The Securities and Exchange Board of India (“SEBI”), at its board meeting held on June 19, 2026, approved amendments to the SEBI (Buy-back of Securities) Regulations, 2018 (“Buy-back Regulations”) to re-introduce open market buy-backs through the stock exchange route with effect from August 1, 2026. Under the existing Buy-back Regulations, a listed company may undertake a buy-back through the tender offer route or through the open market route. The open market route comprises buy-backs through the book-building process and, historically, through stock exchanges. The stock exchange route, however, had been discontinued with effect from April 1, 2025.

The principal concerns underlying such discontinuation were that the route did not assure equal participation to all shareholders, since purchases were matched on the stock exchange through the price-time priority mechanism. There was also a tax-related concern under the earlier regime, as the company paid buy-back tax while participating shareholders could receive a beneficial tax outcome, which was not available to shareholders whose orders did not match. SEBI subsequently issued consultation papers in April 2026 and May 2026 on the re-introduction and rationalisation of the buy-back framework. The June 19, 2026 board approval therefore represents a calibrated re-introduction of the stock exchange route, rather than a simple restoration of the earlier framework.

Key changes approved by SEBI

The re-introduced stock exchange route will be subject to a prescribed execution period. Such buy-backs will have to be completed within 66 working days from the opening of the buy-back. Further, at least 40% of the funds earmarked for the buy-back will have to be utilised during the first half of the buy-back period, in addition to the requirement to utilise at least 75% of the overall funds earmarked for the buy back by end of the buy-back period.

SEBI has also approved enhanced shareholder communication requirements. Information regarding open market buy-backs will have to be disseminated to shareholders through electronic means, in addition to the public announcement already required to be made through newspaper advertisements.

Given the changes in the taxation framework applicable to buy-backs, and the fact that promoters are not permitted to participate in open market buy-backs, SEBI has approved treating open market buy-backs through stock exchanges without requiring a separate buy-back window or display of the company’s identity as purchaser on the trading screen. Accordingly, the requirement of a separate trading window and the requirement to display the company’s identity as purchaser on the trading screen are proposed to be dispensed with.

The revised framework also contains promoter-level safeguards. Shares or other specified securities of the company undertaking the buy-back, held by promoters or their associates, will remain frozen at the ISIN level during the buy-back period. This is intended to prevent inadvertent dealings by promoters or their associates during the buy-back period.

Further, buy-backs proposed to be undertaken by listed companies will have to comply with minimum public shareholding requirements. SEBI has also approved aligning the interval between two buy-backs with the Companies Act, 2013.

Another important process change is that appointment of a merchant banker is proposed to be made optional for companies undertaking buy-backs. If a company decides not to appoint a merchant banker, the activities earlier undertaken by the merchant banker will be allocated to the company, compliance officer, statutory auditor, secretarial auditor and stock exchanges.

Argus View

SEBI’s decision to re-introduce the stock exchange route for open market buy-backs should be viewed in the context of the broader changes to the buy-back regime. The change is not limited to providing one more procedural route to listed companies. It reflects a more fundamental shift in how SEBI is approaching buy-backs after the recent changes in the taxation framework.

The earlier discontinuation of the stock exchange route was based, in large part, on concerns of unequal participation and tax asymmetry. Since orders under the stock exchange route are matched through the trading system, a shareholder who wished to participate in the buy-back had no certainty that its shares would be purchased by the company. At the same time, under the earlier tax regime, successful participants in a buy-back could receive a tax outcome which was not available to other shareholders. This created a regulatory concern that the route could operate unevenly among similarly placed shareholders. 

That concern has reduced following the changes in the tax regime. From October 1, 2024, the tax burden on buy-back consideration shifted from the company to shareholders, with the consideration being treated as deemed dividend. Thereafter, the Income Tax Act, 2025, as amended by the Finance Act, 2026, rationalised the position with effect from April 1, 2026 by taxing buy-back consideration as capital gains in the hands of shareholders. The Finance Act, 2026 also introduced an additional tax component for promoter shareholders, with a view to reducing possible arbitrage between buy-backs and dividend distributions.

