SEBI made a new notification vide Notification No. SEBI/LAD-NRO/ GN/2018/24, on 8th June 2018 issuing SEBI (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) (FOURTH AMENDMENT) REGULATIONS, 2018 to regulate the fraudulent transfer of shares. Under the new regulation, it explained that the physical transfer of shares cannot be effected unless the securities are held in the dematerialized form with a depository. Thus requests for effecting the transfer of securities shall not be processed except in case of transmission or transposition of securities. Therefore, it is advisable to get rid of any holding of a physical share of Listed Entity before 5th December if the right to transfer needs to be kept intact.
The answer would be No, as one won’t buy shares in physical format anymore. Thus, to sell the physical shares you need to open a Demat account and convert the shares into a dematerialized format and they can sell those shares through your Demat account. One can sell the physical share through the off-market route but stamp duty would require to be paid.
Regulation 40 of the SEBI (Listing Obligations and Disclosure Requirements) Regulation, 2015 deals with the transferor transmission or transposition of securities. This particular rule is amended and according to this amendment, the requests for effecting the transfer of listed securities shall not be processed unless the securities are held in the dematerialized form with a depository. Therefore, for effecting any transfer of shares, the securities shall mandatorily require to be in Demat form.
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Why was this Amendment necessary?
A classic example of fallout in holding physical shares can be related to the Share fiasco, where recently Aptech, Britannia Industries Ltd, Asian Paints filed a complaint against its share transfer agent Sharepro for illegally transferring dividends and shares to fraudulent accounts.
Therefore the amendment addresses the following issues with such transfer of shares:
- Keeps a check on the instances of fraudulent physical transfer of shares
- Ensures more transparency in the transfer of shares
- Various corporate actions remained unclaimed, as investors holding physical shares sometime loose track the corporate action such as bonus/dividend due to change in their address. This will help in curtailing such events.
Thus, this amendment will ultimately eliminate fraud and manipulation in the physical transfer of shares and securities and the chances of error will be reduced. It is important to note that from now on Transfer of shares and other securities will be done only in Demat form, which will augur well for the capital market. This will significantly:
- Speed up the transfer of shares and other securities,
- Improve convenience, and
- Safety of transactions for investors.
It is important to note for investors and shareholders that they can still hold the shares in physical form but the transfer of such shares in physical form is restricted under the amendment notification of SEBI. As mentioned above, to sell the physical shares you need to open a Demat account and convert the shares into dematerialize format and they can sell those shares through your Demat account.
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