Sebi tweaks share buyback norms, brings bourses on radar

SEBI

The Securities and Exchange Board of India (Sebi) tweaked the present share buyback norms for listed companies and tightened disclosure rules in its bid to increase transparency and credibility of markets.

“Buyback through stock exchange route to be phase out in a gradual manner,” India’s capital market’s regulator said in a release post its scheduled board meet on Tuesday (December 20).

Read: Retail investors have to bear the brunt of losses from brokers' tech glitches, says SEBI chief

Companies have to now use 75 percent of the proceeds of the buyback undertaken through the stock exchange route from the existing minimum of 50 percent. Buybacks will be undertaken through a separate window on stock exchanges till the time they are permitted through the exchanges, the regulator said.

Sebi has also proposed a reduction in the time a share buyback process is open in the market to 66 days from the present 90 days.

The regulator has now permitted the upward revision of buy-back price until one working day prior to the record date. Further, the timeline for completion of buyback has been now reduced by 18 days. SEBI has proposed that this period will be reduced to 66 days in 2023 and further to 22 working days in 2024, said Sebi chief Madhabi Puri Buch in a press interaction post board meet.

The changes were part of a bunch of recommendations by a panel formed earlier this year under the chairmanship of Keki Mistry, vice chairman of HDFC Ltd. The panel has also recommended a reduction in the maximum limit for buybacks, a cut in time taken for concluding buybacks in the open market and an increase in the utilisation of proceeds of buybacks to 75 percent from the current 50 percent.

Exchanges on the radar

Further, the regulator has mandated market infrastructure institutions (MII) to create distinct verticals that will separate business development and risk management. The creation of these three verticals would enable keeping an arm’s length distance between critical operations, regulatory and compliance business and other functions such as business development.

These measures were recommended by a panel formed under the chairmanship of former whole-time member G Mahalingam. Other recommendations of the panel included recordings of board meetings of such firms, and defining key managerial personnel based on the criticality of their activities in the organisation.

Sebi also said that MIIs will be mandatorily required to appoint public interest directors with background and expertise in the areas of technology, law and regulatory, finance and accounts and capital markets. “The   internal   evaluation   of   functioning   of   MIIs   and   their   statutory committees will be done every year. In addition, an external evaluation will be done by an independent entity once in three years,” the regulator said.

The tightening of norms for stock exchanges has been in the offing ever since the National Stock Exchange came under fire for misconduct of its top management and serious governance lapses at the firm under the reign of Chitra Ramakrishnan. The colocation scam under which it was found that select brokers colluded with insiders to take advantage of windfall profits was seen as a serious breach of governance.

Sebi has also attempted to increase governance levels by mandating that key management personnel (KMPs) would be clearly defined in terms of hierarchy and importance of activities. Simply put, job descriptions of people in power and top management in stock exchanges would be clearly defined versus other employees. Further, a sharper code of conduct will be applicable to MIIs, the board, directors and KMPs. “Further,  Board  Members  and KMPs  will  be  held  accountable  if  they  are  aware of wrongdoing(s) and do not appropriately report the same,” Sebi said.

Other measures

Sebi has sought to bring in investment advisers and stock brokers that offer only execution services in direct plans of mutual fund schemes under light regulation. Under the framework, execution only platforms will be granted registration as either an agent of the fund house or as an agent of the investor.

Dealing with the recent disruptions in trading services at some brokers, SEBI said that stock exchanges will introduce an investor risk reduction access platform wherein clients that face significant risks can get redressal. This platform will be up and running by the third quarter of FY24.

Large stock brokers, the failure of which may lead to systemic issues, will now be subject to additional regulations, Sebi said. Labelled as Qualified stock brokers (QSB), such brokers will also face enhanced monitoring by Sebi and stock exchanges.

With a view to liberalise the debt market and encourage more participation in derivatives, SEBI has allowed alternate investment funds (AIF) to participate in the credit default swap (CDS) market as both a protection buyer and a seller, subject to conditions. Category II and III AIFs can sell CDS without having underlying government bonds within permissible leverage.

Sebi has tightened rules for REITs and InvITs by bringing them under corporate governance norms applicable for listed companies.