The Securities and Exchange Board of India (SEBI) has introduced an important proposal for companies. Under this proposal, if a company splits or consolidates the face value of its shares, all new shares will be issued in demat mode only. SEBI has suggested adopting the same procedure in cases of corporate restructuring also.
Objective: To eliminate risks associated with physical certificates
This step of SEBI is towards eliminating the risks associated with physical certificates.
Main risks:
- Loss of certificate.
- Theft.
- damage or deterioration.
- Possibility of fraud.
SEBI has released a consultation paper, seeking views and comments from the general public till February 4.
Demat Account or Suspense Escrow Account: New Arrangement
According to a TOI report, SEBI has been encouraging investors to hold shares in demat mode for a long time.
- Current Problem:
- Some investors still hold their shares in physical form.
- This causes problems in issuing demat shares during reorganization or split.
- New Offer:
- Companies will have to create a separate demat account or suspense escrow account for such investors.
- The names of investors will be recorded in these accounts.
Benefits of holding shares in demat form
1. Fraud Protection:
- Holding shares in demat mode eliminates the possibility of fraud related to physical certificates.
2. Protection from Physical Damage:
- Certificates do not get damaged or lost.
3. Easy Transfer:
- Transferring demat shares is much more convenient than physical shares.
4. Transparency:
- All transactions take place under the supervision of SEBI.
5. Low Cost:
- Holding shares in demat mode reduces legal disputes and other related expenses.
SEBI’s objective: ban on new physical certificates
To accelerate dematerialization and prevent issuance of new physical securities:
- SEBI suggested:
- Existing physical certificates should be converted into demat form.
- This will prevent the creation of new physical certificates.
