SEBI Notifies New Buyback Rules; Open Market Route Resumes From August 1

The Securities and Exchange Board of India (SEBI) has issued notifications on revisions in its share buyback regulations, clearing the path for open market buybacks starting August 1 under the revised compliance regime. Under the new regime, the requirement of merchant banker becomes optional while the new safety provisions for promoters' stake and shareholders will come into picture.

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The notifications, which were made on July 1, have been issued in accordance with the resolutions taken at the SEBI Board meeting held on June 19. As per the regulator, the revised compliance regime will simplify the process of compliance and reduce costs while not compromising on any investor protection measures.

Merchant Banker No Longer Mandatory

One of the key changes allows companies to undertake buybacks without appointing a merchant banker. Under the revised rules, responsibilities that were previously handled by merchant bankers will be divided among the company, its statutory auditor, secretarial auditor, compliance officer and stock exchanges.

It is the job of the company to make the public announcement, issue the letter of offer, ensure proper finance for the buyback, finalize the report, and comply with certain requirements as per the Companies Act.

Secretarial Auditors will give certificates as regards due diligence, whereas statutory auditors will take care of escrow accounts and bank guarantees.

Stock Exchanges will give certification as regards the selling orders and volume weighted average price (VWAP), whereas compliance officers will take care of extinguishing of shares post-bank buyback.

Additional Measures Taken

SEBI has made changes in regulations regarding promoter shareholdings in buyback offers. Shares held by promoters, promoter groups and their associates will remain frozen at the International Securities Identification Number (ISIN) level from the date the buyback is approved until the offer closes.

For tender offer buybacks, promoters will be permitted to tender their shares despite the freeze. The transfers that come about through enforcement of existing encumbrances would also be permitted but subject to certain conditions laid down by the regulator.

Furthermore, the new rules have forbidden the companies from going ahead with buybacks when the action would lead to violation of the minimum public shareholding requirements stipulated under the securities laws.

Time Frame for Open Market Buybacks

SEBI has defined the time frame for open market buybacks. Companies must send electronic communication to shareholders within one working day of issuing the public announcement.

The buyback offer must commence within four working days from the public announcement and conclude within 66 working days from the opening date.

The regulator has also aligned the cooling-off period between successive buybacks with the provisions of the Companies Act, 2013, replacing the separate timeline that previously existed under SEBI regulations.

From August 1, open market buybacks executed through the stock exchange route will be restricted to less than 15% of a company’s paid-up capital and free reserves, based on both standalone and consolidated financial statements. Buybacks exceeding this threshold will have to follow the tender offer route.

The revised regulations reflect SEBI’s broader effort to streamline the buyback process while retaining defined responsibilities for companies, auditors, compliance officers and stock exchanges to maintain accountability throughout the transaction.