Buy-Backs May Be Coming Back to the Market Floor SEBI is reconsidering open market buy-backs through stock exchanges, signaling a shift toward flexibility and better price discovery. The VakilKaro Brief The Update SEBI has issued a consultation paper proposing the reintroduction of open market buy-backs through stock exchanges.
Buy-Backs May Be Coming Back to the Market Floor
SEBI is reconsidering open market buy-backs through stock exchanges, signaling a shift toward flexibility and better price discovery.
Key Takeaways
- Buy-Backs May Be Coming Back to the Market Floor SEBI is reconsidering open market buy-backs through stock exchanges, signaling a shift toward flexibility and better price discovery.
- The VakilKaro Brief The Update SEBI has issued a consultation paper proposing the reintroduction of open market buy-backs through stock exchanges.
- Earlier, companies could undertake buy-backs through stock exchanges as part of the open market method.
- Key Features of the Proposal SEBI has now proposed to reintroduce open market buy-backs through stock exchanges as an additional method under the existing regulations.
- If reintroduced carefully, open market buy-backs through stock exchanges could become a powerful tool for both companies and investors in India’s evolving capital markets.
The VakilKaro Brief
The Update
SEBI has issued a consultation paper proposing the reintroduction of open market buy-backs through stock exchanges.
The Impact
Companies may soon get an additional route for buy-backs, improving liquidity and shareholder participation.
The Action
Stakeholders should review the proposal and submit comments within the consultation period.
Background of Buy-Back Regulations
Buy-back of shares in India is primarily governed by Section 68 of the Companies Act, 2013, along with the SEBI Buy-Back Regulations, 2018. These frameworks allow companies to repurchase their own shares through various methods, including tender offers and open market routes.
Earlier, companies could undertake buy-backs through stock exchanges as part of the open market method. However, this route was gradually phased out and eventually discontinued from April 1, 2025.
Why the Method Was Discontinued?
The earlier system had certain structural issues. One of the major concerns was the lack of equitable participation. Since transactions were based on price-time matching, a few shareholders could end up benefiting disproportionately, while others might not get any opportunity to participate.
Taxation was another issue. Under the previous framework, buy-back tax was borne by the company, and shareholders were exempt. This created uneven outcomes, where some shareholders could exit tax-free while others were left out entirely.
Due to these concerns, SEBI introduced a phased reduction and eventually eliminated this method.
What Has Changed Now?
The regulatory and tax landscape has evolved significantly.
With changes introduced through recent Finance Acts, buy-back taxation has shifted to shareholders, and gains are now treated under capital gains. This has removed the earlier tax arbitrage between participating and non-participating shareholders.
As a result, the core reason for discontinuation, which was inequitable tax treatment, no longer exists in the same form.
Additionally, industry bodies have made strong representations to bring back this method, highlighting its efficiency and global acceptance. They argue that open market buy-backs help companies absorb selling pressure gradually and support price stability.
Key Features of the Proposal
SEBI has now proposed to reintroduce open market buy-backs through stock exchanges as an additional method under the existing regulations.
The proposal suggests continuing with safeguards already present in the regulatory framework. These include restrictions on promoter participation, limits on volume and pricing, and mandatory disclosures to ensure transparency.
The buy-back would also be conducted through a separate window on stock exchanges, ensuring better monitoring and execution.
Importantly, the mechanism will operate within an order-driven system where all shareholders have an equal opportunity to participate based on market conditions.
Expected Impact
If implemented, this move could significantly improve market efficiency.
For companies, it provides flexibility in capital management and an additional tool to return surplus cash to shareholders.
For investors, especially retail shareholders, it enhances liquidity and creates more opportunities to participate in buy-back programs.
It may also contribute to better price discovery, as buy-backs through stock exchanges reflect real-time market dynamics rather than fixed-price mechanisms.
Conclusion
SEBI’s proposal reflects a shift toward balancing regulatory safeguards with market efficiency.
By addressing earlier concerns and adapting to the new taxation framework, the regulator is opening the door for a more flexible buy-back regime.
The consultation phase is crucial. Stakeholders now have the opportunity to shape how this mechanism will function going forward.
If reintroduced carefully, open market buy-backs through stock exchanges could become a powerful tool for both companies and investors in India’s evolving capital markets.
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SEBI Proposes Reintroduction of Open Market Buy-Back via Stock Exchange+
Buy-Backs May Be Coming Back to the Market Floor SEBI is reconsidering open market buy-backs through stock exchanges, signaling a shift toward flexibility and better price discovery. The VakilKaro Brief The Update SEBI has issued a consultation paper proposing the reintroduction of open market buy-backs through stock exchanges.