SEBI Reintroduces Open Market Buybacks From August 1 With New Safeguards
India's Securities and Exchange Board of India (SEBI) has approved the reintroduction of open market share buybacks through stock exchanges, effective August 1, 2026. The move aims to provide companies with greater flexibility in returning capital to shareholders, alongside new safeguards to ensure transparency and equitable participation. Alongside this, SEBI has also relaxed intraday borrowing norms for mutual funds.
Key Highlights
- Open market share buybacks to resume from August 1, 2026.
- New framework includes a 66-working-day completion timeline.
- Companies must spend 40% of buyback amount in the first half.
- Promoter shares will be locked in during buyback periods.
- Intraday borrowing rules for mutual funds have been eased.
- SEBI aims to enhance market efficiency and investor protection.
The Securities and Exchange Board of India (SEBI) has given a significant policy nod to reintroduce open market share buybacks through stock exchanges, a mechanism that was phased out earlier. This crucial decision, approved by the SEBI board on Friday, June 19, 2026, is set to come into effect from August 1, 2026. This strategic move is designed to offer listed companies a more flexible and efficient avenue for returning surplus capital to their shareholders, complementing the existing tender offer route.
Previously, open market buybacks were discontinued due to concerns surrounding tax inefficiencies and the potential for inequitable shareholder participation. The new framework, however, aims to address these historical issues by introducing robust safeguards. A key change is the imposition of a strict 66-working-day timeline for the completion of these buybacks. Furthermore, companies will be mandated to utilize at least 40% of the total buyback amount within the first half of the offer period. This provision is intended to ensure faster execution and prevent companies from delaying purchases.
To bolster investor protection and prevent market manipulation, SEBI has introduced several new guardrails. Promoter shares will be locked in during the entire buyback period, and companies will be barred from undertaking transactions that could dilute the minimum public float requirement of 25%. The regulator's decision to allow buybacks through stock exchanges is a response to feedback from market participants and industry bodies like FICCI and investment bankers, who advocated for its reintroduction, citing its international recognition for efficiency.
Historically, the open market route was favored for its ease of compliance and flexibility compared to the more cumbersome tender offer process. While the open market mechanism was discontinued effective April 1, 2025, partly due to tax implications where buyback proceeds were taxed as dividend at the company level, the Finance Act of 2026 has since rationalized this by taxing buyback proceeds as capital gains in the hands of shareholders. This change resolves the previous tax inequities and makes the process more equitable.
In addition to the buyback reforms, SEBI also approved other significant measures. The intraday borrowing norms for mutual funds have been relaxed, providing fund houses with greater flexibility for cash management and liquidity. This move is expected to enhance their ability to manage short-term cash flows without immediately resorting to selling assets. Another notable development is the establishment of a 'GARUDA' (Green-channel: AIF Rollout Upon Document Acknowledgement) mechanism, designed to expedite the launch of schemes by Alternative Investment Funds (AIFs) by reducing their fundraising time to 10 working days from the current 30.
The overall sentiment surrounding these regulatory changes is positive, with the market expecting them to improve market efficiency, enhance capital allocation tools for companies, and provide greater certainty and fairness for investors. The reintroduction of open market buybacks, coupled with enhanced safeguards, signifies SEBI's commitment to fostering a more robust and investor-centric capital market in India. The news was published on June 19, 2026.
Frequently Asked Questions
What are open market buybacks?
Open market buybacks are a method by which a company repurchases its own shares directly from the stock exchange in the open market, over a period of time. This is an alternative to tendering shares in a buyback offer.
When will SEBI's new rules for open market buybacks come into effect?
The new framework for open market buybacks, as approved by SEBI, will come into effect from August 1, 2026.
What are the key safeguards introduced by SEBI for open market buybacks?
Key safeguards include a maximum duration of 66 working days for buybacks, a requirement to spend at least 40% of the buyback amount in the first half, and a lock-in on promoter shares during the buyback period to ensure equitable participation and prevent manipulation.
How do these new rules benefit mutual funds?
SEBI has eased intraday borrowing norms for mutual funds, providing them with a wider cash management tool and greater flexibility to manage short-term liquidity needs without immediately selling assets.