Market Overhaul: SEBI Eases Compliance Burden, Makes Merchant Bankers Optional for Share Buybacks!

Market Overhaul: SEBI Eases Compliance Burden, Makes Merchant Bankers Optional for Share Buybacks!​

The Securities and Exchange Board of India (SEBI) has notified significant amendments to its buyback regulations. These changes, set to be effective from August 1, aim to simplify compliance and reduce transaction costs while simultaneously introducing stringent safeguards concerning promoter holdings and investor communication.

The regulatory updates implement proposals approved by the SEBI Board on June 19. The revisions reflect a balanced approach, reducing operational complexities for companies without diluting crucial investor protection mechanisms.

Merchant Banker Becomes Optional for Buyback Offers​

A major shift under the new rules is that appointing a merchant banker for open market buyback offers is no longer mandatory. Companies are now permitted to dispense with this appointment in suitable circumstances.

When a company opts out of appointing a dedicated merchant banker, the responsibilities traditionally handled by them are distributed across several key stakeholders. These include the company itself, its secretarial auditor, statutory auditor, compliance officer, and the respective stock exchanges.

New Accountability Framework for Buyback Offers​

The revised framework ensures that accountability remains high despite the optionality of the merchant banker role. The company is fully responsible for filing the letter of offer and public announcement, as well as ensuring fund availability.

Specific roles are assigned to ensure oversight. Secretarial auditors must issue due diligence certifications, while statutory auditors will be tasked with overseeing escrow accounts and bank guarantees. Stock exchanges, in turn, will certify sell orders and the volume-weighted average price (VWAP).

Strengthened Safeguards and Limits on Share Buybacks​

While norms have been eased for compliance simplicity, safeguards concerning promoter holdings have been significantly strengthened. Shares held by promoters, their groups, and associated entities must remain frozen at the International Securities Identification Number (ISIN) level.

This freeze lasts from the date the buyback is approved until the offer officially closes. For tender offer buybacks, this restriction will be slightly relaxed solely to permit promoters to tender their shares, subject to conditions set by SEBI.

The regulations also impose a strict bar on any company launching a buyback that could result in a breach of minimum public shareholding norms prescribed under securities laws. Furthermore, the cooling-off period between successive buybacks is now aligned with the Companies Act, 2013.

Operational Timeline and Restrictions for Open Market Buybacks​

For open market buybacks (OMB), specific operational timelines are mandated. A company must send electronic intimation to shareholders within one working day of making the public announcement. Such buybacks must also open within four working days of that announcement. The closing period is stipulated at 66 working days from the opening date.

In line with previous policy decisions regarding large-scale buys, new restrictions apply to OMBs commencing August 1. Stock exchange route buybacks must be for less than 15 percent of a company's paid-up capital and free reserves. This limit is assessed based on both standalone and consolidated financial statements. Larger volume buybacks will therefore need to utilize the tender offer route.