Module: | Statutory Audit, NFRA & ICAI Standards
Q45: Consider the following statements regarding the 2026 SEBI LODR amendments on Investor Services and Physical Securities:
1. Regulation 39(2) was amended to mandate direct credit of securities into the investor's demat account, formally abolishing the Letter of Confirmation (LOC) mechanism.
2. SEBI established a one-year special window starting February 2026 allowing the transfer of physical securities, provided the transfer deed was executed before April 1, 2019.
3. Under the special window, physical share transfers will be approved even if the original share certificate is lost, provided an indemnity bond is submitted.
Which of the above statements is/are incorrect?
2. SEBI established a one-year special window starting February 2026 allowing the transfer of physical securities, provided the transfer deed was executed before April 1, 2019.
3. Under the special window, physical share transfers will be approved even if the original share certificate is lost, provided an indemnity bond is submitted.
Which of the above statements is/are incorrect?
✅ Correct Answer: C
🎯 Quick Answer:
C. Only 3 is incorrect.Structural Breakdown: Statement 1 is correct; the LOC mechanism was scrapped in favor of direct, faster demat credit to reduce operational risk.
Statement 2 is correct; a statutory exception window (Feb 5, 2026, to Feb 4, 2027) was opened strictly for historical transfers stuck in limbo since the 2019 demat mandate.
Statement 3 is incorrect; the SEBI circular explicitly states that the transfer in the special window will be rejected if the original share certificate is not available.
Historical/Related Context: SEBI banned the transfer of physical shares on April 1, 2019.
However, thousands of legitimate transactions executed before this date were stuck due to technical rejections by Registrars and Transfer Agents (RTAs), prompting this final cleanup window.
Causal Reasoning: Mandating the physical presence of the original share certificate for these grandfathered transfers is crucial to prevent fraudulent claims on historical shares by individuals who merely found old transfer deeds without possessing the actual asset.