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Securities and Exchange Board of India (SEBI) has decided that a lien shall be marked against the shares of the shareholders participating in tender offers made after open offers, buy back offers and delisting of securities.

Under the existing mechanism, the shares tendered by shareholders are required to be directly transferred to the account maintained by the clearing corporation and different tendering processes are being adopted by depositories. Such transfer involves systematic risk, substantial time and cost, the market watchdog said.

As per the new framework, upon finalization of the entitlement, only accepted quantity of shares shall be debited from the demat account of the shareholders, SEBI said in a circular on Friday. The lien marked against unaccepted shares shall be released, the regulator added.

“The aforesaid measures reduce the systematic risk and risks associated with the movement of securities from the demat account of shareholders to clearing corporation account and vice-versa and make the process more investor friendly," SEBI said.

This revised mechanism will be applicable to all the tender offers for which public announcement is made on or after October 15, 2021.

Elaborating on the procedure for tendering and settlement of shares through stock exchange, for tender offers within the depository, SEBI said that lien will be marked in the depository system by the depositories in the beneficial owner's demat account for the shares offered in tender offers. 

The details of shares marked as lien in clients' demat account will be provided by respective depositories to clearing corporations (CC). Further, details in respect of shareholder's entitlement for tender offer process will be provided to CCs by issuer /registrar to an issue and share transfer agent (RTA) handling respective tender offer. 

CC will cancel excess blocked securities and securities will become free balance in shareholder's account. On settlement date, all blocked shares mentioned in accepted bid will be transferred to CCs.

For inter-depository tender offer, if client beneficiary owners (BO) account is held with one depository and CM pool and CC account are held with another, shares will be blocked in shareholder’s BO account at source depository, during the tendering period.

Inter-depository tender offer (IDT) instruction shall be initiated by shareholder at source depository to CM pool/ CC account at target depository, SEBI clarified.

Source depository shall block the shareholder’s securities, that is transfers from free balance to blocked balance, and send IDT message to target depository for confirming creation of lien.

The details of shares blocked in shareholder’s demat account shall be provided by target depository to CCs.

The CCs shall cancel excess blocked securities in target depository. Source depository shall not be able to release lien without a release of IDT message from target depository. Further, release of IDT message shall be sent by target depository either based on cancellation request received from CCs or automatically generated after matching with Bid accepted detail as received from CCs, issuer or RTAs.

Post receiving the IDT message from target depository, source depository shall release excess quantity from shareholder’s block balance to free balance. The CC, if any, shall be processed by source depository and any increase in quantity or substitute ISIN shall be communicated to target depository in IDT message.

Post completion of tendering period and receiving the requisite details viz., demat account details and accepted bid quantity in respect of receiving entitlement details of securities of tender offer from CC, source depository shall debit the securities as per the communication received from target depository to the extent of accepted bid quantity from shareholder’s blocked balance and credit it to CC settlement account in target Depository on settlement date.

All extra quantity of shares which are not a part of accepted bid data provided by CCs shall be reversed by source depository based on the communication/message received from target Depository from the shareholders blocked balance and shall be credited in the free balance of respective demat accounts.

Depositories in coordination with stock exchanges and CCs shall make necessary changes in their system and ensure timely updation of the processes, as and when required.

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