SEBI Proposes Mandatory Demat Holdings For Key Shareholders Before IPO

Markets regulator SEBI on Wednesday proposed requiring select shareholders—such as directors, key managerial personnel, and current employees—to hold shares in demat form before submitting an IPO document.

If implemented, this measure aims to eliminate inefficiencies and risks tied to physical share certificates, including loss, theft, forgery, and delays in transfer and settlement.

Currently, ICDR regulations mandate that all specified securities owned by promoters must be dematerialised before filing the offer document.

Despite existing mandates and facilitation mechanisms, a significant number of physical shares are still held by crucial pre-IPO shareholders, including directors, key managerial personnel, senior management, selling shareholders, and qualified institutional buyers, SEBI stated in its consultation paper. This creates a regulatory gap allowing physical shares to persist after listing.

To address these issues, SEBI has proposed broadening the scope of the current regulatory requirement.

An issuer making an IPO will have to ensure that all its specified securities held by the promoter group, selling shareholders, directors, key managerial personnel, senior management, qualified institutional buyers, domestic current employees and shareholders, who have special rights are in dematerialised form prior to the filing of the offer document, SEBI suggested.

Additionally, it has been suggested that registered stockbrokers, non-systemically important non-banking financial companies, and any other regulated entities that hold specified securities will be required to have such holding in dematerialised form before the filing of the offer document.

The Securities and Exchange Board of India has sought public comments on the proposal till May 20.

(With PTI Inputs)