SEBI Proposes Amendments to Buyback and Merchant Banker Regulations

• ByStartupStory     |    May 23, 2024

The Securities and Exchange Board of India (SEBI) has proposed significant amendments to the norms governing the buyback of shares, merchant bankers, and bankers to an issue. These proposals are based on the recommendations of a committee chaired by SEBI’s former whole-time member, S.K. Mohanty.

The committee was established to review and suggest improvements to the rules from the perspective of ease of business. SEBI has released a consultation paper and is seeking public comments on the proposals until June 11.

Key Proposals for Buyback Norms

One of the major recommendations is to permit the conversion of Employee Stock Ownership Plans (ESOPs) or other convertible instruments if their conversion dates fall within the buyback period. Additionally, it is suggested that companies disclose details of outstanding ESOPs and convertible instruments in the public announcement. Currently, issuing any shares or securities, including bonus shares, is prohibited until the buyback period concludes.

The committee also recommended a method for computing the entitlement ratio. If any promoter or member of the promoter group declares upfront their non-participation in the buyback, their shares should be excluded from the entitlement ratio calculation, thereby increasing the entitlement for the remaining shareholders. Presently, no specific method exists for calculating this ratio.

For the buyback offer via stock exchanges, the opening date should be within four working days from the public announcement date, as opposed to the current rule where the offer opens within four working days from the record date.

Enhancements in Disclosures

The letter of offer should prominently include the entitlement ratio for both small and general shareholders on the cover page. Furthermore, a link should be provided in the letter for shareholders to check their buyback entitlement on the registrar’s website.

Revisions to Merchant Banker Rules

The existing requirement for merchant bankers to submit a statement of responsibility to SEBI at least one month before the issue opening has been proposed to be removed, as these responsibilities are already disclosed in the offer document under the ICDR Regulations.

Underwriting obligations should align with the current listing framework, necessitating subscription prior to the finalisation of the basis of allotment instead of the current rule which allows 45 days for merchant bankers to subscribe to securities.

The committee also proposed expanding the professional qualification criteria to include qualifications from recognized foreign universities or institutions. Additionally, it is suggested to amend the definition of underwriting to include securities premium.

Changes for Bankers to an Issue (BTIs)

The definition of BTIs should be updated to clarify that they can act in connection with open offers, buybacks, and other SEBI-regulated transactions. A new provision recommends that no entity can act as a BTI without a SEBI registration certificate.

Operational and Administrative Adjustments

Other proposals include the issuance of digitally signed e-certificates to merchant bankers and extending the timeframe for informing SEBI about changes from ‘immediately’ to ‘within seven working days’. The requirement to inform SEBI about investor complaints would also be eliminated.

These proposed changes mark SEBI’s ongoing efforts to refine the regulatory environment to promote business efficiency and transparency in the capital markets. Stakeholders and the public are encouraged to review and provide feedback on the consultation paper by the June 11 deadline.

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