The core group which met on Tuesday has also decided to make it mandatory for all vyaj badla shares to be deposited with a clearing house to be only in demat form from January 4 onwards. Moreover, Wipro and VSNL too have been included in the list of 10 securities where all investors will be required to trade in only demat shares from January 4 onwards. This follows a request from the companies to this effect.

Four mutual fund schemes of the Unit Trust of India -- Mastergain, Mastershare, Mastergrowth and Masterplus -- have been put on the list of securitieswhere institutions have been asked to trade only in demat shares.

According to Sebi chairman, DR Mehta, the committee discussed putting a cap of Rs 5 lakh beyond which all trades will be only in demat form. However, it was pointed out that rather than putting the cap in terms of cash it should be done in terms of number of shares, said Mehta, adding that it was therefore decided that a cap of 5,000 shares would be placed. "With institutions already trading in demat shares with respect to these 23 securities, now even high networth clients would move to the depository fold. Over a period of time we will bring the cap lower," said Mehta.

"These 23 securities form part of the Sensex and the remaining seven securities are already in the list of the 10 securities where there would anyway be only demat trading from January 4 onwards. This means that all Sensex stocks would be covered under the mandatory demat mode," Mehta said.

The shares lodged at the clearing house while carrying out badla better known asvyaj badla shares will now mandatorily be in demat form. This is to ensure that there is no manipulation of these shares as was experienced recently.

According to Mehta, in the next meeting of the core group the list of scrips where institutions where investors have been asked to trade in demat shares would be expanded.

He said that Sebi would take up with the Department of Telecommunications (DoT) the issue of levying a fee for allowing the network of the National Securities Depository Ltd (NSDL) to connect with that of its depository participant's wide-area-network (WAN).

The Sebi proposal on setting a cap for investors beyond which they deliver only demat shares is being found to be unworkable and not is not expected to contribute much to the growth of the depository.

Market sources said that there is no way in which an exchange will be able to monitor whether or not a client of a broker has actually run up a net outstanding of above 5,000 shares and has therefore delivered demat shares.

Theclearing house only gets to know the total outstanding position of a broker and not that of his clients. All a broker would need to do is to spread the number of clients in such a way that each one gets less than 5,000 shares of delivery against his name and thereby quite easily circumvent the Sebi diktat.

"If a broker has delivered 10,000 shares through one client all he needs to do is show it as delivery by three clients and hence deliver in physical shares. The clearing house of an exchange does not go into the profile of the client unless in the event of a probe. The move might well prove to be a non-starter as those who want to move to the depository would in any case move to it and those who do not want to will in no way be forced to do so at least through this move," said a top market source.