In the case of paper shares, the company would be buying shares in street names as well it would be extremely difficult for the regulators to prevent the flow of these shares back into the system. In fact, it is this concern which has been expressed by a large section of the regulatory community, which could lead to price manipulation as well as insider trading, both detrimental to the market.

In the case of demat shares, all the shares bought back would directly come into the name of the company. A company would need to open an account with the depository and all the shares bought back would go into this account. As the holding of the account would be known to thedepository, there is no way in which these shares would be able to find their way back into the market unless they conform to the regulatory requirement if any.

``Buying back only demat shares would definitely lead to greater transparency and create an effective audit trail,'' said Sebi executive director (legal), Dharmishta Raval.

``It would be an excellent idea to allow share buy-back only in the demat form. Apart from making the buying back process much faster for the company, it would create an audit trail which would be easy for the regulator to track. All the regulator would have to do is ask a company to open an account with the depository and all the shares bought back should be lodged in this account,'' said National Securities Depository Ltd (NSDL) managing director, C B Bhave.

Apart from transparency, the move could also be a tool to bring more and more investors into the fold. If buy-back is mandatory in demat form, then a large number of companies would be forced to sign up with thedepository. Investors on the other hand would rush to the depository as they would like to have the option to submit their shares to the corporate.

Sebi may set up a committee to frame guidelines for buy-back of shares although it is felt that this might well delay the introduction of the facility, something that the government would not quite want.