SEBI's new circular update

Planning to Invest into the stock market? The rules have changed? Here’s what we can decode from the new SEBI Circular dated 23 July, 2021 about the Nominations:

The regulator of the Stock Market SEBI (The Securities and Exchange Board of India) has issued a new circular. The purpose of bringing this change is to ensure more transparency in the system since there has been rapid increase in the activity of opening the accounts amongst the investors.

Some of the TV series might have fascinated the people to trade into the market. Other factors like increase in the awareness about the market, emphasizes placed on education, the buzz created by IPOs by some of the renowned companies, etc. has driven people to trade.

The detailed information about the circular is as follows:

For Existing Account Holders:

The Existing trading and DEMAT Account holders will be having a buffering period till 31 March, 2022 by which they will have to fill the nomination forms. This form will have to be filled in Annexure A.

However, if the account holder plans to opt of this nomination process, he will be required to fill a Declaration Form i.e., Annexure B.

Failing to comply with the framework, investors Trading account will be frozen for trading and DEMAT account will be frozen for debits.

For New Account Holders:

For the new DEMAT Accounts which will be opened after 1 October, 2021 will be required to fill a Nomination Form along with their DEMAT Application form. The form to filled is Annexure A.

If an investor does not want to make a nomination while opening a DEMAT and Trading account, then he will have to fill Annexure B.

Once the process is completed the Intermediaries shall activate new accounts (From 1 October, 2021 onwards) only upon the receipt of the above-mentioned forms.

Pondering about few questions? Here are the answers to your questions:

1. Why nomination is required?
In case of the deceased account holder the shares will be transferred only to the nominees. Hence Annexure A shall be filled.
However, if you wish to rule yourself out of this process Annexure B i.e. Declaration Form is required to be filled.

2. Can an NRI become a Nominee? (NRI: Non- Resident Indians)
Yes, NRI can be a Nominee.

3. How many Nominees can be made?
Nominees can be maximum of three people. In case if there are more than two people are nominated, the account holder shall decide the share of all such Nominees.

4. Will I require witnesses?
No, the nomination and declaration form if signed (wet signature) will not require any witnesses. However, if the account holder affixes thumb impression (instead of wet signature), then signature of witness will be required in the forms.
The online nomination and declaration form may also be signed using e-sign facility and in that case, witness will not be required.

5. If I do not exercise of filling any of the forms will that cause any repercussion?
Existing Account holders: Yes, if we do not process either of the options till 31 March, 2022 the accounts will be frozen.
New Investor: If you are a new investor you will have to fill either of the Annexures to complete the process. Once the process is completed the Trading Members or the Intermediaries shall activate new accounts (From 1 October, 2021 onwards) only upon the receipt of the above-mentioned forms.

6. Can I change the nominees?
Yes, change of the nominees is allowed and the same annexure forms shall be used for the same.

7. What role will be intermediaries will be playing?
The intermediaries will have to maintain the confidentiality and have to ensure the safety of the client records. Also, if the nomination process is done online, they will have to ensure adequate systems are in place and giving them e- sign facility.

8. Before bringing the amendments via this circular nomination was required?
The nomination process was left at the sole discretion of the account holders. Hence it was not a mandate to do the same. However, post this circular the process is mandatory.

Thank you.

Regards,

Shradha Patel (Section J),

Kautilya,

IBS Mumbai.