Context:
Sebi is proposing to issue all shares in demat mode in case a company splits or consolidates the face value of its shares. The regulator is also proposing to issue demat shares in case of corporate restructuring.
Definition of SEBI’s Proposal and Keywords
- The Securities and Exchange Board of India is the regulatory authority for securities and capital markets in India.
- Shares
- Definition: Units of ownership in a company that investors buy to own a share in the business.
- Background: SEBI has recommended that shares should be issued in the demat mode only for some specific corporate actions.
- Demat Mode
- Definition: Dematerialized mode, where shares are available in record form only, electronically and not in physical certificate form.
- Benefits: It saves from losses because of theft, fraud, or destruction of the physical certificates.
- Division of Shares
- Definition: The division of already existing shares into smaller units, in order to enhance the share liquidity.
- Background: As per the guidelines of SEBI, it is mandatory for shares that occur as a result of splits should be issued in demat mode only.
- Consolidation of Shares
- Meaning: Combining more than one smaller share to reduce the total outstanding shares by one large share.
- Context: SEBI also proposes that consolidation shares must be only in demat mode.
- Corporate Restructuring
- Meaning: Structures significantly changed, especially to infuse efficiency or profitability by means of mergers or de-mergers.
- Context: According to SEBI, physical certificates to be issued only in demat.
- Physical certificates
- Meaning: It is the traditional paper-based proof of share ownership.
- Drawbacks: Exposed to loss, theft, damage, and forgery.
- History: SEBI plans to abolish the paper certificates completely.
- Suspense Escrow Account
- Definition: The provisional demat account which companies open in order to keep shares for those investors who haven’t opened demat accounts as yet.
- Objective: This kind of system guarantees that ownership records are kept until the investors open their demat accounts.
- Consultation Paper
- Meaning: A paper by SEBI that invites public comments on proposed regulations or amendments.
- Timeline: The public can comment on this proposal till February 4, 2025.
- LODR Regulations
- Meaning: Listing Obligations and Disclosure Requirements, 2015, which deals with the disclosures and operations of listed entities.
- Proposed Changes: Demat-only securities issuance for split, consolidation, or restructuring actions.
- Fraud Prevention
- Meaning: Elimination of forgery and unauthorized transfers of shares.
- Advantage: Demat shares have clean records of ownership and avoid lawsuits.
- Delivery Receipt
- This is delivery proof of notices that are signed among shareholders and lack a corresponding original signature.
- Proposal for elimination: SEBI recommends eliminating this feature to ease some processes.
- Dematerialisation
- Meaning: Conversion of physical share certificates into electronic records.
- Objective: To avoid further issuance of new physical certificates and to be entirely electronic securities.
- Minor Difference in Signatures among Shareholders
- This is any minor variation made on shareholders’ signatures of different documents. Companies must deliver notice to its investors, in addition to recording proof of the delivery.
