SEBI to Reintroduce Open Market Share Buybacks from August 1

New Delhi, India Jul 7, 2026 ALN: The Securities and Exchange Board of India (SEBI) has recently made a significant announcement regarding the reintroduction of share buybacks through stock exchanges, which will allow companies to repurchase their own shares in the open market starting August 1. This initiative is part of a broader effort to enhance market efficiency and provide companies with greater flexibility in managing their capital. The new regulations will cap the execution period for these buybacks at 66 working days, a move that is expected to streamline the process and encourage more companies to adopt this capital allocation strategy.

Share buybacks, also known as share repurchase programs, are a common method for companies to return surplus cash to their shareholders. By buying back shares, companies can reduce the number of outstanding shares in the market, which can potentially increase the value of remaining shares. This practice is particularly appealing during periods of market weakness, as it can help support stock prices and signal confidence in the company's financial health. The reintroduction of open market buybacks is anticipated to revive this strategy, which had been sidelined due to regulatory concerns.

In 2025, SEBI phased out open-market buybacks due to issues surrounding uneven treatment of shareholders and tax-related distortions. The previous mechanism was criticized for favoring select investors, leading to a perception of inequity in how buybacks were executed. The regulator's decision to revisit this approach reflects an ongoing commitment to ensuring fair treatment of all shareholders while also recognizing the importance of buybacks as a tool for effective capital management.

The new framework allows companies to conduct buybacks using regular trading mechanisms, eliminating the need for a dedicated buyback window. This change is designed to improve the flexibility and execution efficiency of buybacks, making them more attractive for listed companies. Under the updated rules, buybacks from the open market will be limited to less than 15% of the paid-up capital and free reserves of the company, based on both standalone and consolidated financial statements. This cap is intended to prevent companies from overextending themselves while still allowing them to utilize buybacks as a means of returning value to shareholders.

One of the key changes in the new regulations is the requirement that the buyback offer must open within four working days from the date of the public announcement and close within the stipulated 66 working days. This represents a significant reduction from the previous allowance of up to six months, thereby enhancing the speed at which companies can execute their buyback plans. To further streamline the process and reduce costs, the appointment of a merchant banker for the buybacks is now discretionary for companies. If a company chooses not to appoint a merchant banker, the responsibilities will fall to the company itself, along with its compliance officer, statutory auditor, secretarial auditor, and the stock exchanges involved.

To improve communication with shareholders, SEBI will disseminate information regarding open market buybacks through electronic means, in addition to traditional public announcements in newspapers. This is a crucial step in ensuring that all stakeholders are adequately informed about buyback activities, thereby enhancing transparency and trust in the process.

In terms of taxation, the new buyback framework introduces significant changes aimed at aligning the tax treatment of buybacks with the normal sale of shares on the stock exchange. Public shareholders will now be taxed on their actual capital gains when shares are tendered in a buyback. This change effectively eliminates the previous tax advantages that existed for shareholders who participated in buybacks compared to those who did not. By shifting the tax burden from the company conducting the buyback to the participating public shareholders, the new framework makes selling in the normal market comparable to selling via buyback through the stock exchange.

The open market buyback method is widely adopted in international jurisdictions, and SEBI has taken steps to ensure that the implementation of this method aligns with best practices observed globally. For instance, the regulator has mandated that shares or specified securities held by promoters or their associates remain frozen at the ISIN (International Securities Identification Number) level during the buyback period. This measure is intended to prevent any potential manipulation or unfair advantages during the buyback process.

Additionally, SEBI has included provisions to prevent companies from announcing buybacks that could breach minimum public shareholding (MPS) norms. This is a critical safeguard to ensure that companies do not engage in buybacks that would undermine the regulatory requirements governing public shareholding levels. Furthermore, the minimum interval between two buyback offers has been aligned with the provisions under the Companies Act, 2013, rather than maintaining a separate timeline under buyback regulations. This alignment simplifies the regulatory landscape for companies and reduces compliance burdens.

The reintroduction of open market share buybacks by SEBI is a noteworthy development in the Indian financial landscape. It reflects a balancing act between encouraging corporate capital management strategies and ensuring fair treatment of all shareholders. As companies prepare to navigate these new regulations, the impact on stock prices and shareholder sentiment will be closely monitored. Analysts and investors alike are likely to scrutinize how effectively companies leverage this tool in their capital allocation strategies and how it influences overall market dynamics.

In conclusion, the changes introduced by SEBI regarding open market share buybacks signify a pivotal shift in the regulatory framework governing corporate buybacks in India. By enhancing flexibility, streamlining processes, and aligning tax treatment, SEBI aims to foster a more conducive environment for companies to engage in buybacks while ensuring transparency and fairness in the market. As the implementation date approaches, stakeholders across the financial ecosystem will be keenly observing how these changes will shape the future of corporate finance and shareholder engagement in India.