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SEBI introduces new mechanism to correct erroneous off-market transfer of securities

| @indiablooms | Aug 09, 2023, at 04:34 am

Mumbai: Stock market regulator Securities and Exchange Board of India (SEBI) has introduced a new mechanism to rectify incorrect transfers of securities in demat accounts.

SEBI had initially mandated depositories to implement a one-time-password (OTP) authenticated system to obtain client consent for off-market securities transfers, as stated in a previous circular.

However, depository representatives raised concerns about the challenges of obtaining OTP confirmation for reversing mistaken transfers.

Following these concerns, SEBI has now established an alternative mechanism that omits the requirement for OTP verification.

The details of this mechanism were outlined in an order issued on August 8. Under this approach, depositories are required to form internal committees and joint committees to address erroneous transfers within the depository and between depositories, respectively.

These committees will be headed by a Public Interest Director of the Depository and must consist of a minimum of three members, including the chairperson. Instances of erroneous transfers awaiting reversal must be presented to the committees for examination.

The committees will review such incorrect transfers and offer a hearing opportunity to both parties involved.

Subsequently, based on documentary evidence and the hearing, the committee will make a decision and record the reasons in writing.

The depositories will then act according to the committee's decision and notify the transferee through an email sent to their registered email address.

In order to mitigate the occurrence of erroneous transfers, depositories are instructed to provide an option for investors and DPs (Depository Participants) to add and verify beneficiaries before executing off-market transfers, including inter-depository transfers.

The order added, “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.”
 

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