Description

SEBI eliminates the requirement of Letter of Confirmation (LOC) for crediting securities to demat accounts, enabling direct credit by RTAs/listed companies after due diligence to simplify investor service requests.

Summary

SEBI has issued a circular eliminating the requirement of issuing Letter of Confirmation (LOC) for crediting securities to demat accounts pursuant to investor service requests. The new process enables RTAs and listed companies to directly credit securities to investors’ demat accounts after necessary due diligence. This change applies to various investor service requests including issuance of duplicate securities certificates, transmission, transposition, claim from unclaimed suspense account, and corporate actions. The circular amends relevant provisions of the Master Circular for RTAs dated June 23, 2025.

Key Points

  • Letter of Confirmation (LOC) requirement abolished for crediting securities to demat accounts
  • Direct credit of securities to investor demat accounts now permitted after due diligence by RTAs/listed companies
  • Depositories required to develop process/system to enable direct credit functionality
  • Investor service requests must be accompanied by Client Master List (CML) not older than two months, attested by Depository Participant
  • Applies to duplicate certificates, transmission, transposition, unclaimed suspense claims, and corporate actions
  • Amendments made to Para 13, 20, 22, 23 and Annexures 7, 15, and 20 of the Master Circular for RTAs
  • LOCs issued before April 02, 2026 remain valid for dematerialisation within 120 days from issuance date

Regulatory Changes

Amended Provisions:

  • Para 13.2: Securities holder/claimant must submit Form ISR-4 with required documents. Investors must have demat account before submitting service request. Latest CML (not older than two months) duly attested by DP and demat conversion request form required with service request.

  • Para 13.3: Modified to reflect elimination of LOC process (specific details truncated in source document)

  • Annexures 7, 15, and 20: Amended to align with direct credit process

Legal Framework:

Circular issued under:

  • Section 11(1) of Chapter IV of SEBI Act, 1992
  • Section 19 of Depositories Act, 1996
  • Regulation 101 of SEBI (LODR) Regulations, 2015
  • Regulation 37 and 38 of SEBI (RTAs) Regulations, 2025

Compliance Requirements

For Depositories:

  • Develop process/system to enable RTAs/listed companies to credit securities directly to investor demat accounts
  • Implement functionality by April 02, 2026

For RTAs and Listed Companies:

  • Conduct necessary due diligence before crediting securities directly to demat accounts
  • Host Form ISR-4 on company/RTA websites
  • Process service requests with CML verification (not older than two months)
  • Obtain original securities certificates for specific service requests (items 13.1.3 to 13.1.8)
  • Verify DP attestation on CML and demat conversion request form

For Investors:

  • Maintain active demat account before submitting service requests
  • Submit latest CML (not older than two months) duly attested by DP
  • Provide duly filled demat conversion request form along with service request
  • Submit Form ISR-4 with required documents

For Depository Participants:

  • Attest Client Master Lists for investors
  • Process any LOCs issued before April 02, 2026 within 120-day validity period

Important Dates

  • Circular Issue Date: January 30, 2026
  • Effective Date: April 02, 2026
  • Transitional Period: LOCs issued before April 02, 2026 can be submitted to DPs for dematerialisation within 120 days from date of issuance

Impact Assessment

Operational Impact:

  • Process Simplification: Eliminates intermediate LOC issuance step, streamlining investor service request processing
  • Timeline Reduction: Faster credit of securities to demat accounts by removing LOC generation and submission steps
  • Risk Mitigation: Reduces risk of loss and pilferage associated with physical LOC handling

System Requirements:

  • Depositories must develop new systems/processes to facilitate direct credit functionality
  • RTAs and listed companies may need to update workflows and internal processes
  • Integration required between RTA systems and depository platforms

Stakeholder Benefits:

  • Investors: Faster processing, reduced documentation risk, improved user experience
  • RTAs/Companies: Streamlined operations, reduced physical document handling
  • Market: Enhanced efficiency in post-issuance securities processing

Implementation Considerations:

  • Two-month implementation timeline from circular date to effective date
  • CML attestation requirement adds verification step but ensures account authenticity
  • Transitional provisions ensure smooth migration from LOC-based to direct credit process

Impact Justification

Streamlines investor service processes by eliminating LOC requirement, reducing timelines and operational risks for all listed companies and RTAs. Improves investor experience but requires system changes by depositories.