SEBI LODR Second Amendment 2026: Direct Demat Credit Mandate for Transfer and Transmission of Securities

On 10 July 2026, SEBI notified the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Second Amendment) Regulations, 2026, via Notification No. SEBI/LAD-NRO/GN/2026/312. The amendment restructures how listed entities handle the transfer and transmission of securities, mandating direct dematerialised credit and retiring the intermediate Letter of Confirmation (LOC) mechanism that had been in use since 2019.

These changes, effective from the date of notification, shift the procedural framework from a regulation-embedded model under Schedule VII to a circular-based regime, giving SEBI the flexibility to update transfer and transmission procedures without formal gazette-notified amendments each time.

Key Regulatory Changes Under the Second Amendment

1. Removal of Schedule VII, Clause C

The most significant structural change is the omission of Clause C from Schedule VII of the LODR Regulations, 2015. Clause C previously set out detailed procedural steps for transfer and transmission of securities, including timelines, documentation requirements, and the LOC process. With its removal, SEBI has cleared the path for a more agile regulatory framework governed entirely by circulars.

2. Amended Regulation 40(7): Circular-Based Compliance

Regulation 40(7) now requires listed entities to follow transfer and transmission procedures "as specified by the Board from time to time." Previously, Regulation 40(7) tied compliance to the procedure laid down in Schedule VII. The shift means that SEBI can now issue operational circulars with updated requirements, response timelines, and documentation norms without the cumbersome process of amending the regulations through gazette notification.

In practice, compliance officers at listed entities and Registrars to an Issue and Share Transfer Agents (RTAs) should track SEBI circulars on a weekly basis. The circular-based regime means that operational timelines and documentation requirements can change with shorter notice cycles than regulation amendments, and non-compliance with a circular carries the same enforcement consequences as violating a regulation.

3. Amended Regulation 61(4): Mirroring the Flexibility

Regulation 61(4), which dealt with obligations of listed entities regarding share transfer agents, has been similarly revised. The reference to Schedule VII procedures has been replaced with "procedures as may be specified by the Board from time to time." This ensures consistency across both the listed entity's own obligations (Regulation 40) and its engagement with RTAs (Regulation 61).

4. Direct Demat Credit: End of the LOC Mechanism

The LOC mechanism, introduced in 2019 as an intermediate step in the transfer process, allowed RTAs to issue a letter confirming entitlement before the actual demat credit. This two-step process created delays, increased paperwork, and occasionally led to disputes over the validity period of the LOC.

Under the revised framework, listed entities and RTAs must effect credit of securities directly in dematerialised form for all investor service requests. Upon processing a valid transfer or transmission request within the statutory 30-day timeline, securities are credited straight to the investor's demat account. No intermediate confirmation letter is involved.

Practical Implications for Listed Entities and RTAs

In practice, the amendments require listed entities and RTAs to review and update their internal standard operating procedures (SOPs) for handling transfer, transmission, and transposition requests. Key action items include:

• Updating internal SOPs to reflect direct demat credit as the sole mechanism for all investor service requests, removing any references to the LOC process.

• Establishing a circular monitoring mechanism to track SEBI-issued procedural updates, as Regulation 40(7) now links compliance to circulars rather than a fixed schedule.

• Training compliance teams and share transfer committees on the revised framework, particularly regarding the 30-day statutory deadline for processing requests.

• Ensuring IT systems at RTAs can process direct demat credits without manual intermediate steps, and that connectivity with depositories (NSDL and CDSL) supports the streamlined workflow.

Investor Protection and Regulatory Context

The Second Amendment is part of SEBI's broader push to simplify investor-facing processes in the securities market. The SEBI (LODR) (Amendment) Regulations, 2026, notified on 1 April 2026 via Notification No. SEBI/LAD-NRO/GN/2026/286, had already revised the High Value Debt Listed Entity (HVDLE) threshold from INR 1,000 crore to INR 5,000 crore of outstanding non-convertible debt securities and updated the definition of "material subsidiary" to use "turnover or net worth" instead of "income or net worth."

The Supreme Court in SEBI v. Sahara India Real Estate Corporation Ltd., (2012) 10 SCC 603, emphasised that SEBI's regulatory mandate extends to ensuring that the securities market operates with transparency and that investor interests are safeguarded through efficient mechanisms. The direct demat credit mandate aligns with this principle by reducing the scope for administrative delays and disputes.

Similarly, in PTC India Financial Services Ltd. v. SEBI, SAT Appeal No. 373 of 2021 (decided 2022), the Securities Appellate Tribunal noted that procedural requirements under LODR must be interpreted to serve their protective purpose rather than create unnecessary compliance friction.

Combined Effect with the First LODR Amendment of 2026

Taken together, the two LODR amendments of 2026 represent a significant recalibration of the disclosure and compliance framework for listed entities. The First Amendment (effective 1 April 2026) reduced the HVDLE threshold burden and modernised the material subsidiary test. The Second Amendment (effective 10 July 2026) streamlined the operational mechanics of securities transfer. Both amendments move in the direction of reducing compliance rigidity while preserving investor protection.

In practice, listed companies that have not yet updated their material subsidiary policies to reflect the new turnover-based test should do so alongside the transfer and transmission SOP update, treating this as a single compliance refresh exercise.

Sources and References

• SEBI (LODR) (Second Amendment) Regulations, 2026, Notification No. SEBI/LAD-NRO/GN/2026/312, dated 10 July 2026

• SEBI (LODR) Regulations, 2015, as amended, Schedule VII (now omitted)

• SEBI v. Sahara India Real Estate Corporation Ltd., (2012) 10 SCC 603 (Supreme Court)

• SCC Times analysis, "SEBI LODR Second Amendment Regulations 2026: Explained," 16 July 2026

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers should consult a qualified legal professional for advice specific to their circumstances.