The Securities and Exchange Board of India (SEBI) has proposed making it mandatory for companies planning to launch an initial public offering ( IPO) to ensure that all specified securities held by promoters, the promoter group, directors, key managerial personnel, and employees are in dematerialised form before filing the offer document. The dematerialisation of specified securities will be with respect to shareholders who have special rights.
Sebi on Wednesday released a consultation paper seeking a public feedback on amending the current regulations governing this requirement. Under the existing provision, the issuer is required to ensure all specified securities held only by the promoters are in dematerialised form prior to the filing of the offer document.
Both Sebi and the Ministry of Corporate Affairs (MCA) have taken a series of steps to promote the dematerialisation of securities.
The rationale behind these measures is to eliminate the inefficiencies and risks associated with physical share certificates, including loss, theft, forgery, and delays in transfer and settlement.
Public issues above Rs 10 crore are allowed only in demat mode.
Sebi sees a need for the review of current provisions as in spite of several regulatory mandates and facilitation mechanisms being in place, a significant volume of holding of physical shares even among critical pre-IPO shareholders such as directors, Key Managerial Personnel (KMPs), senior management, selling shareholders, and even Qualified Institutional Buyers (QIBs), remains.
The Sebi paper said that this leaves a regulatory gap that allows a good volume of physical shares to continue existing post-listing.
Additionally, it is suggested that registered stock brokers, non-systemically important Non-Banking Financial Companies (NBFCs) and other regulated entities that hold specified securities will also be required to have such holding in dematerialised form.
The comments should be submitted on or before May 20, 2025.
Sebi on Wednesday released a consultation paper seeking a public feedback on amending the current regulations governing this requirement. Under the existing provision, the issuer is required to ensure all specified securities held only by the promoters are in dematerialised form prior to the filing of the offer document.
Both Sebi and the Ministry of Corporate Affairs (MCA) have taken a series of steps to promote the dematerialisation of securities.
The rationale behind these measures is to eliminate the inefficiencies and risks associated with physical share certificates, including loss, theft, forgery, and delays in transfer and settlement.
Public issues above Rs 10 crore are allowed only in demat mode.
Sebi sees a need for the review of current provisions as in spite of several regulatory mandates and facilitation mechanisms being in place, a significant volume of holding of physical shares even among critical pre-IPO shareholders such as directors, Key Managerial Personnel (KMPs), senior management, selling shareholders, and even Qualified Institutional Buyers (QIBs), remains.
The Sebi paper said that this leaves a regulatory gap that allows a good volume of physical shares to continue existing post-listing.
Additionally, it is suggested that registered stock brokers, non-systemically important Non-Banking Financial Companies (NBFCs) and other regulated entities that hold specified securities will also be required to have such holding in dematerialised form.
The comments should be submitted on or before May 20, 2025.
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