Executive Summary:
This circular, issued by SEBI on August 08, 2023, addresses the challenges of obtaining OTP for reversal of erroneous demat transfers. It establishes a mechanism for OTP exemption via internal committees for depositories. Depositories must amend bylaws for implementation and report status monthly. A facility for beneficiary verification is to be implemented by January 01, 2024.
Key Points / Main Content:
Erroneous Transfers and OTP Exemption:
* An exemption from OTP requirements is provided for the reversal of erroneous demat transfers.
* Depositories must form internal and joint committees, headed by a Public Interest Director, to examine intradepository and interdepository erroneous transfers, respectively.
* The committees must provide both parties a hearing and make decisions based on recorded reasons.
* Transferees must be informed of the committee's decision via email to their registered email ID.
* Para 35.11 of SEBI circular no. SEBIHOMIRSDMIRSDPoD1PCIR202371 dated May 17, 2023 is supplemented by this circular.
Prevention of Erroneous Transfers:
* Depositories must provide a facility for investors and DPs to add and verify beneficiaries before off-market transfers.
Implementation and Compliance:
* Depositories must implement systems and procedures for compliance and disseminate Standard Operating Procedures (SoP) on their websites, informing participants.
* Provisions, excluding the beneficiary verification facility, are effective immediately.
* The beneficiary verification facility (para 8) is effective from January 01, 2024.
* Depositories are directed to amend bylaws and report implementation status to SEBI monthly.
Impact Analysis:
Recognized Depositories:
* Impact: Required to establish internal committees, implement OTP exemption processes, provide beneficiary verification facilities, and amend bylaws.
* Action Required: Form committees, create and disseminate SoPs, amend bylaws, implement beneficiary verification facility by January 01, 2024, and report implementation status monthly.
Depository Participants:
* Impact: Must adhere to the new procedures for handling erroneous transfers and beneficiary verification.
* Action Required: Follow the depositories' SoPs for erroneous transfers and beneficiary verification.
Investors:
* Impact: Benefit from a streamlined process for reversal of erroneous transfers and enhanced security through beneficiary verification.
* Action Required: Utilize the beneficiary verification facility provided by depositories.
SEBI:
* Impact: Oversees the implementation of the circular's provisions and receives monthly reports on the status of implementation.
* Action Required: Monitor the implementation of the circular and review monthly development reports from depositories.
Key Entities Referenced
SEBI: Securities and Exchange Board of India, the regulatory body.
Depositories: Recognized depositories that hold securities in dematerialized form.
Depository Participants: Entities through which investors interface with the depositories.
Securities and Exchange Board of India Act, 1992: The act under which SEBI derives its powers.
Depositories Act, 1996: The act regulating depositories in India.
Public Interest Director: Head of the internal and joint committees for examining erroneous transfers.
Master Circular for Stock Brokers: SEBI circular no. SEBIHOMIRSDMIRSDPoD1PCIR202371 dated May 17, 2023, which specifies guidelines for stock brokers.
One Time Password OTP: A security measure used for authenticating off-market transfers of securities.
CIRCULAR
SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/139 August 08, 2023
To,
All recognized Depositories
All Depository Participants through recognized Depositories
Madam / Sir,
Sub: Facility to remedy erroneous transfers in demat accounts
1. SEBI, vide circular no. SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/71 dated May
17, 2023, titled “Master Circular for Stock Brokers” has, inter alia, specified the
following:
“35.11 All off-market transfer of securities shall be permitted by the Depositories
only by execution of Physical Delivery Instruction Slip (DIS) duly signed
by the client himself or by way of electronic DIS. The Depositories shall
also put in place a system of obtaining client’s consent through One Time
Password (OTP) for such off market transfer of securities from client’s
demat account.”
2. SEBI has received representations from depositories regarding the challenges
being faced with regard to obtaining OTP in case of reversal of erroneous transfers
in the demat accounts, and was requested to address the issue.
3. Considering the challenges involved and in order to facilitate the reversal of
erroneous transfers, it is decided that a well-balanced and operational mechanism
for exemption from OTP may be provided for reversal of such erroneous transfers
in the demat accounts.
4. For this purpose, Depositories shall constitute an internal and a joint committee for
examining the intra-depository and inter-depository erroneous transfers
respectively. Such committee shall be headed by a Public Interest Director of
Page 1 of 3Depository and have a minimum of 3 members including the head. The
depositories shall place before the committee all such instances of erroneous
transfers pending for reversal.
5. The committee shall examine such erroneous transfers and provide an opportunity
of hearing to both the parties in the interest of principles of natural justice. The
committee shall, based on the documentary evidence and the hearing, take a
decision on the basis of reasons to be recorded in writing.
6. Depositories shall subsequently act based on the decision of the committee and
shall send an email to the registered email ID of the transferee, informing about the
decision of the committee.
7. Para 35.11 of SEBI circular no. SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/71
dated May 17, 2023 titled “Master Circular for Stock Brokers” stands supplemented
to the extent of provisions of this circular.
8. Further, to minimize such erroneous transfers, Depositories shall provide a facility
for the investors and DPs to add and verify the beneficiaries before execution of
off-market transfers including inter-depository transfers.
9. Depositories shall put in place appropriate systems and procedures to ensure
compliance with the provisions of this circular and disseminate the SoP on their
websites and bring to the notice of their participants.
10. The provisions (excluding para 8) of this circular shall come into force with
immediate effect. The provisions at para 8 of this circular shall come into force with
effect from January 01, 2024.
11. Depositories are directed to:
11.1. make necessary amendments to the relevant bye-laws, rules and regulations
for the implementation of the above decision;
11.2. communicate to SEBI the status of implementation in their monthly
development reports;
Page 2 of 312. This circular is issued in exercise of powers conferred under Section 11(1) of the
Securities and Exchange Board of India Act, 1992 and Section 19 of the
Depositories Act, 1996 to protect the interests of investors in securities and to
promote the development of, and to regulate the securities markets.
Yours faithfully
Aradhana Verma
General Manager
Tel. No: 022 26449633
aradhanad@sebi.gov.in
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