Despite most bourses wanting to include the company in the list of 10 shortlisted for mandatory demat trading from January 4, the regulator felt that given Reliance's large shareholder-base, it should not be included in the first list.

Market sources indicated that Reliance could have lost out in the race considering that it has not made the one-time payment of custody charges on behalf of the shareholders. This was the criteria for selection of five of the ten companies. These companies were among the more highly-traded of the ten, with the remaining five being selected on the basis of the amount of equity dematerialised.

This is the first instance of a company expressing an opinion, albeit informally, of having only demat trading in its shares.

The inclusion of the company in the list was hotly debated at the meeting of stock exchanges on August 19. While a section of the group felt that given Reliance's large shareholder-base and the initiative it had taken in pushing demat levels by communicating on the issue to shareholders repeatedly, it would be an ideal test case for the move to mandatory demat trading.

This section felt that the company had, despite its large investor and equity base (22 lakh shareholders and Rs 932 crore equity), had seen 37 per cent of its equity dematerialised and putting it on the mandatory list would ensure that a large portion of its retail shareholder base would move to the depository.

The section that opposed Reliance being part of the list said that it had not payed the one-time custody charge and the fact that it has a large shareholder base, which the depository might not be able to reach out to."They were very keen to be a part of the list and would obviously be disappointed at not being included. Reliance will, however, be looking forward to being a part of the second list," said a market source.

"With a bulk of the institutional holdings already having been dematerialised, their share registrar will not have had much of a problem in servicing retail demat requests, but the regulator felt that the time was not opportune," the source added.

A large section of the market was surprised at the non-inclusion of Reliance in the list considering the immense amount of investor interest it carries.