Could SEBI's Demat Rule for Key IPO Shareholders Change the Game?
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Synopsis
The Securities and Exchange Board of India (SEBI) has proposed a significant rule that could mandate key shareholders to convert their shareholdings into demat form prior to an IPO. This move aims to mitigate risks associated with physical share certificates, enhancing the security and efficiency of share transactions in the market.
Key Takeaways
- SEBI's proposal mandates demat form for key shareholders.
- Aims to eliminate risks associated with physical share certificates.
- Applicable to a broad range of shareholders, including directors and qualified institutional buyers.
- Public feedback is welcome until May 20.
- Warning issued against unregulated online opinion trading platforms.
Mumbai, May 1 (NationPress) The Securities and Exchange Board of India (SEBI) has put forward a groundbreaking proposal that might require specific key shareholders to maintain their shares in demat form prior to a company's submission for an initial public offering (IPO).
In a recent consultation document, the capital markets regulator stated that this rule would be applicable to directors, key managerial personnel, senior management, current employees, selling shareholders, and qualified institutional buyers.
If this proposal receives approval, its intent is to eliminate risks and inefficiencies associated with physical share certificates, which can include loss, theft, forgery, and delays in transfer and settlement.
Presently, SEBI mandates that promoters must dematerialize their holdings before an IPO takes place.
However, the regulator has observed that numerous other crucial shareholders continue to possess physical shares even when a company is about to go public.
This discrepancy creates a vulnerability in the system and may lead to complications post-listing. To address this issue, SEBI is looking to broaden the scope of the rule.
It has proposed that all specified securities held by promoter groups, directors, key managerial personnel, senior management, selling shareholders, qualified institutional buyers, and even domestic employees or shareholders with special rights must be held in demat form before the IPO documentation is submitted.
The suggested regulation would also extend to stockbrokers, non-banking financial companies (that do not qualify as systemically important), and other regulated entities if they hold any such shares.
SEBI is currently seeking public feedback on this proposal, with comments open until May 20.
In a separate development, the market regulator issued a strong caution to the public regarding online opinion trading platforms, stating that these platforms operate beyond its regulatory oversight and do not provide any investor protection under current securities laws.
In its advisory, SEBI elaborated that these platforms enable users to trade based on the outcomes of simple yes-or-no scenarios.
For example, users can place bets on whether a specific sports team will win or if a particular political decision will be made.
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Point of View
We believe that SEBI's proposed demat rule is a proactive step towards modernizing India's capital markets. By addressing the risks associated with physical share certificates, this initiative enhances investor confidence and streamlines the IPO process. It is essential for all stakeholders to engage in this discussion and provide feedback to ensure a robust regulatory framework.
NationPress
22/05/2025
Frequently Asked Questions
What is the new SEBI proposal about?
SEBI has proposed a rule requiring key shareholders to hold their shares in demat form before a company files for an IPO, aiming to mitigate risks associated with physical share certificates.
Who does this rule apply to?
The rule is intended for directors, key managerial personnel, senior management, selling shareholders, qualified institutional buyers, and certain other shareholders.
What are the risks of physical share certificates?
Physical share certificates can be lost, stolen, forged, or delayed in transfer and settlement, leading to inefficiencies in the market.
When is the public feedback period for this proposal?
SEBI is accepting public comments on the proposal until May 20.
What did SEBI say about online opinion trading platforms?
SEBI warned that online opinion trading platforms are beyond its regulatory purview and do not provide investor protection, as they facilitate trades based on yes-or-no events.
