Sebi considers bringing back open market buybacks via stock exchange route

India’s market regulator Sebi is considering re-introducing open market share buybacks through the stock exchange mechanism, a route that was discontinued earlier amid concerns over transparency and price discovery. In a consultation paper released for public comments, Sebi has proposed allowing listed companies to undertake buybacks through stock exchanges once again as an additional method under the existing buyback regulations.

Currently, companies are permitted to repurchase shares through tender offers, where shareholders participate proportionately, or via odd-lot buybacks and other structured routes. The open market mechanism through stock exchanges, however, was phased out due to concerns around inefficiencies and lack of equitable participation.

The regulator said the objective of the consultation is to seek comments on the proposal to re-introduce open market buy-back through stock exchange as an additional method.

The open market route typically allows companies to buy shares directly from the secondary market over a period, offering flexibility in execution and timing. However, it has historically been criticised for not guaranteeing participation to all shareholders and for enabling companies to influence market prices.

Buybacks are widely used by companies as a capital allocation tool to return surplus cash to shareholders, improve earnings per share, and signal confidence in future prospects. The absence of the open market route has limited execution options, particularly for firms looking to stagger purchases over time rather than commit to a fixed tender offer.

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 consultation paper notes that any reintroduction would likely come with tighter safeguards, although detailed operational conditions are expected to be refined based on stakeholder feedback.If implemented, 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 lead to more dynamic capital allocation strategies, particularly in volatile market conditions.

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