SEBI Introduces Circular Listing Remedies for Erroneous Transfers into Demat Accounts

SEBI Introduces Circular Listing Remedies for Erroneous Transfers into Demat Accounts

Exempts OTP requirement for reversal of mistaken moves

The Securities and Exchange Board of India (SEBI) has issued a circular, SEBI/HO/MIRSD/MIRSDPoD-1/P/CIR/2023/139 aimed at enhancing investor protection and facilitating the swift reversal of erroneous transfers in demat accounts.

The circular introduces a streamlined mechanism for the exemption from One Time Password (OTP) requirements for the reversal of mistaken transfers.

The earlier SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/71 circular mandated the use of OTP for all off-market transfers of securities, ensuring enhanced security and transparency.

However, the newly introduced circular considers the challenges faced in correcting erroneous transfers and provides a balanced operational mechanism for handling such cases. SEBI stated that a well-balanced approach for exemption from OTP should be provided for the reversal of erroneous transfers.

The circular read that the depositories would constitute an internal and a joint committee for examining the intra-depository and in-depository erroneous transfers, respectively. Headed by a Public Interest Director of the Depository. It would comprise a minimum of three members. The depositories shall place before the committee all such instances of erroneous transfers pending reversal.

The committee would examine the erroneous transfers and provide an opportunity for a hearing for both parties to provide justice. It would be based on the documentary evidence and the hearing, and the decision would be based on reasons recorded in writing.

The market regulator further held that the depositories shall send a note to the registered email ID of the transferee, informing about the decision. To minimize erroneous transfers, the depositories would provide a facility for the investors and DPs to add and verify the beneficiaries before the execution of off-market transfers, including inter-depository transfers.

SEBI’s circular further stated that the depositories would put in place appropriate systems and procedures to ensure compliance with the provisions of the circular and disseminate the SoP on their website. The participants would be apprised of it.