SEBI Proposes Mandatory Demat Form for New Securities Post Stock Splits & Mergers

The Securities and Exchange Board of India (SEBI), the regulator of capital markets, on Tuesday, January 15, proposed a new regulation requiring listed companies to issue securities exclusively in dematerialised (demat) form following events such as stock splits, face value consolidation, mergers, or demergers. This proposal aligns with SEBI’s ongoing efforts to promote demat holding of securities.

In its consultation paper, SEBI suggested that for investors without demat account, issuer companies would need to establish separate demat accounts, either with a ledger reflecting ownership or a suspense escrow account, to manage such securities. The regulator has invited public feedback on the proposal, with comments open until February 4.

SEBI considers mandating dematerialisation of securities issuance

Dematerialisation offers numerous advantages, such as minimising fraud and forgery risks, preventing the loss or damage of physical certificates, enabling faster and more efficient transfers, enhancing transparency and oversight, reducing legal disputes, and cutting costs for both investors and companies.

Despite these benefits, some investors still hold securities in physical form, which, while legally permissible, requires dematerialisation before the securities can be sold or transferred. To advance dematerialisation and avoid the creation of new physical securities, SEBI has recommended that existing certificates be converted into demat form and that no new physical certificates be issued by listed companies.

“To achieve this goal, it is proposed to amend the SEBI (LODR) Regulations, 2015, mandating that securities be issued only in demat form for sub-division, stock splits, consolidation of face value, or schemes of arrangement, thereby encouraging demat holding,” stated the regulator.

SEBI also proposed amendments to certain provisions of the Listing Obligations and Disclosure Requirements (LODR) norms. These include removing the requirement for maintaining "proof of delivery" related to minor or major signature differences or cases where signatures are unavailable.