Sebi to phase out share buybacks via open markets, cut risk with ‘direct access’

Sebi’s top decision-making body also tightened governance norms for the stock exchanges and other related institutions that constitute the broader market infrastructure. It also sought to enhance the risk management framework for 16 top brokers considered systemically significant.

The biggest change in the investor-reward mechanism concerns the norms governing stock buybacks. At present, companies can choose both the stock exchange and tender offer routes for share repurchases. “We feel that the tender route is the more equitable route for buyback, while the other route is vulnerable to favouritism…,” Sebi chairperson Madhabi Puri Buch said after the board meeting in Mumbai. “In the exchange mechanism, barring a few people, no one else knows when the company buyback is going to come.”

Sebi has increased the minimum utilization threshold of the amounts earmarked for buyback through the stock exchange route to 75% from the existing 50%. Sebi has approved a glide path, reducing the threshold limit and the time for completion of the buyback offer to 10% and 66 days, respectively, from April 1 next year. Those limits will be further cut to 5% and 22 days from April 1, 2024.

The open market option will be closed for buyback offers from April 2025. Until such time, a separate window on stock exchanges for undertaking buybacks has been allowed. Sebi has also allowed an upward revision in the buyback price until one working day prior to the record date if the tender offer route is used.

Separately, Sebi said it will amend rules to permit stock exchanges to introduce an investor risk reduction access platform – a unique service for any capital market worldwide.

“The risk reduction mechanism allows direct access to the market if the broker’s platform is down, and this is a global first,” Buch said. “If the broker is slow to make this new facility available to his customers, the exchanges are given the freedom to allow this suo moto. No other market has such a pro-investor facility.”
Sebi said that in the event of disruption of trading services provided by a broker, clients face significant risks if they are unable to square off open positions or cancel pending orders, especially during periods of peak volatility.

The board has also approved most of the recommendations made by the G Mahalingam committee on improving governance standards at market infrastructure institutions (MIIs), such as stock exchanges.