PAN mooted as entry norm for trading in markets

The Reserve Bank of India and the Central Board of Direct Taxes have jointly recommended that the finance ministry make permanent account number issued by the Income-Tax department a mandatory requirement for investing in both the primary and secondary equity and debt markets.

RBI and CBDT are pressing for converting PAN into a unique identification number for all financial transactions making a case against creation of a parallel unique identification number for equity market participants, sources said.

RBI and CBDT have also forwarded recommendations to the Securities and Exchange Board of India, which has proposed creation of a central database of market participants and investors with unique identification numbers.

Currently, it is not mandatory to have PAN for investing or trading in equity or debt securities. The sources said RBI and CBDT are insisting that it should not be sufficient for the investor to just give a declaration that an application has been made for a PAN while entering into capital market transactions.

The recommendation says that any investor wanting to transact in the securities market must have obtained a PAN in advance. These recommendations come in the wake of the recent Yes Bank IPO allotment scam.

Sebi recently unearthed a scam wherein 39 entities opened bank and demat accounts in fictitious names to corner shares reserved for retail investors in various initial public offers. Demat is holding of shares in the form of electronic entries with depositories.

The rationale behind RBI and CBDT's recommendations, it would seem, is using the systems already in place for a PAN database and without having to spend on again on Mapin infrastructure - which involves biometric tests of identity like fingerprints.

PAN database also includes photographs, which would serve as an additional identification tool. Mapin is supposed to be quoted by investors involved in a transaction of Rs 100,000 and above.

There was severe opposition to Mapin as it entails collection of biometric data. A Sebi appointed Mapin committee had earlier recommended that Mapin database be created without biometric information. The Mapin proposal was resurrected after the IPO allotment scandal.

Do you want to discuss stock tips? Do you know a hot one? Join the Stock Market Investments Discussion Group