The Securities and Exchange Board of India, or SEBI for short, is an important entity. The role of SEBI is the regulation of the players, investors and traders, who operate in the share markets of India today. Among the important functions of SEBI is the aim to protect investors’ interests and to develop capital markets with the enforcement of different regulations and rules. The share market today is a crowded place, and left unchecked, there would be mayhem without rules that SEBI governs and executes. In a recent landmark ruling, SEBI has stated that the demat accounts held by stock brokers had to be mandatorily tagged by the end of June of 2022.
When you open a demat account in your bank, or with a stock broker, you are essentially going to use it to trade/invest in the share market today and store stocks in electronic formats. Your stock broker or bank which is your depository participant has the authorisation to open a demat account on your behalf and in your name. Therefore, there may be a number of demat accounts under any given stock broker's purview. With the new rule of tagging in place, the credit of any securities will not be permitted in an untagged demat account. This is for retail investors’ accounts and not for corporate accounts. While you may know what a demat account entails, you may still be confused about what tagging essentially means.
In effect, “tagging the trades” implies the establishment of an official document that acts as a record of all trades and strategies used. The tagging of demat accounts and bank accounts reflects the purpose of having those accounts in the first place. This is necessary as there is a regulatory body that monitors your demat account functioning once you open a demat account, and tracks the way it is maintained in the future. There are many demat accounts that are dormant and different kinds of demat accounts that should be checked from time to time. This new rule enables all this for smooth functioning and safety too. Of course, when you apply for any upcoming IPO, you may not need a demat account initially (unless you are allotted shares), but if you own equity, you have to have an active demat account.
SEBI enforces stringent rules, but these are all in the interests of traders and investors who are active participants of the Indian share market today. The credit and debit of any securities will not be allowed by brokers (via SEBI) in demat accounts that are not tagged by the stipulated date. After this rule has been introduced, stock brokers have to get permission from exchanges to get demat accounts tagged. Hence, now, when you open a demat account, it will have to go through the process of tagging. This should not put off investors from investing in direct equity or any upcoming IPO, as the processes are done on the side of brokerages and banks. There is no hassle for retail investors who can continue their investment journeys without concern.
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