The mouse that had quietly entered the Mumbai bull-ring more than two decades ago has taken about a quarter of a century to put the paper scrip finally out of business.
About 2.3% of India’s USD2-trillionplus market capitalisation is still held in the form of physical stock even more than two decades after Mumbai exchanges went online. Holders of these shares in listed companies now face a December deadline to convert them into dematerialised form if they have to transfer or sell them.
The Listing Obligations and Disclosure Requirements (LODR), which the market regulator tweaked earlier this month, have made the conversion mandatory for all classes of investors. Many investors, especially senior citizens, still hold shares in physical form.
On June 8, SEBI notified the amended LODR regulations saying that except in the case of transmission or transposition of securities, requests for the transfer of stock shall not be processed unless the securities are held in the dematerialised form with a depository.
Long-term retail investors and some institutional investors hold a sizeable part of their stakes in physical form even seven years after SEBI ordered 100% dematerialisation of the shareholdings. Retail investors own stocks worth Rs1.24 lakh crore in physical form, while mutual funds hold Rs45,760 crore worth of paper stock.
For instance, 31% of ITC shares worth Rs1 lakh crore are still in physical form. Similarly, Reliance Industries’ shares worth Rs9,600 crore are not yet dematerialised. Companies such as MRF, Sun Pharma, JSW Energy, and HUL have shares worth Rs7,000-Rs8,000 crore each in paper form.
Most of these shares have been purchased decades ago before the Depository Act was passed and since the investors intended to hold them long-term, they did not see any reason to pay for a demat account.
In 2016, several listed companies, such as TCS, Aptech, Britannia Industries and Asian Paints, filed a complaint against share transfer agent Sharepro for diversion of unclaimed dividends and shares of investors.
In June 2011, the market regulator had mandated promoters of listed companies to convert their entire equity holding in dematerialised form by September 2011. SEBI had then said that failure to comply with compulsory dematerialisation of the promoter holding would invite punitive action.
National Securities Depository and Central Depository Services are the two main depositories that hold securities of investors in electronic form through their registered depository participants.