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Sebi Introduces Demat In Rights Issue Process For Transparency

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Sebi Introduces Demat In Rights Issue Process For Transparency
Yagnesh Kansara - 21 November 2019

Mumbai, November 21: Finally, the proposal that was mooted in 2008, has seen the light of the day. Adopting a proactive approach with respect to protecting investors’ interest the capital market regulator Securities and Exchange Board of India (Sebi) has decided on reducing the timeline for the rights issue to 31 days from existing 55 days. It has also broaden the scope of dematerialisation and has extended it to the rights issue process.
Sebi said, Rights Entitlements (REs) in the form of rights renunciation will be allotted electronically and will get credited in the demat account of the shareholders. These entitlements can be traded, bought and sold, making it eaiser for the investors either to increase his/her holding or cash out quickly by disposing off or renounce his rights.
Sandeep Shah, Managing Partner, NA Shah Associates LLP, said, “The Sebi move to reduce the timeline for the rights issue is intended to release the liquidity quickly in the hands of both the issuer and investors. These are extremely good enabling provisions. By taking such a decision, the regulator has indicated to the market that any issue that clogs the market, it is willing to offer the solution”.
Also, Sebi has made Application Supported by Blocked Amount (ASBA) mandatory for the rights issue.
Lav Chaturvedi, ED & CEO, Reliance Securities, said, “Reduction in overall timeline for rights issue to T+31 days is a good move from investors perspective as it increases liquidity. Further, allowing the rights entitlements to be dematerialised and traded on the stock exchange gives a great opportunity for a rights holder to have the same renounce with a better and transparent price discovery mechanism which in today's scenario is totally offline, physical and time consuming”.
Sebi’s move on rights issue processes is also intended to encourage those investors who are still holding shares in the physical form to opt for Dematerialization. As mentioned above, the REs will be allocated electronically and traded in demat form, Sebi has also made it mandatory for the investors holding shares in the physical form to provide details of their demat account to the company so that REs can be credited to their account.

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