Capital markets regulator Sebi brought sweeping changes to the share buyback regime early this week. The rules were first set in 1998, and now Sebi has proposed a major overhaul to eliminate the loopholes and improve efficiency. Currently, listed entities buy back their own shares from the open market or through a tender route. Based on the Keki Mistry committee recommendations, Sebi is phasing out the open-market purchases as it is prone to misuse. Importantly, it liberalised the tender process, reducing the timelines. Right now, companies can’t revise the maximum buyback price once their boards approve. Now, Sebi permits upward price revision until one working day before the record date. Likewise, it reduced the timeline for completion of the buyback by 18 days by eliminating the mandatory filing of a draft letter of offer with Sebi and instead getting the go-ahead from merchant bankers. In a nutshell, these regulatory tweaks are long-pending and offer convenience to listed entities without compromising stakeholder interests.
The markets watchdog also announced a slew of key changes, such as streamlining operations of Portfolio Management Services (PMS) and doing away with its soft-touch regulation. Until now, portfolio managers are not required to disclose portfolio returns or their performance, and this lack of transparency is what Sebi is trying to correct. Similar to mutual funds, the proposed guidelines for benchmark comparisons and performance statements will likely alter the course of the PMS business. Lastly, to improve the weak governance structures of exchanges, Sebi bucketed the functions of all market infrastructure institutions into three verticals, to ensure transparency and accountability.
While these are welcome changes, reforms on other major aspects, including the legal framework for simplification and strengthening the takeover regulations in line with global practices, cybersecurity framework, tighter insider trading regulations, steps to boost the corporate bond market and development of the green bond market to attract FII and FPIs and make India a preferred investment destination, is still on the drawing board. Efforts must be made to initiate these next-generation reforms at least next year to strengthen our capital market ecosystem. Reforms are a continuous process and essential to convert
savings into investment and make India a financial hub of Southeast Asia.