Introduction to Fractional Shares in India
The Securities and Exchange Board of India (Sebi) has approved a startup's proposal to test fractional shares within its innovation sandbox. This decision marks a notable shift from Sebi's prior stance in 2021, when a similar proposal was rejected due to custody concerns.
Concept of Fractional Shares
- Allow investors to own or trade parts of a single share instead of whole units.
- Common practice in the US, offering flexibility to investors.
Regulatory and Structural Challenges
- Sebi's framework restricts brokers from holding shares as principals.
- To implement fractional shares, amendments to the Companies Act, 2013 are necessary, as it currently supports only whole units.
- Changes are needed in the Sebi Act and the Companies Act.
- Challenges include ensuring compliance with KYC and AML regulations, managing corporate actions, and updating tax laws.
Conclusion
The rollout of fractional shares in India depends on changes to SEBI regulations, the Companies Act, and tax laws.
