Nearly 14 years after the Securities and Exchange Board of India (SEBI)  introduced mandatory dematerialisation for secondary market trading, it  has discovered that more than 50% of non-promoter holdings in over 1,500  companies remain in physical form. It has now decreed that all companies,  which have less than 50% of their floating stock dematerialised, will be  shifted to the trade-for-trade segment.

This means that trading can only  be delivery based and cannot be squared off. This is an excellent move.  But the report that over 900 companies do not have a single  dematerialised share is shocking. Were the depositories unaware of this?  More importantly, it is naïve to assume that forced dematerialisation or  the threat of spot trading will add depth or increase market  participation. In fact, when CB Bhave headed the National Share  Depository Ltd (NSDL), he openly advised investors to keep their shares  in physical form and avoid high depository charges including account  maintenance costs, especially if they intended to be long-term investors. 

Wouldn't SEBI have to check if a large chunk of investors took him  seriously and decided to hold physical shares? It is possible, but not  likely. There is a higher probability that promoters, who monitor every  significant change in shareholding and are usually hand-in-glove with  market manipulators, have benami holdings to ensure low floating stock  and complete control over their share price. But SEBI will need to do a  detailed investigation to establish facts. It may lead to further  shocking revelations about how shallow our markets really are. Is SEBI at  all interested?— Sucheta Dalal