Enhancing Transparency and Liquidity: A Critical Analysis of the Compulsory Dematerialization of Shares in Private Companies in India
Author(s):
Jefferson Paul R
Keywords:
Capital market, Dematerialisation, Investnmet, Securities market, Share trading, Private Company.
Abstract
The Securities and Exchange Board of India (SEBI) has recently mandated the dematerialization of share warrants and private company securities, a significant amendment to the Companies (Prospectus and Allotment of Securities) Rules, 2014. This article critically analyzes the implications of this amendment on the Indian capital market, particularly focusing on transparency and liquidity enhancement. The dematerialization policy aligns with global trends towards electronic record-keeping and trading, aiming to reduce transaction costs, increase liquidity, and minimize fraud. Beginning with an overview of the dematerialization policy and its implications for private equity share orders, this article contextualizes the policy within the broader regulatory framework governing the Indian capital market. It explores the potential benefits, such as increased transparency and easier share transactions, against potential drawbacks and implementation challenges. SEBI's dematerialization policy addresses critical issues like shell companies and impersonation of shareholders prevalent in private companies. By requiring transactions to be electronically recorded, the policy aims to enhance market transparency and mitigate fraud. Additionally, it facilitates the identification of beneficial ownership, streamlines the foreclosure process, and promotes investor protection. However, the transition to dematerialization poses challenges for private companies, including conversion costs, operational challenges, and technological readiness. Furthermore, shareholder resistance and concerns about electronic record security warrant attention. The future outlook for the policy is promising, promising transformational benefits for the Indian capital market. SEBI and regulatory authorities must provide adequate support and resources to facilitate a smooth transition. Despite challenges, the dematerialization policy has the potential to attract more investment, foster innovation, and create a dynamic capital market in India. In conclusion, while SEBI's dematerialization policy offers significant potential benefits, its successful implementation requires careful consideration of challenges and adequate support for stakeholders.
Article Details
Unique Paper ID: 163399

Publication Volume & Issue: Volume 10, Issue 11

Page(s): 1310 - 1314
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