New rules in relation to trading and dematerialisation of shares

SEBI vide circular SEBI/Cir/ISD/ 1 /2010 dated September 2, 2010 has come out with the following rules in relation to the trading and dematerialization of shares.

50% of non-promoter holding should be in demat form for the shares to be traded in normal segment

At least 50% of non-promoter shares of a company have to be in dematerialized form in order for the shares of that company to be traded in the normal segment of the exchange. If the listed companies do not satisfy the above criteria by October 31 2010, the trading in such shares would be moved to the trade for trade segment (TFT segment) from the normal segment.

This move from SEBI aims at improving volumes and participation of public in trading of shares. Also as the volume increases the possibility of price manipulation comes down as there will be enough liquidity in the stock. There will not be any supply constraint and this reduces the scope for operators to manipulate the price.

“Dematerialization” is a process by which physical certificates are converted into electronic form. According to the Depositories Act, 1996, an investor has the option to hold securities either in physical or electronic form. Part of holding can be in physical form and part in demat form. However, SEBI has notified that settlement of market trades in listed securities should take place only in the demat mode. Under the trade for trade segment, the National Securities Clearing Corporation Ltd (NSCCL) does not undertake clearing and settlement of the deals executed. Primary responsibility of settling these deals rests directly with the members and the exchange only monitors the settlement. The parties are required to report settlement of these deals to the exchange.

Trading to take place in TFT segment for the first 10 trading days in case of merger, demerger, amalgamation, capital reduction/consolidation, scheme of arrangement etc.

In case of companies undergoing merger, demerger, amalgamation, capital reduction/consolidation, scheme of arrangement, in terms of the Companies Act and/or as sanctioned by the Courts, rehabilitation packages approved by the BIFR and Corporate Debt Restructuring (CDR) packages, the trading of shares of such companies would take place in TFT segment for first 10 trading days with applicable price band while keeping the price band open on the first day of trading. This rule will not be applicable to original scrips, on which derivatives products are available, or included in indices on which derivatives products are available. 

A copy of the circular is available here.