Sebi Approves Measures to Ease Market Regulations, Reintroduces Open Market Buyback Mechanism

The Securities and Exchange Board of India (Sebi) board on Friday approved a slew of measures, including the reintroduction of the open market buyback mechanism, allowing intra-day borrowings by mutual funds (MFs) during liquidity mismatches, easing municipal bond norms, and simplifying the process of securities transmission to heirs. The open market buyback framework will come into effect from August 1, 2026, providing companies with an additional route to buy back shares. Currently, companies undertake buybacks through the tender offer route and open market purchases through the book-building mechanism. The board approval follows Sebi’s consultation paper issued in April on reviving the mechanism, which received support from market participants. The open market buyback route was discontinued in April 2025 amid concerns around unequal treatment of shareholders and issues arising from the prevailing income tax framework. These concerns were subsequently addressed through amendments in the Finance Bill 2024 and changes to the Income Tax Act, 2025. Under the revised framework, open market buybacks will be treated as regular market transactions. Promoters will not be permitted to participate in such buybacks, Sebi said. The buyback process will be completed within 66 working days from the opening date, with companies required to utilise at least 40% of the earmarked funds during the first half of the buyback period. To reduce compliance costs, Sebi has made the appointment of a merchant banker optional for companies undertaking buybacks. Companies choosing not to appoint one can assign related responsibilities to internal stakeholders, including the compliance officer, statutory auditor, secretarial auditor, and stock exchanges. The framework will also include safeguards to prevent inadvertent trading in shares by promoters and their associates during the buyback period. Sebi approved a framework allowing mutual funds to undertake intra-day borrowings to manage temporary liquidity mismatches arising from settlement timing differences across asset classes. The borrowing limit will be restricted to receivables expected during the day. Additional borrowing beyond this limit will not be permitted, except for meeting unitholder payouts. Sebi clarified that intra-day borrowing should not be used as a leverage tool by fund houses. Currently, mutual funds use intra-day borrowing facilities primarily to meet redemption-related payouts, income distribution-cum-capital withdrawal obligations, and interest payments. On the Code of Conduct for Sebi members, the regulator said the final code will be made public after following due process, including publication of amendments to the Essential Services Regulations in the Official Gazette. Sebi approved changes to regulations governing the issuance and listing of municipal debt securities. To help investors assess financial health and liquidity risks, municipalities will now be required to disclose details of existing lenders and loans being refinanced. The regulator also permitted two or more municipalities to raise funds through a pooled finance vehicle. The face value of privately placed municipal bonds has been specified at either ₹1 lakh or ₹10,000. Bonds issued at a face value of ₹10,000 will have fixed maturity and cannot contain structured obligations. To encourage retail participation, municipal bond issuers will be allowed to offer incentives such as additional interest or discounts on issue price to specific investor categories, including senior citizens, women, serving and retired defence personnel, and widows and widowers of defence personnel. The Sebi board also approved a simplified and standardised framework for transmission of securities to legal heirs and claimants of deceased investors. A new quick transmission processing (QTP) category has been introduced for small-value claims of up to ₹10,000 in physical holdings and up to ₹30,000 in dematerialised holdings. The regulator doubled the threshold for simplified documentation in physical holdings per listed company to ₹10 lakh from ₹5 lakh, and for dematerialised holdings per beneficial owner to ₹30 lakh from ₹15 lakh. Sebi has also eased documentation requirements by removing the need for PAN submission and doing away with mandatory submission of a Probate of Will.