SEBI has implemented the revised lien framework in the stock market. Stock exchanges, depositories, stockbrokers, registrars and share transfer agents (RTA) have been following the new procedure since October 2021. According to the SEBI’s circular, the shares of the demat account holders participating in tender offers made following open offers, buyback offers, and delisting of securities will be marked with a lien. The SEBI circular states that only the approved number of shares will be debited from the investor’s demat account after finalising the entitlement. Disapproved shares will be released from the lien mark.
SEBI has also made big changes to opening new brokerage accounts. An individual needs to fill out a nomination form to register a nominee name. If an individual does not want a nominee, he/she needs to fill out the declaration form. Nomination and declaration forms are optional for new demat and trading account holders. Existing account holders are required to fill out any of these forms till 31st March 2022, otherwise, the account will be frozen. An individual can fill out the form when submitting a demat account application or update it later. Bajaj Financial Securities stock market app offers numerous benefits to traders, including margin trading at the lowest interest rate in the industry.
Old Mechanism vs. Revised Framework
Revised mechanism eases out the tender shares process and makes clearing corporations more investor-friendly by reducing systematic risks.
In the old mechanism, depositories directly transferred the tender shares to the account clearing corporation (CC) account. The tendering process followed by the depositories was different. It involved systematic risk and higher costs.
Following the revised framework, accepted shares will be debited from the shareholder’s demat account after concluding the entitlement. The lien against disapproved shares gets removed.
Benefits of SEBI’s Decision
- This amendment is in the interest of investors and intents to lessen the systematic risks involved in securities movement from an investor’s demat accounts to CC accounts or vice versa.
- It is the duty of respective depositories (NSDL and CDSL) to share the details of shares with a lien mark with CCs.
- The issuer/registrar to an issue and RTA managing respective tender offer are responsible for sharing details of the demat account holder’s entitlement for tender offer with the CC.
- Such information sharing enables CCs to cancel excess blocked securities, and free shareholder accounts balance quickly.
Elaborate Procedure
Process after Amendments in respect of Inter Depository Tender (IDT) Offer is as follows:
- If the shareholder holds the demat account with one Depository (source Depository) and the CC account with another (target depository), the shares will be blocked in the demat account at the source Depository.
- Source Depository will block the shares in the demat account and confirm the lien mark with the target Depository by sending the IDT message.
- Target Depository will share the details of blocked securities in the shareholder’s demat account with the CC.
- CC will release the extra quantities of blocked shares in the target Depository. Source Depository cannot remove lien without receiving an IDT message from the target Depository. It requires Bid details from Issuers/RTAs/CCs or a cancellation request from CCs.
- After receiving an IDT message, the source Depository will free excess quantity from the shareholder’s block balance.
- On the settlement date, the source depository will deduct the securities from the blocked balance, and the CC account with the target Depository will be credited with the same. The transaction will be processed after receiving demat account details and accepted bid of the tender offer.
- The excess quantity of securities will be reversed by the source depository in the free balance of demat accounts.
All tender offers made on or after 15th October 2021 through public announcement have to comply with the revised framework.
