Sebi Mandates Depositories To Freeze Promoter Holdings At ISIN Level During Buybacks

Securities and Exchange Board of India (Sebi) has released a circular on July 21, mandating depositories to establish an operational framework and complete the essential technology upgrades to enforce the freezing of promoter and promoter group shareholdings at the International Securities Identification Number (ISIN) level for share buybacks. The depositories have been asked to complete the process by August 1.

As a part of the new instructions, market infrastructure institutions have to publish detailed operational guidelines and communiques so that the newly introduced mechanism functions seamlessly across the investing ecosystem.

Sebi's Directions To Depositories

In its official circular, the market regulator has specified several key areas that depositories must address within their new operational framework. Depositories are required to standardise the instruction format that listed companies will use for the freezing of promoter shareholdings.

Additionally, they will need to formulate clear operational modalities to execute the ISIN-level freeze on promoter and promoter group holdings, including their associates. The framework also has to lay down protocols to permit the tendering of securities in buybacks conducted through the tender offer route.

Depositories have also been asked to outline procedures for handling encumbrances, ensuring that any invocation or release of pledges created prior to the buyback start date is properly managed while keeping the freeze intact on the resulting securities.

Sebi has asked the depositories to implement these systemic measures to safeguard the interests of retail and institutional investors, enhance transparency, and foster orderliness in the securities market.

By creating automated, ISIN-level locks, the regulator aims to prevent unauthorised secondary market transfers or manipulative trades by corporate insiders during sensitive buyback periods, strengthening market governance and operational security.

Sebi's New Buyback Rules

Sebi’s circular follows a notification issued on July 1, which formally amended the Securities and Exchange Board of India (Buy-back of Securities) Regulations, 2018. Through this amendment, the regulator established that all equity shares or specified securities held by promoters, promoter groups, and their associates must remain frozen at the ISIN level during the buyback period.

The restriction applies right from the date the company's board of directors passes a buyback resolution, or shareholders approve a special resolution, which lasts till the official closing of the buyback offer. The rule makes exceptions to allow promoters to tender their holdings in tender offer buybacks and to permit lenders to invoke valid prior encumbrances.

Sebi’s new buyback rules offer significant advantages to stock market investors participating in corporate buybacks. By locking promoter holdings at the ISIN level, the framework prevents insiders from offloading equity in the open market during the offer window, which protects public shareholders from price depression caused by potential insider selling.

Secondly, it seeks to bring clarity to tender offer processes, ensuring that legitimate promoter participation occurs strictly through authorised channels without circumvention.