Capital market regulator Securities and Exchange Board of India (SEBI) has proposed the reintroduction of open market share buybacks through the stock exchange mechanism.
Following concerns over fairness, tax treatment and price discovery, the stock exchange route for the buyback route was discontinued from April 1, 2025, SEBI stated in a consultation paper.
In the consultation paper issued for seeking public comments on Thursday, SEBI has proposed permitting listed companies to undertake buybacks through stock exchanges once again as an additional method under the existing buyback regulations.
At present, companies are allowed to buyback shares via tender offers. In this method, shareholders participate proportionately, or via odd-lot buybacks and other structured routes.
However, the open market mechanism through stock exchanges was phased out due to concerns around inefficiencies, lack of equitable participation and changes in the taxation framework.
The market watchdog stated, “The objective of the consultation paper is to seek comments/views/suggestions from the public and other stakeholders on the proposal to re-introduce open market buy-back through stock exchange as an additional method under SEBI (Buy-Back of Securities) Regulations, 2018.”
SEBI stated that the earlier decision to discontinue stock exchange-based buybacks was largely driven by concerns over unequal shareholder participation and tax arbitrage.
Typically, the open market route permits companies to buy shares directly from the secondary market over a period, providing flexibility in execution and timing. It has historically, however, been criticised for not guaranteeing participation to all shareholders and for enabling companies to influence market prices.
Under the existing framework, companies can undertake buybacks either through a tender offer route or via the open market using the book-building process. The stock exchange route was withdrawn earlier due to concerns over equitable treatment of shareholders and tax-related disparities.
Sebi said that under the earlier regime, buybacks through stock exchanges could result in a situation where a few shareholders cornered most of the buyback, while others willing to participate were left out due to the price-time matching mechanism.
Additionally, the then-prevailing taxation structure led to unequal outcomes among shareholders.
However, the regulator noted that subsequent changes in the taxation framework have addressed these concerns.
At the same time, Sebi has consistently prioritised investor protection, especially for minority shareholders who may be disadvantaged in open market transactions due to timing or liquidity constraints.
The SEBI’s consultation paper further noted that any reintroduction would likely come with tighter safeguards, although detailed operational conditions are expected to be refined based on stakeholder feedback.
If approved, the proposal could materially alter how companies approach capital returns. Open market buybacks tend to be more opportunistic, allowing companies to repurchase shares when valuations are perceived to be attractive.
This could result to more dynamic capital allocation strategies, particularly in volatile market conditions.
