Neha Rathore, LL.M., Hidayatullah National Law University, Raipur
ABSTRACT
The dematerialization of securities has revolutionized the Indian capital markets, the process involves converting the physical securities such as shares or debentures into electronic format which is maintained by a depository system. Under the depository Act of 1996 two depositories were established viz. “National Securities Depositories Limited” and “Central Depository System Limited” these depositories play a crucial role in managing the electronic securities. Several risks associated with physical securities like theft and forgery have been reduced by the dematerialization of securities.
But the transition to fully paperless system also faces many challenges such as cybersecurity threats, digital illiteracy and accessibility issues among the retail investors. Incidents like Harshad Mehta Scam of 1992 highlighted the need for stricter rules and regulations in the market which led to the adoption of depository mechanisms. However, the Karvy Stock Broking Limited Scam of 2019 demonstrates the persistent gaps in the regulatory framework.
This study examines the impact of dematerialization on the market efficiency and transparency and discusses the ongoing challenges. It also includes recommendation in the policies to strengthen the investor protection by enhancing cybersecurity and improving accessibility. Although dematerialization has transformed the Indian Securities market there is still a need for better implementation of the existing regulatory frameworks and amendments to these frameworks whenever any loophole is detected.
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