Securities and Exchange Board of India (Sebi) has ordered that only shares of those companies would be allowed to trade in the normal segment where at least 50% of non-promoters holdings are in the dematerialised form by October 31.
The regulator has asked stock exchanges to shift all companies that don’t comply with this requirement to the ‘trade-to-trade’ segment, commonly known as ‘T’ group. Only delivery-based trades are allowed in ‘T’ group stocks; traders can’t square off their positions intraday. This affects trading volumes as participation is lower when there is no scope for intraday buying and selling of shares, say brokers.
1,541 companies listed on the BSE have less than 50% of their public shareholding (excluding promoters) in the demat form, as on June 30, 2010. Hind Zinc, Jaybharat Textiles, Vippy Inds, Balaji Distilleries, Lanco Inds, Nissan Copper, Indian Metals, Subros and Panchmahal Steel are a few notable examples of fundamentally sound companies where more than half of non-promoters’ holding is in physical form even 14 years since demat was introduced.
Around 900 companies don’t have even a single dematerialised share. The list includes many companies whose shares have not been traded for the past several months due to suspension over non-compliance of stock exchange rules.
The Sebi move is targeted at companies where the possibility of price manipulation is high due to large physical holdings. Since large part of a company’s equity is in demat form, there will be enough liquidity in the stock. There will not be any supply constraint, and this will reduce the scope for operators to manipulate the price.
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