SEBI directs companies to Enhance Due Diligence for DEMAT Of Physical Shares

The Securities and Exchange Board of India vide a circular dated 5th November 2019 asked the depositories, recognized stock exchanges and all listed companies to strengthen their due diligence process for dematerialization of physical shares. Dematerialization (DEMAT) is the move from physical certificates to electronic bookkeeping and SEBI made Mandatory Dematerialization of physical shares held by an investor. Actual stock certificates are then removed in exchange for electronic recording.

SEBI vide this circular has directed the Depositories and the listed companies to implement the following due diligence process for better integrity of dematerialization requests in respect of physical shares:

  1. All Listed companies or their Registrars to an Issue & Share Transfer Agents (RTAs) should provide data of their members holding shares in physical mode, viz the name of shareholders, folio numbers, certificate numbers, distinctive numbers and PAN etc. (which is called static database) as on 31st March 2019 to the depositories latest by 31st December 2019.
  2.  Depositories shall capture the relevant details from the static database and put in place systems to validate any dematerialization request received after 31st December 2019. Accordingly, the depository system shall retrieve the shareholder name recorded against the folio number and certificate number in Static Data for each Demat Request Number (DRN) request received after this date and validate the same against the demat account holder(s) name.
  3.  In the case of complete mismatch of name on the share certificate(s) vis-à-vis name of the beneficial owner of demat account, the applicant may approach the Issuer company / RTA for establishing his title or ownership.

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