Description

SEBI eliminates the Letter of Confirmation (LOC) requirement for crediting securities to demat accounts, enabling direct credit by RTAs and listed companies, reducing processing time from 150 days to 30 days.

Summary

SEBI has issued a circular (PR No.10/2026) to simplify the process of crediting securities to investors’ demat accounts by eliminating the requirement for Letter of Confirmation (LOC). Under the new framework, RTAs and listed companies will directly credit securities to investors’ demat accounts after conducting necessary due diligence. This change applies to investor service requests including issuance of duplicate securities certificates, transmission, transposition, claims from unclaimed suspense accounts, and corporate actions.

Key Points

  • Letter of Confirmation (LOC) requirement eliminated for crediting securities to demat accounts
  • RTAs and listed companies will now directly credit securities to investor demat accounts
  • Processing timeline reduced from approximately 150 days to 30 days
  • Eliminates risks associated with loss or pilferage of LOC
  • Applies to investor service requests: duplicate certificates, transmission, transposition, unclaimed suspense account claims, and corporate actions
  • LOCs issued before the effective date can continue to be used within prescribed timelines

Regulatory Changes

SEBI has fundamentally changed the securities crediting process by removing the intermediary step of LOC issuance. Previously, the process required:

  1. Listed companies/RTAs issue LOC to investors
  2. Investors submit LOC to Depository Participant
  3. Depository Participant credits securities

Under the revised framework:

  1. RTAs and listed companies conduct necessary due diligence
  2. Direct credit of securities to investor’s demat account

This structural change eliminates the physical LOC document and the associated submission step, streamlining the entire process.

Compliance Requirements

For RTAs and Listed Companies:

  • Must implement systems to directly credit securities to investors’ demat accounts
  • Must conduct necessary due diligence before effecting direct credit
  • Must be prepared to process investor service requests under the new framework from April 02, 2026

For Investors:

  • LOCs issued prior to April 02, 2026 may continue to be used for dematerialization within prescribed timelines
  • Future investor service requests will be processed through direct credit mechanism

For Depository Participants:

  • Must be ready to receive direct credits from RTAs and listed companies
  • Must update systems and procedures to accommodate the new process

Important Dates

  • January 30, 2026: Circular issued
  • April 02, 2026: Provisions come into force
  • LOCs issued before April 02, 2026 remain valid for use within prescribed timelines

Impact Assessment

Operational Impact:

  • 80% reduction in processing time (150 days to 30 days) represents significant operational efficiency gain
  • Eliminates manual handling and submission of LOC documents
  • Reduces administrative burden on investors, RTAs, listed companies, and depository participants

Risk Mitigation:

  • Eliminates risks of LOC loss during transit
  • Removes pilferage risk associated with physical LOC documents
  • Reduces fraud opportunities inherent in paper-based processes

Investor Protection:

  • Faster access to securities in demat form
  • Reduced complexity in investor service request processes
  • Enhanced convenience for investors dealing with transmission, duplicate certificates, and corporate actions

Market-wide Impact:

  • Applies to all listed companies and their investors
  • Affects RTAs servicing listed companies
  • Modernizes post-issuance securities handling infrastructure
  • Aligns with broader digitalization and ease-of-doing-business initiatives

Impact Justification

Significantly streamlines investor service processes, reduces timeline by 80% (from 150 to 30 days), and eliminates risks of LOC loss/pilferage. Affects all listed companies, RTAs, and investors requesting duplicate certificates, transmission, transposition, and corporate action-related securities.