In a bid to avoid the recurrence of another IPO scam, market regulator Securities and Exchange Board of India (SEBI) on Monday proposed a ban on pre-listing transfer of shares allotted under initial public offers (IPOs).The Sebi is now planning to convert the circular it issued on preventing transfer of shares before listing as part of its Depository and Participants (D&P) Regulations to tighten its enforcement. The regulator is also planning to introduce the concept of distinctive numbers in the dematerialised environment for the first time.In a discussion paper on excess dematerialisation of securities, the SEBI it was making the suggestion ‘‘having regard to the recent developments relating to transactions in the grey market (off-market) in securities of IPOs before grant of listing.’’ Several scamsters had cornered shares meant for retail investors and sold them in the grey market before listing in the recent IPO scam.Putting more onus on depositories, the Sebi suggested that depositories should be allowed to lift their freeze on IPO shares only after confirmation from the stock exchanges and companies of completion of listing process. It proposed steps to prevent excess dematerialisation of securities and pre-listing illegal trade in shares by empowering depositories to freeze transactions till listing and trading permission are granted.Sebi has proposed amendments to Sebi (Depositories and Participants) Regulations 1996 to effect these changes.The concept of distinctive numbers was in practice when the shares were issued in the physical form. It was thought that in the demat environment, this concept will not have its relevance as all the shares will be held in the electronic form. But when the cases of excess demat came to light, in the absence of distinctive numbers it was very difficult for depositories, issuers, SEs and even for the regulator to detect the culprit.The new system of dematerialisation was introduced where ownership of records is kept in electronic form and physical movement of securities is replaced by book entry system. However, certain irregularities were observed in this system too, like problem of securities having been issued in demat form by listed companies in excess of listed capital and transfer of securities by the investors before trading permission was given by the stock exchanges (SEs).In a bid to check this problem of excessive dematerialisation, it had taken several steps including casting of responsibilities on the listed company and the SEs. But some more preventive steps need to be taken and the issue needs a fresh look from the point of systemic issued with depositories. One of the preventive steps would be to put certain responsibilities on the depositories to ensure that the securities are not dematerialised in excess of listedissued capital.
