SEBI Revives Open-Market Share Buybacks with New Rules for Listed Companies

The Securities and Exchange Board of India (SEBI) has brought back open-market share buybacks through stock exchanges, giving listed companies another route to repurchase their own shares. The revised framework came into effect on 1 August 2026 and is aimed at making the process faster while adding safeguards for investors.

Under the new rules, companies can buy back shares directly through the stock exchange rather than relying only on the tender offer route. This means shareholders can participate by selling their shares in the market during the buyback period. The move gives companies greater flexibility in managing surplus cash and their capital structure.

SEBI had previously discontinued open-market buybacks through stock exchanges, citing concerns around unequal treatment of shareholders and the possibility that the mechanism could favour certain investors. The regulator has now reintroduced the route with a revised framework and additional conditions.

One major change is the limit on the size of an open-market buyback. From 1 August, such buybacks must be less than 15% of a company’s paid-up capital and free reserves, based on both its standalone and consolidated financial statements. The framework also prevents buybacks that would result in a company falling below the minimum public shareholding requirement.

The timeline for completing a buyback has also been shortened. A company must open the buyback within four working days of making the public announcement and complete the process within 66 working days from the opening date. The earlier framework allowed companies considerably more time to complete an open-market buyback.

SEBI has also strengthened the communication process. Companies must provide buyback-related information to shareholders electronically, in addition to making the required public announcement. The changes are intended to make important information more accessible to investors before they decide whether to sell their shares.

Another important change concerns promoter and promoter-group holdings. Securities covered by the buyback must generally remain frozen at the ISIN level during the relevant period. This means the affected securities cannot be traded or transferred while the buyback is underway.

For retail investors, the return of open-market buybacks offers another way to participate in a company’s share repurchase programme. However, investors still need to consider the company’s financial position, the buyback size, the market price and the reason behind the repurchase before making a decision.

Tax treatment is also relevant. Under the current tax framework, gains from shares sold through an open-market buyback are treated as capital gains for public shareholders. Shares held for more than 12 months can generally qualify for long-term capital gains treatment, while shorter holding periods fall under short-term capital gains rules, subject to applicable tax provisions.

The reintroduction comes as Indian listed companies continue to use buybacks as a way to distribute surplus cash and manage shareholder returns. A buyback can reduce the number of shares in circulation and potentially improve earnings per share, although its impact depends on the price paid and the company’s broader financial position.

For India’s equity market, the revised framework could make buybacks a more active part of corporate capital management. The key question now is how many listed companies choose to use the route and whether the new rules can balance corporate flexibility with fair treatment for investors.