SEBI proposes demat rule for key IPO shareholders to curb physical share risks

Mumbai: The Securities and Exchange Board of India (SEBI) has proposed a new rule that could make it compulsory for certain key shareholders to hold their shares in demat form before a company files for an initial public offering (IPO).

In a consultation paper, the capital markets regulator said the rule would apply to directors, key managerial personnel, senior management, current employees, selling shareholders, and qualified institutional buyers.

If approved, the proposal aims to remove risks and inefficiencies linked to physical share certificates, such as loss, theft, forgery, and delays in transfer and settlement.

Currently, SEBI’s regulations already require promoters to dematerialise their holdings before an IPO.

However, the regulator noted that many other important shareholders still hold physical shares even when a company goes public.

This creates a gap in the system and could lead to complications after listing. To fix this, SEBI now wants to expand the rule.

It has suggested 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 in demat form before the IPO document is filed.

The proposed rule would also apply to stockbrokers, non-banking financial companies (that are not systemically important), and other regulated entities if they hold any such shares.

SEBI has invited public feedback on the proposal and will accept comments until May 20.

Meanwhile, the market regulator on Wednesday issued a stern warning to the public against using online opinion trading platforms, saying these platforms fall outside its regulatory purview and do not offer any investor protection under existing securities laws.

In its advisory, SEBI explained that these platforms allow users to trade based on the outcomes of simple yes-or-no events.

For instance, users can place trades on whether a particular sports team will win or if a specific political decision will be made.

— IANS