SEBI Proposes Issuance of New Securities in Demat Form after Stock Split

Moneylife Digital Team 15 January 2025

Investor Interest

Market regulator Securities and Exchange Board of India (SEBI) has proposed mandating listed companies to issue securities only in demat form following a stock split, consolidation of face value of shares and merger or demerger. This will encourage demat holding of securities, the market regulator says.

The market regulator released a consultation paper on certain amendments to SEBI Listing Obligations and Disclosure Requirements (LODR) Regulations to encourage the dematerialisation of securities and streamlining processes given the current regulatory landscape.

According to SEBI, if 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.

At present, SEBI LODR Regulations, 2015 do not specifically provide for the issuance of new securities mandatorily in dematerialised form in case of stock split, consolidation of face value of shares or merger or demerger. However, if desired by the listed companies, it can be included in the shareholders' resolution approving such corporate action. Similarly, the issuance of shares in demat form pursuant to merger or demerger can also be covered in the scheme of arrangement.

"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 and cost reduction of investors and companies," the market regulator says.

SEBI says while it encourages the 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.”

"Thus, in order to progress further towards greater dematerialisation of securities and to prevent fresh creation of physical securities by listed entities, a need is felt that the existing security certificates are converted into demat form and no new physical security certificates are created," it added.

SEBI is soliciting comments from the public before 4 February 2025. Comments can be submitted using this link https://www.sebi.gov.in/sebiweb/publiccommentv2/PublicCommentAction.do?doPublicComments=yes

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