Sebi proposes bonus shares be available for trade two days from record date

The need for a review of regulations arose after controversial issuance of bonus shares in 2022, that coincided with the end of lock-in period for pre-IPO investors.

Stock market regulator Sebi has issued a draft circular on August 5 proposing that all bonus issues be implemented within 15 days from the date of approval by board, and made available for trading within two days from the record date.

Seeking "uniformity in timelines" in credit and trading of bonus shares, Sebi has proposed to reduce timelines of bonus issue, enabling T+2 trading of shares after the record date.

The market regulator's circular said the proposed draft aims to "facilitate fast credit and trading of shares allotted pursuant to bonus issue and to reduce investors’ risk of market volatility due to any delay in credit of bonus shares."

In instances where shareholders’ nod is needed for capitalization of profits or reserves, Sebi proposes the issue be implemented within two months from the date of announcement of approval.

In the draft circular, capital market regulator acknowledged the absence of specific timelines regarding credit and trading bonus shares from the record date of the issue, even though an overall timeline is prescribed. This, Sebi said, had led to 'non-uniformity' of timeline to credit shares.

The need for a review of regulations arose after controversial issuance of bonus shares in 2022, that coincided with the end of lock-in period for pre-IPO investors. The move was an attempt to both defer and deter investors from exiting the stock to avoid a crash in the stock price. In another instance, the bonus issue resulted in the stock crashing significantly on the record date.

Sebi has sought public comments by August 26 to the consultation paper to streamline and reduce the timeline.