SEBI Issues Circular To Provide Facility To Remedy Erroneous Transfers In Demat Accounts

The earlier circular, SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/71, mandated the use of OTP for all off-market transfers of securities, ensuring enhanced security and transparency. Building on this framework, the newly introduced circular takes into account the challenges faced in correcting erroneous transfers and provides a balanced operational mechanism for handling such cases.

The previous circular said 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.”

The circular said that considering the challenges involved and in order to facilitate the reversal of erroneous transfers, it has been 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.

For this purpose, the circular further said, depositories shall constitute an internal and a joint committee for examining the intra-depository and inter-depository erroneous transfers respectively. Such a committee shall be headed by a Public Interest Director of Depository 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.

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. 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.

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.

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.

Circular No.: SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/139

Date: 08.08.2023

Click Here To Read/Download Circular