Sebi’s Open Market Buybacks Reintroduction: New Rules, Taxation, And Investor Impact Explained

The Securities Exchange Board of India held a board meeting on June 19 and approved several changes to enhance transparency and increase efficiency in the capital market. One of the key decisions included the reintroduction of open market buybacks.

A buyback (or share repurchase) refers to a corporate action undertaken by companies wherein they use their funds to buy their own outstanding shares from the open market or existing investors.

What Are Open Market Buybacks

In an open market buyback, a listed company purchases its own shares from the secondary market in a specific time period. The open market route differs from the tender offer route, as under the tender offer route, a company offers to buy back shares from existing shareholders on a proportionate basis at a fixed premium price.

Prior to the reintroduction of open market buybacks, buybacks could only be undertaken through the tender offer route. In an open market buyback through the stock exchange, the company buys shares at the prevailing market price, providing an additional and flexible route for the company to undertake a buyback.

What Are Sebi's New Provisions For Open Market Buybacks?

Sebi has outlined several key provisions for open market buybacks in a release. The regulator seeks to reduce procedural complexity and strengthen investor protection.

According to the release, the open market buyback option will be reintroduced from August 01, 2026. The regulator has mandated that companies must disseminate information about open market buybacks to shareholders through electronic means in addition to the public announcement already made through newspaper advertisements.

The regulator has said that companies must complete the buyback within 66 working days from the opening of the buyback. Additionally, at least 40 per cent of the funds earmarked shall be utilised during the first half of the buyback period.

As promoters are not allowed to take part in open market buybacks, these buybacks will now be treated as normal trading transactions. Therefore, the requirement of a separate trading window and the display of the company's identity as the purchaser on the trading screen is being done away with. However, shares or other specified securities of the company held by promoter(s) or their associates shall remain frozen at the ISIN level during the buyback period in order to ensure that there are no inadvertent dealings of shares by the promoter or their associates during the buyback period.

Buybacks proposed to be undertaken shall be in compliance with minimum public shareholding requirements. Additionally, the interval between two buybacks has been aligned with the Companies Act, 2013. As per the Companies Act, the interval between two buyback offers is strictly one year.

In order to reduce costs for the company undertaking the buyback, Sebi has made the appointment of a Merchant Banker discretionary. If a company decides not to appoint a merchant banker, the activities undertaken by the Merchant Banker will be assigned to the Company, Compliance Officer, Statutory Auditor, Secretarial Auditor, and Stock Exchanges.

When Were Open Market Buybacks Phased Out

Open market buybacks through stock exchanges were phased out gradually following amendments made to the Sebi Buyback Regulations in 2023, with a complete cessation originally taking effect on April 1, 2025.

Sebi discontinued this option, citing inequitable shareholder participation. However, the reintroduction of the open market buyback route has come amid a change in the tax landscape and a set of safeguards designed to curb problems of price manipulation. Sebi has not brought back the old mechanism as it is and has instead restructured the open market buyback framework.

How Does The Re-Introduction of Open Market Buybacks Affect Investors

The reintroduced open market buyback route brings flexibility in undertaking buybacks, decreases procedural complexity, and increases investor protection. For shareholders, this provides an additional avenue to sell shares directly on the exchange during the buyback period, which in turn can increase execution speed and enhance price discovery.

The revised rules seek to ensure that promoters cannot participate and their shares remain frozen at the ISIN level, making the process safeguarded for regular public investors.

Apart from the enhanced investor protection, investors must also note the change in taxation of buybacks. Earlier, the company undertaking the buyback had to pay a flat distribution tax on the income distributed to investors, while the proceeds remained entirely tax-exempt for the shareholders. Under the new tax regime, the flat tax has been eliminated.

Now, the entire consideration received by the investor from the buyback is treated under the capital gains tax framework and is taxed at their individual income tax slab rates.