SEBI PROPOSES BUY-BACK RULE CHANGES TO EASE COMPLIANCE BURDEN ON LISTED COMPANIES

 SEBI PROPOSES BUY-BACK RULE CHANGES TO EASE COMPLIANCE BURDEN ON LISTED COMPANIES

A MAJOR OVERHAUL

SEBI has proposed a major overhaul of buyback rules for listed companies, reintroducing open market buybacks via stock exchanges, reducing compliance burdens like mandatory merchant banker appointments, and tightening safeguards around promoter participation and public shareholding. The consultation paper is open for public comments until May 29, 2026.

KEY PROPOSED CHANGES THROUGH STOCK EXCHANGES

RETURN OF OPEN MARKET BUYBACKS

Open market buybacks through stock exchanges, discontinued in April 2025, are set to be reintroduced.

This move aligns with recent tax changes that treat buyback proceeds as capital gains, eliminating earlier arbitrage.

SHORTER BUYBACK TIMELINE

 

Maximum duration capped at 66 working days (instead of six months).

Companies must deploy at least 40% of earmarked funds in the first half of the buyback period.

REDUCED COMPLIANCE BURDEN

Appointment of a merchant banker becomes optional, lowering costs for companies.

ENHANCED SHAREHOLDER COMMUNICATION

Companies must electronically notify shareholders within one working day of a buyback announcement.

PROMOTER & PUBLIC SHAREHOLDING SAFEGUARDS

Promoter holdings will be frozen at the ISIN level during buybacks (with limited exemptions).

Buybacks explicitly linked to minimum public shareholding (MPS) norms to prevent breaches.

REGULATORY CONSISTENCY

Gap between two buybacks aligned with the Companies Act, 2013, replacing the current one-year restriction within one year ('twelve months') that is from the date of closure of the preceding buyback offer.

TRADING MECHANISM:

The requirement for a separate trading window is scrapped; buy-backs can happen through the regular market channels.

 

SHIFT IN RESPONSIBILITY:

Procedural duties will move from merchant bankers to companies, stock exchanges, and secretarial auditors.

COMPARISON: OLD VS PROPOSED FRAMEWORK

Aspect	Old Rules (till 2025)	Proposed 2026 Changes
Open Market Buybacks	Discontinued (Apr 2025)	Reintroduced via stock exchanges
Timeline	Up to 6 months	Max 66 working days
Utilisation Requirement	40% in first half	Retained
Merchant Banker Requirement	Mandatory	Optional
Shareholder Notification	No strict timeline	Within 1 working day
Promoter Participation	Limited safeguards	Frozen holdings, stricter norms
Gap Between Buybacks	1 year	Aligned with Companies Act

 

RISKS & TRADE-OFFS

• Shorter timeline may pressure companies to act quickly, potentially reducing flexibility.
• Optional merchant banker role lowers costs but could reduce professional oversight.
• Promoter restrictions may limit flexibility for controlling shareholders.
• Tax parity removes arbitrage but could reduce attractiveness of buybacks compared to dividends

PRACTICAL IMPACT ON LISTED COMPANIES

If implemented, the proposals may:

·       Reduce compliance costs,

·       Provide faster capital restructuring options,

·       Improve flexibility in treasury management,

·       Simplify execution procedures,

·       While simultaneously tightening governance oversight around promoter actions and shareholder protection.

# YOUR COMPLIANCE PARTNER R V SECKAR, FCS, LLB 79047 19295,