C B Bhave (left), managing director, National Securities Depository Ltd (NSDL), has said that investors wishing to opt for demat shares in a primary issue should be able to do so through the depository participant network to avoid errors in allotment of demat shares.
In the recent Videsh Sanchar Nigam Ltd (VSNL) issue, some investors who had opted for demat shares got physical shares instead and as the scrip was in the mandatory demat mode, they could not exit and suffered losses.
Bhave said that currently an investor has to fill in the public issue form and indicate whether he wants the shares in demat or physical form. "This means that an investor has to fill in demographic details. It is in providing these details that errors creep in. At the same time, there are errors at the time of processing these details, too. When an investor opens a depository account, all details are provided by the investor and these are captured electronically by the depository participant," said Bhave.
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"We could have a system where if an investor wants to opt for demat shares, all he would need to do is to inform the depository participant of the number of shares to be applied for. As all other details would already be available with the DP, unnecessary paper-work would be avoided and with it the possibility of errors in allotment," said Bhave.
"As the DP is electronically connected to the depository, which in turn is connected to the registrars, the entire application details could be captured electronically. Errors like getting the name and the corresponding account number details wrong will also not be possible as the request would be going from the account itself. A large number of complaints that we receive pertain to the investor's name on the shares and the name on which the account has been opened, not tallying," said Bhave.
The Depositories Act gives an option to an investor to hold shares in a physical or demat form and hence the choice to receive the shares in either form rests with the investor. However, there are several scrips, like VSNL, where trading is permitted only in demat form. Hence, an investor wishing to exit from a scrip in the short or medium term would prefer to take shares in demat form.
In the VSNL issue, which was the first by a company in the mandatory demat mode, a large number of investors ended up getting their shares in physical form. Of these, there were some who despite indicating a desire to get the shares in demat form got the shares in physical form. These investors have written to Sebi to compensate them for the losses incurred by them.