Mumbai: The Securities and Exchange Board of India (Sebi), the capital market regulator, is seeking feedback from investors regarding ownership of physical shares.

It is mulling discontinuation of trading of physical shares and making the demat format mandatory for transfer of physical shares. The regulator wants to know whether such steps would put the shareholders in any difficulty.

In India, The Depositories Act, 1996, was incorporated to facilitate electronic storage of shares. There are two depositories in India that hold securities for investors in the electronic form—Central Depository Services (India) Ltd, or CDSL, and National Securities Depository Ltd, or NSDL. Data shows that, at present, CDSL has around 8.8 million investor accounts and NSDL 13 million investor accounts. While demat trading has been around for a while, there are still some investors who have old shares in physical form.

The Sebi feedback form, which was sent by Sebi complaints redress system (Scores)—the redressal arm of Sebi—through email, essentially seeks information from investors regarding physical ownership of shares. One of the questions refers to an existing one-time facility for small investors to sell physical shares up to a limit of 500 shares regardless of value.

Now that practically all stock market transactions happen in demat form, many shares are in a compulsory demat list. If an investor still holds physical certificates for these shares, stock exchanges provide an additional trading window to sell them. The buyer has to then convert them to demat format before selling them.

“This is unlikely to have an impact as the number of investors holding physical shares is relatively small. Many of these investors have low quality and illiquid shares in physical form," said V.K. Vijayakumar, investment strategist, Geojit BNP Paribas Financial Services Ltd.

It’s not clear yet whether this feedback form has been sent to all investors or only a specific category. Sebi has indicated that it may have been sent to all registered users of Scores. The deadline for submitting the form is 22 June.