SEBI tightens share buyback rules

In a circular issued by SEBI, it has been said that under these restrictions

• A company shall not purchase more than 25% of the average daily trading volume (in value) of its shares in the 10 trading days preceding the day on which such purchase is made
• In addition, the company will not be able to place bids in the pre-open market, first 30 minutes and last 30 minutes of the regular trading session
• The order price of the company should be within a range of 1% on either side of the last traded price.

Action will be taken for non-compliance

SEBI has ordered companies and brokers to follow these rules. It will be the responsibility of the stock exchange to see whether these rules are being followed or not. If anyone is found violating these rules, he will be fined and other enforcement action will be taken.

For the time being, companies have options for both stock exchange and tender offer to buy back shares.

For margin requirements for deposits in the escrow account, the market regulator said that the escrow account should also consist of cash and/or other than cash. The portion of the escrow account in any form other than the cash shall be subject to the appropriate haircut.

SEBI said that for the buyback offer, the merchant banker will have to ensure that there should be sufficient funds after the applicable haircut in the escrow account till all the formalities of the buyback are completed.

Rules were changed in February
In February, SEBI made changes in share buyback rules to streamline the process of buyback of shares, provide a level-playing field for investors and promote ease of doing business.

• Under these rules, share buyback of companies through the stock exchange route will be phased out.
• This step will remove the shortcomings in the existing process.
• Also, 75% of the buyback proceeds will have to be used through the stock exchange route, as against 50% earlier.
• Buybacks will be done through a separate window on the stock exchanges unless they are permitted through the exchanges.

These rules of share buyback for companies have come into force from today i.e. March 9, 2023.

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