor difference in the signature’ and significant signature variations or signature unavailability.