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SEBI mulls mandatory demat account for select existing shareholders before IPOMarkets regulator SEBI on Wednesday proposed mandating select shareholders, including directors, key managerial personnel and current employees, to hold shares in demat form before filing an initial public offering (IPO) document.By PTI April 30, 2025, 8:20:55 PM IST (Published)2 Min ReadMarkets regulator, Securities and Exchange Board of India (SEBI) on Wednesday proposed mandating select shareholders, including directors, key managerial personnel, and current employees, to hold shares in demat form before filing an initial public offering (IPO) document.

These measures, if implemented, will help eliminate inefficiencies and risks associated with physical share certificates, including loss, theft, forgery, and delays in transfer and settlement.

Presently, issue of capital and disclosure requirements (ICDR) regulations mandate that all specified securities held by promoters must be in dematerialized form before the filing of the offer document.

"Despite several regulatory mandates and facilitation mechanisms being in place, there remains a significant volume of holding of physical shares even among critical pre-IPO shareholders, such as directors, Key Managerial Personnel (KMPs), senior management, selling shareholders, and even Qualified Institutional Buyers (QIBs). This leaves a regulatory gap that allows a good volume of physical shares to continue existing post-listing,"  SEBI said in its consultation paper.

To address the concerns, SEBI proposed that the existing regulatory requirement be expanded.

An issuer making an IPO will have to ensure that all its specified securities held by the promoter group, selling shareholders, directors, key managerial personnel, senior management, Qualified Institutional Buyers (QIBs), domestic current employees, and shareholders, who have special rights are in dematerialized form prior to the filing of the offer document, SEBI suggested.

Additionally, it has been suggested that registered stock brokers, non-systemically important non-banking financial companies (NBFCs), and any other regulated entities that hold specified securities will be required to have such holding in the dematerialized form before the filing of the offer document.

SEBI has sought public comments on the proposal till May 20.

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