Capital markets regulator SEBI has decided to mark a lien in demat accounts against shares of those who take part in tender offers that are made after securities are delisted or on open and buy back offers.
Lien is the lender’s right to recover what is lent if the credit given to a borrower is not paid back in accordance with the terms agreed upon. In the case of a security, a lien is marked against the shares
According to a SEBI circular issued on August 13, only the shares that are accepted will be debited from the shareholders’ demat accounts. The lien that is marked against shares that are not accepted will be released, the circular noted. This revised framework will apply on tenders offers for which public announcements are made from October 15, 2021 onwards. The market regulator noted that the lien would be marked by the depositories in the demat account of the beneficiary towards shares that are offered as part of tender offers. The details of all shares that are marked as lien in the demat accounts of clients would be provided to the clearing corporation (CC) by the depositories. The details with respect to the entitlement of the shareholder for tender offer will be provided to the clearing corporations or registrar to an issue and share transfer agent who handles the specific offer. The CC, according to SEBI, will cancel the securities that are blocked in excess.
As per the current system, shares that are tendered by shareholders need to be transferred to the account that is maintained by clearing corporation directly. As per the current framework, there are differences in the tendering procedures adopted by the depositories. According to SEBI, the transfers under the current system are fraught with risks, apart from time and cost.
Why this move?
Market watchdog SEBI has noted that this step will cut down any risks that are linked with securities being moved from shareholder demat accounts to CC accounts or vice versa. It is expected that the new move will ensure that the whole process is investor friendly.
SEBI moves to protect investor interest
As the equity markets rally, an average of 13 lakh fresh demat accounts have reportedly been added by brokerages each month since April 2020. As of May 31, BSE data suggests that the total number of retail investors has touched 6.97 crore. Further, in the current fiscal year, an average of 2.45 million demat accounts have been added per month between April and June, news reports note. This has meant that there is an increased responsibility to ensure investor interest.
It may be recalled that SEBI has brought in margin rules in a phased manner since last year in a bid to bring efficiency in the market and also strengthen management of risks in a better manner.
Further, SEBI also brought in new rules on pledging of shares. Pledging of shares involves creating liens on stocks an investor holds in their demat accounts towards the broker. Earlier, stockbrokers would offer limits on trading to their clients on the basis of their holdings in their demat accounts apart from the cash balance in their trading accounts. Under the system brought in 2020, the pledging of shares from demat accounts of clients is made by the client through the broker; the execution is done by the CDSL or NSDL and the investor will be issued a one-time password for authenticating the same. Before this system was brought in, the pledged shares were transferred by the broker by way of a power of attorney.
Another example of SEBI moving in to protect investors is that of offering block mechanism in clients’ demat accounts when they take up a sale transaction apart from the early pay0n system. The block mechanism option has been made available from August 1, 2021.
SEBI has from time to time issued fresh frameworks and guidelines for traders and all stakeholders involved. In its latest circular, the market regulator has said that a lien would be marked against shares of those shareholders who participate in tender offers that are made after buyback or open offers and delisting of securities. Only the share quantity that is accepted will be debited from the shareholders’ demat accounts and the lien that is marked against shares that are unaccepted will be released, as per a SEBI circular dated August 13. This revised system would be brought into implementation from October 15, 2021.