Stock Splits Go Fully Digital! SEBI Pushes for Compulsory Demat Issuance

The Securities and Exchange Board of India (Sebi) is considering mandating the issuance of shares in dematerialised form during share splits or consolidations. This proposal also extends to corporate restructuring events. The move aims to leverage the benefits of dematerialised shares, such as eliminating risks tied to physical certificates like loss, theft, mutilation, and fraud.

Sebi has consistently encouraged investors to transition to holding shares in demat form. Despite this, some investors still retain physical share certificates. To address this, Sebi's consultation paper suggests that companies should create a separate demat account or suspense escrow account for investors without demat accounts when shares are issued in demat form due to split, consolidation, or restructuring.

Benefits of Dematerialisation

Holding shares in demat form offers several advantages. These include fraud prevention, protection against physical damage, quick transfers, enhanced transparency, improved regulatory oversight, reduced legal disputes, and cost savings for both investors and companies. Sebi aims to promote these benefits by encouraging comprehensive dematerialisation.

To further this goal, Sebi plans to amend the Sebi (Listing Obligations and Disclosure Requirements) Regulations, 2015. The proposed amendment would require securities issuance only in demat form during sub-division, split, consolidation of face value of securities, and scheme arrangements. This is intended to encourage the holding of securities in demat form.

Proposed Amendments

Sebi also proposes changes to LODR provisions. One suggestion is removing the need for maintaining 'proof of delivery' for notifications about minor signature differences or significant signature variations. This change aims at simplifying processes related to signature discrepancies.

The public can provide feedback on these proposals until February 4th through a consultation paper issued by Sebi. This initiative reflects Sebi's ongoing efforts to modernise securities handling and enhance investor protection by reducing reliance on physical certificates.

Sebi's determination to prevent new physical securities issuance by listed entities is evident in its proposal that existing certificates be converted into demat form. This step would effectively halt the creation of new physical certificates altogether.

This push towards complete dematerialisation aligns with Sebi's broader strategy for better regulatory supervision and efficiency within the market. By transitioning fully to electronic formats, both investors and organisations stand to benefit from streamlined operations and reduced costs.