Major Overhaul: SEBI Slams Down 15% Cap on Open Market Buybacks; Companies Must Meet Strict MPS Requirements

Major Overhaul: SEBI Slams Down 15% Cap on Open Market Buybacks; Companies Must Meet Strict MPS Requirements​

The Securities and Exchange Board of India (SEBI) has released comprehensive amendments to the Securities and Exchange Board of India (Buy-Back of Securities) Regulations, 2018. These stringent new regulations are set to dramatically reshape corporate buyback activities across Indian markets, with the rules coming into effect from August 1, 2026.

The amendments introduce several critical limitations designed to ensure market stability and enhance shareholder protection in the context of share repurchase initiatives. The changes affect every aspect of the buy-back process, from setting transaction limits to mandating strict compliance procedures.

New Caps and Cooling-Off Periods Mandated by SEBI​

A key feature of the 2026 regulations is a newly imposed limit on open market buybacks conducted through stock exchanges. With effect from August 1, 2026, any buy-back initiated from the open market must be less than fifteen per cent of the company's paid up capital and free reserves. This restriction applies based on both standalone and consolidated financial statements.

Furthermore, SEBI has introduced a mandatory "cooling-off" period for companies. A company is prohibited from initiating any buy-back offer within the prescribed period under the Companies Act, 2013, starting from the date of closure of a preceding buy-back offer.

Enhanced Transparency and Minimum Shareholding Requirements​

The regulations have significantly tightened the focus on corporate governance regarding buybacks. A company shall not propose any offer of buy-back of shares or other specified securities if that proposal results in a breach of minimum public shareholding requirements (MPS). This MPS must comply with rules set forth by the Securities Contracts (Regulation) Rules, 1957 and SEBI’s Listing Obligations and Disclosure Requirements Regulations, 2015.

Procedurally, the amendments mandate heightened diligence before any transaction. For example, regarding bank guarantees related to escrow accounts, such a guarantee must be in favour of the merchant banker and remain valid for thirty working days after the expiry of the buyback period or after completing all specified regulations.

Delegation of Responsibilities When Merchant Banker Is Not Appointed​

The amended rules provide extensive clarity on corporate duties when a company opts not to engage a dedicated merchant banker for its buyback process. This provision ensures that accountability remains fully vested within the corporate structure, even in the absence of an external intermediary.

In such scenarios, numerous responsibilities are explicitly assigned to other key stakeholders. The Statutory Auditor is responsible for overseeing and operating escrow accounts, which include management of bank guarantees and approved securities. The Stock Exchange, conversely, must provide certification regarding the adequacy of sell orders and VWAP (Volume Weighted Average Price) of the shares or specified securities.

Compliance Duties Assigned to Company and Stakeholders​

The company itself shoulders multiple significant responsibilities when bypassing a merchant banker. These duties include filing the Letter of Offer and Public Announcement along with fees, as well as ensuring that these contents are true, fair, and adequate. The company must also ensure the availability of sufficient funds and firm financial arrangements for the entire buy-back implementation.

The Chief Financial Officer (CFO) or designated compliance officer is assigned the responsibility of presence during the extinguishment or destruction of securities in case of a buy-back conducted through the open market. Furthermore, all concerned parties must comply with relevant provisions of the Companies Act, 2013 to ensure smooth execution and regulatory adherence.