SEBI Measures for Dematerialized Securities Transfer Concerns

Monisha Chaudhary

30 Mar, 2024

With the interest of the investors in the security markets, an authorized government on 20^th March 2024 through SEBI or the Securities and Exchange Board of India put up a circular No. SEBI/HO/MRD/MRD-PoD-2/P/CIR/2024/18, in concern of the investors arising out of the transfer of the securities from the concerned beneficial owner accounts that are without proper investor authorization. SEBI has mentioned in the said circular that such safeguards have been introduced to harmonize the classification of various inactive/dormant accounts connected to stock exchanges and depositors. The securities and Exchange Board of India have also specifically announced that a new depository instruction slip should be issued only when the old one expires or is lost on the strength of the DIS instruction request slip to a beneficial owner. This circular is an amendment to a SEBI Master Circular for depositors dated 6^th October 2023.

Key Takes Away from the Circular

1. The objective behind this circular is to safeguard the investors’ interest in securities transfers to a dematerialized or a demat account mode.
2. As this method of transferring securities to a demat account is common among the people, thus it is a matter of awareness that such investors must always follow the SEBI guidelines and circulars to stay updated with the changes in SEBI regulations.
3. The primary objective behind this circular by SEBI is to prevent and protect from various means of fraud and illegal activities using transferring shares from an inactive demat account or accounts.
4. Under these guidelines SEBI has specifically mentioned protecting the interest of the investors by banning Depository Participants (DPs) from taking a pre-signed blank DIS or depository instruction slips from beneficial owners.
5. Another key takeaway from this SEBI or Securities Board of Exchange is that a New Depository Instruction slip will be issued only when the old one is expired or lost.
6. Through this circular, SEBI has also instructed that share transfer from an investor to an inactive demat account will only take place when the share owners verify the same.
7. According to this new amendment an investor with a demat holder will not be issued more than 10 depository instruction slips in a year by the Depository Participants.

Understanding Circular Reasoning Step by Step

A Market regulator Securities and Exchange Board of India (SEBI) has announced these safeguards in concern of the investors at the time of securities transfer from the beneficial owner (BO) account. Given below are the suggestions given to the depositories to take actions to protect or safeguard the interest of the investors.

1. The depositories have to emphasize the education of the investor by educating them on the careful preservation of the DIS (delivery instruction slip) and to avoid leaving a blank page or signed DIS with Depository Participants (DPs) or with any other entities or persons.
2.   A restriction on DIS pre-signed with blank columns from the Beneficial Owners (BOS) should not be accepted by the Depository Participants.
3. In case a DIS booklet is stolen and not traceable by the beneficial owners, BO must immediately inform DPs in writing. Thus, DPs will cancel the unused DIS booklet and issue a new DIS booklet only upon request, except in loss.
4. There is also a limit on the issuance of DIS in a financial year. Only 10 DIS can be issued by the DPs with a condition that the Beneficial Owner (BO) come in person before the authorized official and sign the DIS loose.
5. It is the responsibility of the DPs to conduct efficient checks and balances in connection with the verification of the signatures of the BOs at the time of DIS processing. Also, before acting upon the DIS, DPs shall conduct an exceptional cross-check with the BOs under exceptional circumstances.
6. A mandatory verification has to be conducted by the DPs in case of inactive or dormant accounts before acting upon BO DIS whenever any securities are transferred.
7. DPs must verify with BOs before acting upon DIS for inactive/dormant accounts when any security is transferred. Verification involves a recorded phone call and additional authorization.
8. However, these provisions on the amendment of the SEBI Master circular for depositories dated 6^th October 2023 shall come into effect from 1^st April 2024.
9. The depositors, through this circular, are hence instructed to implement the given amendments in the circular, amend relevant laws, inform DPs, and make a regular report on compliance with SEBI regulations.
10. This circular is issued to protect investors’ interests in the securities market.
11. Lastly this circular is put up by the SEBI under section 11 of the Securities and Exchange Board of India Act, 1992 to safeguard the investor’s interest in the securities market.

Conclusion

The Securities and Exchange Board of India has issued a circular dated 20^th March 2024 in connection to the amendment of the Para 1.12 of the SEBI Master Circular For depositories dated 6^th October 2023 connected to the concern addressed to safeguard the interest of the investors on transferring securities from Beneficial Owner (BO) accounts in the securities market. However, this new safeguard will come into effect from 1^st April 2024.