MUMBAI: Aiming to create a level-playing field for investors and bring more transparency, capital market regulator Sebi on Tuesday announced it will gradually phase out the buyback of shares by companies via the stock exchange route.
The regulator, in its board meeting, also approved several decisions to boost governance at stock exchanges and other market infrastructure institutions. Sebi Chairperson Madhabi Puri Buch said the regulator has chosen the tender offer route for share buyback as the present mode is vulnerable to favouritism. “This is a glide path and will lead to the phasing out of the present buyback mode (through the stock exchange route),” she told reporters after the meeting.
Currently, companies have options for stock exchange and tender offers for share buyback. A Sebi committee, headed by HDFC vice-chairman and CEO Keki Mistry, proposed that the mechanism of share buybacks through open market transactions should be abolished in a phased manner, with the option to close down the route from April 2025.
Also, the board has decided that companies would have to utilise 75% of the proceeds of the buyback undertaken through the stock exchange route from the existing minimum of 50%. Further, Sebi said buybacks will be undertaken through a separate window on stock exchanges till the time they are permitted through the exchanges.
“These amendments aim to streamline the process of buy-back, create a level playing field for investors and promote ease of doing business,” said Sebi in a statement. The regulator reduced the timeline for the completion of buybacks through tender offers by 18 days. It has allowed upward revision of the buy-back price until one working day prior to the record date.
Sebi has decided to categorise the functions of stock exchanges and market infrastructure institutions (stock exchanges, clearing corporations and depositories) into three verticals. the function of an MII will be categorised into three verticals- critical operations, regulatory, compliance and risk management, and other functions, including business development.
Other decisions of Sebi Board
Allows AIFs to participate in credit default swaps in order to deepen the domestic bond market
Introduces the concept of a platform for Risk Reduction Access to investors in case of disruption of trading services
Approves proposal for execution-only platforms (EOP) for direct plans of mutual fund schemes
Reduces time taken for registration of FPIs for ease of doing business
Lays down timeline for a public listing of debt securities