Sebi Issues New Rules To Safeguard Transfer of Securities In Demat Mode

Securities and Exchange Board of India (Sebi) on March 20, 2024 announced new safeguards to address the concerns of investors while transferring securities from the Beneficial Owner (BO) account without proper authorisation by the concerned investor. The new safeguards will come into effect from April 1, 2024. The beneficial owner has been defined as the natural person or persons whoultimately own, control or influence a client and/or persons on whose behalf a transaction is being conducted, and includes a person who exercises ultimate effective control over a legal person or arrangement.

The new safeguards are meant to harmonise the classification of “inactive/dormant accounts” across stock exchanges and depositories and also to strengthen measures to prevent fraud and misappropriation of demat accounts, Sebi said. An inactive/dormant account refers to an account where no transaction has taken place for a continuous period of 12 months.

Depository Participants shall not accept pre-signed DIS with blank columns from the BO(s) and if the DIS Booklet is lost/stolen/ not traceable by the BO, the same must be intimated to the DP immediately by the BO in writing. On receipt of such intimation, the DP shall cancel the unused DIS of the said booklet, Sebi said.

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The DPs are asked to place appropriate checks and balances to verify signatures of the BOs while processing the DIS. The DPs shall cross check with the BOs under exceptional circumstances before acting upon the DIS.

Primarily, the depositories shall give more emphasis on investor education, particularly concerning careful preservation of Delivery Instruction Slip (DIS) by the BOs, Sebi said. The depositories may advise the BOs not to leave “blank or signed” DIS with the Depository Participants (DPs) or any other person/entity.

“The DP shall also ensure that a new DIS booklet is issued only on the strength of the DIS instruction request slip(contained in the previous booklet) duly complete in all respects, unless the request for fresh booklet is due to loss, etc,” thecircular said.

Also the DPs are asked not to issue more than 10 loose DIS to one account holder in a financial year (April to March). The loose DIS can be issued only if the BO(s) come in person and sign the loose DIS in the presence of an authorised DP official.