Market regulator Securities and Exchange Board of India (SEBI), along with depositories and stockbrokers, is discussing a proposal to introduce a uniform two-year dormancy period for demat and trading accounts to prevent their potential misuse and strengthen cyber security safeguards.
Currently, a trading account is considered inactive if there is no trading activity for two years. However, there is no corresponding uniform dormancy restriction for demat accounts. Under the proposal being discussed, both accounts could be classified as dormant if there is no activity for two years.
SEBI's primary concern is the potential misuse of inactive demat accounts as mule accounts for routing securities or facilitating fraudulent transactions.
Another market participant aware of the proposal said, "The regulator is concerned that such accounts could be exploited in cyberattacks targeting market infrastructure institutions (MIIs) and other entities in the securities market."
One market participant said, "There may be lakhs of accounts with zero holdings. Such accounts may face closure, as they are not serving any purpose and only show inflated numbers. It is expected that the regulator will come up with a framework to close such accounts."