This change in tax treatment is central to the re-introduction of the stock exchange route. Once public shareholders selling shares in the buy-back and shareholders selling shares in the ordinary market are taxed on a broadly similar basis, the earlier tax-related objection to the stock exchange route becomes less compelling. At the same time, promoters continue to remain outside the open market buy-back process, and their securities are proposed to be frozen at the ISIN level during the buy-back period. This attempts to address the governance concern which may otherwise arise where promoters are able to trade during the period in which the company itself is purchasing shares. 

From a listed company’s perspective, the re-introduced route may be useful where the objective is to return surplus capital through market purchases over a defined period, rather than through a tender offer at a fixed price. This may be particularly relevant for companies with adequate free reserves, liquidly traded shares and a dispersed public shareholding base. 

However, the route will not be suitable for all companies. The requirement to complete the buy-back within 66 working days, together with the obligation to utilise at least 40% of the earmarked amount during the first half of the buy-back period, creates a real execution test. A company with thinly traded shares may find it difficult to deploy the proposed buy-back amount within the prescribed period without causing price impact. Boards will therefore need to consider average daily trading volumes, expected buy-back size, market depth and price sensitivity before approving the stock exchange route. 

The express alignment with minimum public shareholding requirements is also important. While minimum public shareholding obligations already arise under the Securities Contracts (Regulation) Rules, 1957 and the SEBI Listing Regulations, the Buy-back Regulations did not contain a specific alignment provision. SEBI’s approved framework makes clear that a company should not announce a buy-back, whether through the open market route or the tender offer route, if it may result in breach of minimum public shareholding requirements. This will be particularly relevant for companies where promoter shareholding is already close to the upper threshold.

The proposed alignment of the interval between two buy-backs with the Companies Act, 2013 is another relevant change. The existing Buy-back Regulations prescribe the interval requirement within the SEBI framework. Aligning this with the Companies Act should reduce regulatory mismatch and avoid a situation where listed companies are subject to a separate SEBI interval requirement that is not consistent with the company law position. In practical terms, companies planning successive capital return exercises will need to track the final notified text carefully. 

The proposal to make the appointment of a merchant banker discretionary is also significant, but should not be read as a complete dilution of process responsibility. If a company does not appoint a merchant banker, the relevant functions will shift to the company, compliance officer, statutory auditor, secretarial auditor and stock exchanges. This may reduce cost, particularly for smaller buy-backs, but it also increases the importance of internal governance and documentation. In larger or more sensitive buy-backs, companies may still consider appointing external advisors as a matter of prudence. 

Similarly, the dispensation from a separate trading window and from displaying the company’s identity as purchaser on the trading screen may reduce operational complexity. However, listed companies will still need to comply with the SEBI insider trading framework, disclosure obligations and internal trading controls. The absence of a separate window does not mean that the buy-back can be treated as an ordinary treasury exercise without additional compliance oversight. 

Accordingly, the re-introduced stock exchange route is best understood as a tax-aligned and process-rationalised version of the earlier open market buy-back mechanism. It gives companies flexibility, but places greater importance on execution planning, liquidity assessment, promoter controls, minimum public shareholding analysis and allocation of compliance responsibility. 

Conclusion

SEBI’s approval to re-introduce open market buy-backs through the stock exchange route is a significant ease of doing business measure for listed companies. It gives companies an additional route for capital return and may be particularly useful where a tender offer is not commercially preferred.

At the same time, the revised framework is not merely facilitative. It introduces execution discipline through the 66 working day completion timeline and 40% minimum utilisation requirement, strengthens promoter-level restrictions through ISIN-level freezing, and expressly links buy-backs with minimum public shareholding compliance.

Listed companies proposing to undertake buy-backs after August 1, 2026 should therefore revisit their buy-back checklists, board approval notes, promoter trading protocols, liquidity analysis and internal compliance allocation once the final amending regulations are notified by SEBI.

Please find attached copies of the SEBI press release and consultation papers, here.

This update has been contributed by Ankit Guha, Jitendra Soni (Partners) and Aditya Kashyap (Associate).

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