In today’s world, it is very convenient to trade and invest in shares and other securities with the availability of a Demat account. The Demat account helps to convert physical shares to Demat form.
The Securities and Exchange Board of India is commonly known as SEBI. It has brought a new operational guideline for investors and traders who want to convert physical shares to Demat forms.
Before heading towards the SEBI issues guidelines regarding the Demat Re-lodged shares, let’s understand SEBI and its role in stocks and other securities.
What is SEBI?
The Securities and Exchange Board of India (SEBI) is an Indian organization that regulates India’s securities and commodity market. They carry out functions under the terms and conditions of the Ministry of Finance, Government of India. Although it came into existence on 12 April 1988, it got the Statutory Powers on 30 January 1992 as per the SEBI Act, 1992.
The SEBI headquarters are in Mumbai's commercial area, near the Bandra-Kurla Complex. Its regional offices are in New Delhi, Kolkata, Chennai, and Ahmedabad, and have over a dozen local offices in Bangalore, Jaipur, Guwahati, Patna, Kochi, and Chandigarh. In addition, it has a subsidiary called National Securities Depository Limited (NSDL), an Indian central securities depository.
According to critics, SEBI lacks clarity and scrutiny directly from the public. The sole checks on its power are the Securities Appellate Tribunal, which comprises three justices, and the Supreme Court of India. SEBI has chastised both bodies on several occasions.
Nonetheless, SEBI has been forceful in imposing penalties and enacting harsh changes at times. In response to the global economic crisis, it also formed the Financial Stability Board in 2009, giving the board a greater responsibility to support financial stability than its predecessor.
Norms Against Dematerialisation of Re-lodged physical shares
On 7th September 2020, SEBI brought a circular on the final date for the share transfer request, which was 31st March 2021. There was also the mention of converting physical shares to Demat in 2021.
However, no regulation says that investors cannot own shares in physical form. SEBI indicated that transfer deeds sent out before the April 1, 2019 deadline but returned or rejected due to document flaws might be re-lodged with the appropriate papers to strengthen the deed. This rule was made public in March of 2019.
On 2nd December 2020, SEBI brought another circular regarding the operational regulations on converting physical shares to Demat.
Here are the following issued norms:
The Registrar and Share Transfer Agents (RTA) will succeed in proceeding with any re-lodged share transfer request on physical shares. After which, you will get acknowledgment of the conversion implementation through a confirmation letter.
There is a need to submit a Demat request to the depository participant (DP), and you must do it within 90 days of receiving it. The RTA will send a reminder letter after 60 days of issuing the confirmation letter. After that, you’ll get an email and a letter with a digital signature to get details regarding your portfolio, endorsement, and shares.
The depository participant (DP) will determine whether to proceed with a Demat request depending on the details provided by you.
After 90 days of issuing the confirmation letter, if you send no Demat request, the physical shares would get moved to the suspense escrow Demat account of the company.
SEBI's ongoing supervision of the Indian capital market has resulted in consistent improvements in Demat accounts and their functions over the last few years. This published guidance on crediting physical shares to a Demat account is significant because it increases the safety net on which traders trade their shares. It also makes things simpler for the authorities to trace specific financial instruments in the event of fraud.
To close any potential gaps in the system, the SEBI has additionally stated various procedures must be accomplished on specific dates. The 90-day and 60-day requirements must be observed. Otherwise, the investor may be painted negatively by India's regulatory authority. To iterate, a Demat request must be made to the DP within 90 days after the issue of the confirmation letter, and a reminder notification must be provided to the investor within 60 days of the publication of the confirmation letter. These criteria are critical, and failure to follow them may be costly to the investor.
SEBI monitors India's capital market regularly, which results in rapid improvements related to the Demat accounts. In addition, the newly issued norms associated with the conversion of physical shares to Dematerialized in 2021 play an important role in ensuring safe and secure trading and investment.
The Government of India can quickly and conveniently trace financial instruments to discern misconduct. To trade and invest in various securities safely and securely, you need to open a Demat account.
Frequently Asked Questions
The main objective of SEBI is to prevent dubious practices in the markets and protect the investor’s and trader’s interests.
You need to open a Demat account through a depository participant in India to Demat shares.
Yes. Only you have to provide duly filled in, signed DRF, and bond certificates to your DP.
SEBI issues guidelines to ensure no malpractice in the Indian stock market regarding trading and investment, helping retail investors.