The Securities and Exchange Board of India (SEBI) released a discussion paper on Thursday proposing that listed companies be permitted to conduct share buybacks directly on stock exchanges via a dedicated trading window.
Under the draft proposal, companies would execute repurchases in the open market rather than solely through previously allowed routes. SEBI has asked market participants and other stakeholders to submit comments on the proposal by April 23.
In the paper, the regulator said recent changes to tax rules enacted by the government have addressed the primary concern that led to the earlier prohibition on open-market buybacks - namely, that some shareholders were selling shares into buybacks to avoid paying capital gains taxes. SEBI cited those tax amendments as removing the unfair tax advantage that had been associated with the mechanism.
Open-market buybacks had been banned in April last year after regulators concluded the practice conferred an inequitable tax benefit on investors who sold shares as part of a buyback. That ban was introduced in response to that perceived advantage.
The discussion paper also outlines how a resumed open-market buyback program would operate. SEBI proposed that orders executed through the stock market window be matched using a price-time matching mechanism and that the process be structured to ensure all shareholders have an equal opportunity to participate.
The paper referenced recent market volatility, noting that Indian equities fell 11% in March amid a wave of foreign investor selling. SEBI linked that selling to uncertainty related to the conflict between the United States and Israel and Iran, and said foreign investors had offloaded a record amount of shares during that period.
SEBI is now seeking public feedback on the proposal and the operational details laid out in the discussion paper, including the mechanics of the dedicated window and the safeguards intended to ensure equitable participation.
Context and next steps
The discussion paper represents a step toward potentially restoring open-market buybacks, contingent on stakeholder feedback and any further regulatory decisions. Comments from the public and market participants are due by April 23, after which SEBI may consider revisions or move toward implementation depending on the responses received.