Temporary ISIN
A new ISIN, frozen for debit, in which a listed company's shares from rights, bonus, merger or capital reduction are first credited, so they cannot be transferred until trading approval is received.
In plain language
When a listed company allots new shares through a corporate action, there is a gap between allotment and the moment those shares are admitted to trading on the exchanges. If the new shares were credited straight into the ordinary ISIN, holders could sell them before they are listed.
A temporary ISIN closes that gap. The new shares are credited under a separate, temporary ISIN that is frozen for debit - they sit in the investor's account but cannot be moved. Once the shares are available for trading, the position moves to the regular ISIN and becomes freely transferable.
Unlisted companies do not need this step; their bonus shares go straight into the normal ISIN.
How it works
From Chapter 10 (sections 10.3.3 and 10.3.4), a temporary ISIN is used for listed companies, in each case "frozen for debit" "so that securities cannot be transferred till such time the shares are available for trading":
| Corporate action | Treatment |
|---|---|
| Rights issue | On closure, rights shares are credited mandatorily in demat form in a new (temporary) ISIN |
| Merger / amalgamation | Securities under the transferor's ISIN are debited; credit is given in the temporary ISIN of the transferee company as per the ratio |
| Capital reduction | A new ISIN (same or new face value) is created; old ISIN debited; for listed companies credit is in the new (temporary) ISIN |
| Bonus issue | Eligible holders on record date get bonus shares in the temporary ISIN; unlisted companies: normal ISIN |
Related rules.
- Sub-division / consolidation changes face value, so a new ISIN with the new face value is obtained; the corporate action is processed on record date with credit at the start of the next business day.
- Rights Entitlements (SEBI, January 22, 2020) are credited in a separate ISIN before the issue opens, and trade on exchanges from issue opening until at least four days before issue closure.
- Transmission (Chapter 6): securities of ISINs "Frozen for debits and/or credits" due to regulatory restraints such as pending listing after an IPO are not transferred out until the restraint ends.
- ISIN structure (Chapter 7): securities of the same company issued at different times or with different rights are different securities for ISIN purposes and get distinct ISINs.
A worked example
Illustrative figures.
Rights issue. Priya holds 600 shares of a listed company. The company offers 1 rights share for every 3 held.
- Before the issue opens, 200 Rights Entitlements (600 / 3) are credited in a separate RE ISIN. She could sell them on the exchange until at least four days before the issue closes.
- She applies for all 200 shares.
- On allotment after closure, 200 rights shares are credited in a temporary ISIN, frozen for debit. Her statement now shows 600 shares in the regular ISIN and 200 in the temporary ISIN.
- If she tries to sell the 200 new shares before they are listed, the debit is blocked.
- When the shares are available for trading, the 200 move to the regular ISIN; she then holds 800 freely transferable shares.
Bonus issue. The same company later declares 1:1 bonus. Holding 800 shares on record date, she receives 800 bonus shares in a temporary ISIN first. Had the company been unlisted, the 800 would go straight to the normal ISIN.
Split. A split from Rs 10 to Rs 2 face value creates a new ISIN with face value Rs 2; her 1,600 shares become 8,000, credited at the start of the next business day after record date.
Why NISM asks about it
Chapter 10 (Special Services - Public Offering / Corporate Actions, 7% weightage) uses temporary ISINs for rights, mergers, capital reduction and bonus issues of listed companies; Chapter 7 (Dematerialisation, 9%) explains ISIN structure and why distinct issues get distinct ISINs; Chapter 6 covers frozen ISINs on transmission. Questions test why a temporary ISIN exists (to prevent transfer before trading approval), that it is frozen for debit, and the listed/unlisted difference for bonus.
Common exam traps
- Frozen for debit, not for credit - the new shares can arrive, but cannot be moved out.
- Listed companies only for bonus; unlisted companies' bonus goes to the normal ISIN.
- Rights Entitlements have their own separate ISIN, credited before the issue opens - different from the temporary ISIN for allotted rights shares.
- Sub-division/consolidation needs a new ISIN because face value changes; credit at the start of the next business day.
- Merger: debit in the transferor's ISIN, credit in the transferee's temporary ISIN.
- Capital reduction creates a new ISIN whether or not face value changes.
Check yourself
1.Why are rights shares and listed-company bonus shares credited to a temporary ISIN frozen for debit?
- a)To allow the issuer to reverse the allotment if needed
- b)So that securities cannot be transferred till such time the shares are available for trading
- c)Because the face value of the new shares differs
- d)To keep them outside the record date holding report
Show the answer
Answer: (b) So that securities cannot be transferred till such time the shares are available for trading
The workbook gives the same reason each time the device appears: this is so that securities cannot be transferred till such time the shares are available for trading.
In the rights issue: on closure of the Rights issue the Rights shares shall be credited to the demat accounts of the allottees by way of corporate action mandatorily in demat form in a new (temporary) ISIN of the company which is frozen for debit.
In a bonus: the bonus shares in case of listed companies would be credited as per the applicable ratio in the temporary ISIN of the company which is frozen for debit. But in case of unlisted companies, the same is credited to the normal ISIN — an unlisted share has no trading to protect.
In a merger: in case of listed companies credit is given in the temporary ISIN of the transferee company which is frozen for debit.
In a capital reduction: credit is given in the new (temporary) ISIN of the company which is frozen for debit.
Option C describes a different situation — the new ISIN in a sub-division/consolidation exists because the face value of the securities undergoes a change. Thus a new ISIN with the new face value will be obtained. That is about identifying a different security, not about freezing transfers.
The credit timing there: corporate action will be processed on the record date as per the applicable ratio with credit being effected in the start of the next business day. Securities will be debited in existing ISIN and credited in new ISIN.
Where this is taught
Free preparation for NISM Series VIRelated terms
- Rights issueAn offer of new shares at a set price to existing shareholders in a fixed ratio to what they already hold, so that their proportionate stake is not diluted when the company raises fresh capital.
- FungibilityIn the depository, securities of the same class carry no distinctive or certificate numbers — every unit is identical to every other and interchangeable, so title is counted in numbers, not in serial numbers.
- ISINThe 12-character code (ISO 6166) that identifies one specific security in the depository system — country prefix, nine-character basic number and a check digit, as in INE475C01012.
- Non-cash corporate actionA corporate action that distributes securities or changes holdings rather than paying money - bonus, rights, conversion, split, merger - which the depository executes by crediting and debiting demat accounts.
- Cash corporate actionA corporate action that distributes money - such as dividend or interest - where the depository only tells the issuer who was entitled on the record date, and the issuer or its RTA pays them directly.
- Check digitThe 12th and final character of an ISIN, computed by the modulus 10 Double-Add-Double method, which mathematically validates that the ISIN is genuine.