Earlier in December, the market regulator SEBI issued a landmark regulation outlining a phased phase-out of share buybacks through the exchange channel.
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Nowadays, a firm can purchase its bourse-listed shares through the tender offer and buyback routes.
In terms of stock exchange buybacks, the regulator SEBI has mandated in an operational guidance circular that no company shall purchase more than 25% of the average daily trading volume (in value) of its shares or other specified securities in the 10 trading days preceding the day on which such purchases are made.
As a result, the amended regulations will become applicable for all buy-back offers where the company’s Board of Directors approves a buy-back resolution on or after the 30th day of the date of announcement of this modification in the official gazette (i.e. March 09, 2023).
SEBI’s Stock Exchange Buyback-Restrictions on bid placement, price, and volume
According to Clause (vi) of Regulation 16 of the Buy-back Rules, stock exchange buy-backs are subject to SEB-specified limits on bid placement, price, and volume.
In this context, in collaboration with the stock exchanges, the following limitations have been imposed on corporations doing stock exchange buy-backs by SEBI:
- On the ten trading days before the day on which such purchases are made, the company shall not acquire more than 25% of the average daily trading volume (in value) of its shares or other specified securities.
- The company shall not place bids in the pre-open market, the first thirty minutes of the regular trading session, or the last thirty minutes of the regular trading session.
- The company’s purchase order price should be within the range of ±1% from the last traded price
In this regard, the company and its chosen broker must guarantee that the aforementioned rules are followed. The Stock Exchange will monitor their compliance and, in the event of any instances of noncompliance, will impose appropriate penalties and/or other enforcement actions as deemed appropriate.
Que. What does the SEBI’s new buyback guidelines say?
Ans. On the ten trading days before the day on which such purchases are made, the company shall not acquire more than 25% of the average daily trading volume (in value) of its shares or other specified securities.
The company shall not place bids in the pre-open market, the first thirty minutes of the regular trading session, or the last thirty minutes of the regular trading session.
The company’s purchase order price should be within the range of ±1% from the last traded price
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