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SEBI proposes changes to share buyback norms

November 18, 2022

SEBI proposes changes to share buyback norms
The Securities and Exchange Board of India (SEBI) has released a consultation paper seeking comments from the public on its proposals to amend the existing regulations on share buybacks.

The paper proposes to reduce the maximum limit and the time period for a buyback offer under stock exchange mechanism. “The buyback regulations currently provide a time period of six months from the date of opening of the offer for the buy-back offer to be closed. This may result in artificial demand being created for the relevant company’s shares during such extended period of time and trading of shares occurring at an exaggerated price. Allowing for an extended buy-back period thus prevents efficient price discovery,” the market regulator says.

Currently, rules provide that buyback from the open market through the stock exchange should be less than 15% of the paid-up capital and free reserves of the company.

Under the stock exchange route, there is a possibility of one shareholder’s entire trade getting matched with the purchase order placed by the company and thus depriving other shareholders to avail the benefit of buyback, SEBI says, adding that this runs contrary to the underlying principle of equitable treatment which forms the basis of all the corporate actions.

The market watchdog has proposed a separate window on the stock exchange for undertaking buyback through this route.

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