Publication: Business Standard, December 2000
Article Summary: This article analysed the relevance of Clause 47(c) of the Standard Listing Agreement in the evolving market environment, particularly in the context of increasing dematerialisation of securities. The clause originally required listed companies to obtain a certificate from a Practising Company Secretary confirming timely processing of physical share transfers, which was effective in curbing delays and preventing artificial scarcity of floating stock in the market.
However, the article highlighted that with the transition towards compulsory dematerialised trading—where over 90% of transactions were executed in demat form—the relevance of this clause had significantly diminished. In dematerialised systems, transfer of securities is instantaneous, and therefore the earlier concerns relating to delays in physical transfer had largely become redundant.
Despite this transition, the article identified a critical gap in the regulatory framework. While transfer-cum-demat transactions were subject to audit and certification, no similar certification was required for shares directly submitted for dematerialisation. This created a loophole, as delays in processing such requests were common, leading to investor inconvenience and reduced confidence.
To address this issue, the article suggested that SEBI should mandate amendment of Clause 47(c) to require certification covering all dematerialisation processes, ensuring compliance with provisions of the Depositories Act, SEBI regulations, and related operational guidelines.
Key Insight: Regulatory provisions must evolve with market infrastructure changes, ensuring that legacy controls are replaced with safeguards relevant to emerging systems like dematerialisation.