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SEBI clarification on dematerialisation of securities

Finsec Law Advisors

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In line with its sustained move towards dematerialisation and considering the recent Sharepro scam, SEBI has recently amended the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“Listing Regulations”) to mandate that any transfer of securities shall be processed only if such securities are held in a dematerialised form.

Dematerialisation is a process wherein the physical certificates of securities of an investor are converted into an electronic form. Pre-amendment, both the Listing Regulations and SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 required only promoters and the promoter group to maintain their shareholding in a dematerialised form. Now, the amendment prohibits any transfer of securities, even those of public shareholders, if the securities are not held in a dematerialised form.

On receiving various queries regarding the amendment, SEBI issued a clarification on August 10, 2018 stating that, while transfer of only dematerialised securities will be permitted from December 05, 2018 (when the amendment shall come into force), investors are not prohibited from holding securities in the physical form. Any investor holding physical certificates after December 05, 2018 can transfer the securities by converting them into the dematerialised form. Further, it is reiterated that, as stated in the amendment, transmission and transposition of securities can still happen in the physical form.

Dematerialised securities significantly reduce the risk of fraudulent or manipulative transactions that may go undetected in case of physical  certificates. SEBI’s decision to only permit the transfer of dematerialised securities will increase the ease, convenience, and safety of transactions for the investors.