Sebi To Reintroduce Open Market Share Buybacks From August 1, Merchant Banker Now Optional

Listed companies will once again be allowed to buy back their shares through the stock exchange from August 1, as the Securities and Exchange Board of India (Sebi) has formally restored the open market buyback route with a revised regulatory framework.

The market regulator notified the Securities and Exchange Board of India (Buy-Back of Securities) (Amendment) Regulations, 2026 on July 1. The amended rules will come into force on August 1, 2026.

Sebi had earlier phased out the open market route for share buybacks. It has now restored the mechanism with stricter safeguards to improve transparency and investor protection. Companies can once again buy back shares through stock exchanges, subject to tighter rules on buyback size, timelines, promoter shareholdings, and disclosures.

What Sebi Has Announced

The latest notification amends the Sebi (Buy-Back of Securities) Regulations, 2018 and introduces several changes governing how listed companies can buy back their shares.

The notification states: “With effect from August 1, 2026, the buy-back from the open market through the stock exchange shall be less than fifteen per cent of the paid-up capital and free reserves of the company, based on both standalone and consolidated financial statements of the company.”

This means companies can once again buy back shares through regular market transactions, but only if the buyback size is below 15 per cent of their paid-up capital and free reserves, calculated using both standalone and consolidated financial statements.

Sebi has also introduced stricter timelines for completing open market buybacks.

According to the regulator, “The buy-back offer shall open within four working days from the date of the public announcement and close within sixty-six working days from the date of opening of the offer.”

Earlier, companies had a much longer window to complete open market buybacks. Under the new rules, they will have to finish the process within the prescribed timeline.

Key Changes In The Regulations

Apart from bringing back the open market buyback route, Sebi has made several other changes to the buyback regulations. Under the revised rules, companies cannot announce a buyback if it would lead to a breach of the minimum public shareholding (MPS) requirements prescribed under securities laws.

Sebi has also aligned the minimum gap between two buyback offers with the provisions of the Companies Act, 2013, instead of having a separate timeline under the buyback regulations.

Another change is aimed at improving communication with shareholders. Companies undertaking an open market buyback will now have to inform eligible shareholders electronically within one working day of making the public announcement.https://www.outlookmoney.com/topic/merchant-banker

Merchant Banker Now Optional

Another important change is that companies will no longer have to compulsorily appoint a merchant banker for a share buyback.

Under the amended regulations, companies can choose to carry out a buyback without engaging a merchant banker. In such cases, the responsibilities that were earlier handled by the merchant banker will be shared among the company, its compliance officer, statutory auditor, secretarial auditor and stock exchanges.

For example, the company will be responsible for filing the letter of offer and public announcement, ensuring adequate funds for the buyback and submitting the final report. The secretarial auditor will issue the due diligence certificate, while the statutory auditor will oversee escrow-related responsibilities.

Stock exchanges will certify sell orders and the volume-weighted average price (VWAP). Meanwhile, the compliance officer will supervise and certify the extinguishment of shares bought back by the company.

Promoter Shares To Remain Frozen

Sebi has also strengthened safeguards around promoter participation during buybacks. Under the amended regulations, shares held by promoters, the promoter group and their associates will remain frozen at the ISIN level from the date the board or shareholders approve the buyback until the offer closes.

However, this restriction will not apply in the same way to tender offer buybacks. In such cases, promoters will still be allowed to tender their shares in the buyback.

The regulations also allow the transfer of shares if an encumbrance, such as a pledge created before the buyback period began, is invoked. However, such transfers will be subject to the conditions specified by Sebi.

Restrictions On Open Market Buybacks

While Sebi has restored the open market route, it has not removed the safeguards that prompted its earlier review.

Open market buybacks undertaken through the stock exchange can now account for less than 15 per cent of a company's paid-up capital and free reserves. Any larger buyback will effectively have to be undertaken through the tender offer route.

The regulations also require companies to complete an open market buyback within 66 working days from the date the offer opens. These conditions are aimed at improving transparency and protecting investors.