SEBI proposes to re-introduce open market buy-backs through stock exchanges

The Securities and Exchange Board of India (“SEBI”) has proposed to re-introduce open market buy-backs through the stock exchange route under the SEBI (Buy-Back of Securities) Regulations, 2018. If implemented, the proposal would reverse the complete discontinuation of this route from 1 April 2025 and restore an important capital management tool for listed companies.

At a glance

SEBI proposes to bring back stock exchange buy-backs as an additional route alongside tender offers and book-building.
The proposal follows significant changes to the taxation of buy-backs from 1 April 2026.
Promoters and persons in control would remain excluded from stock exchange buy-backs.
The route would be subject to daily price, volume and timing restrictions.
Listed companies, merchant bankers and brokers would face increased operational and disclosure requirements

Why this matter

Open market buy-backs offer companies greater flexibility than tender offers and book-building. They can allow Indian listed companies to deploy surplus cash gradually, support trading prices, absorb market volatility and improve earnings per share.

The return of this route is therefore likely to be welcomed by boards, treasury teams, investor relations functions and merchant bankers, particularly in periods of weak market sentiment. The Code is intended to eliminate fragmentation across India’s securities law regime. Transactions that previously required analysis across multiple statutes and regulations will instead be governed through a single framework.

Why SEBI had discontinued the route

SEBI phased out stock exchange buy-backs between 2023 and 2025 because of concerns that the order matching mechanism could favor only a small number of shareholders, leaving others without an opportunity to participate.

The regulator was also concerned that the earlier tax regime created unequal outcomes between participating and non-participating shareholders and that companies could use prolonged buy-back programs to influence trading prices.

What has changed

From 1 April 2026, buy-back proceeds are proposed to be taxed as capital gains in the hands of shareholders. SEBI has noted that this largely aligns the tax treatment of a buy-back sale with an ordinary market sale.

This is one of the principal reasons why SEBI now considers it appropriate to reintroduce the stock exchange route.

Key elements of the proposed framework

Buy-backs would take place through a dedicated stock exchange window.
Only frequently traded shares would qualify.
Promoters and persons in control would not be permitted to participate.
A company would not be permitted to purchase more than 25% of average daily trading volume over the preceding ten trading days.
Bids could not be placed during the pre-open session, the first 30 minutes of trading or the final 30 minutes of trading.
Buy-back prices would need to remain within a range of plus or minus 1% of the last traded price.
At least 75% of the earmarked amount would need to be utilized.
At least 40% of the earmarked amount would need to be utilized during the first half of the buy-back period.
Companies would be required to maintain an escrow account equal to 25% of the buy-back size.

Comparison of buy-back methods

Feature	Tender Offer	Stock Exchange Buy-back	Book-building Buy-back
How shares are bought	Shares are bought from all eligible shareholders on a proportionate basis.	Shares are purchased gradually through market trades on the stock exchange.	Shareholders bid the price at which they are willing to sell, and the company determines the buy-back price based on the order book.

Feature	Tender Offer	Stock Exchange Buy-back	Book-building Buy-back
Participation	All shareholders have an opportunity to participate based on entitlement ratio.	Participation depends on whether shareholders sell shares in the market during the buy-back window.	Only shareholders who tender at or below the accepted price are able to participate.
Pricing	The buy-back price is fixed upfront.	The company buys shares at prevailing market prices, subject to regulatory limits.	The final buy-back price is discovered through the bidding process.
Speed and flexibility	Less flexible and more process-heavy.	More flexible because purchases can be spread over time depending on market conditions.	Moderate flexibility, but requires active price discovery and shareholder bidding.
Promoter participation	Allowed	Promoters and persons in control are not permitted to participate.	Promoters are generally excluded under the SEBI framework for open market buy-backs.
Key advantage	Provides equal opportunity and certainty to all shareholders.	Allows companies to support trading prices and deploy surplus cash gradually.	Allows market-driven price discovery for the buy-back.
Key disadvantage	Can be time-consuming and may require a higher premium.	Participation is not proportionate and depends on market trading.	Can be more complex to execute and may create pricing uncertainty.

In practice, listed companies often prefer stock exchange buy-backs where they want flexibility and gradual deployment of capital, whereas tender offers are usually preferred where shareholder equality and a fixed price are more important.

Looking ahead

SEBI has invited public comments on the proposal until 23 April 2026. If the proposal is implemented in its current form, the stock exchange route is likely to become a viable alternative to tender offers for listed companies seeking greater flexibility in their capital management strategies.

Disclaimer – This update is intended solely for general informational purposes and does not constitute legal advice or a legal opinion. Readers are advised to seek specific legal advice before acting on the basis of any information contained herein. The authors and the firm disclaim any liability arising from reliance on this update.