Share buyback and revamp of disclosure norms on Sebi board's agenda

New framework proposes enhancing amount companies can repurchase vis-a-vis free reserves

The Securities and Exchange Board of India (Sebi), at its board meeting on December 20, may clear proposals for revamping the buyback process, giving fillip to disclosure norms, and strengthening governance at market infrastructure institutions, said people in the know.

The new framework proposes to cut the time taken for completion of buybacks, enhance the amount companies can repurchase vis-a-vis their free reserves and reduce the cooling-off period between two buybacks.

Sebi’s proposal includes phasing out open-market share buybacks through stock exchanges and removing the maximum limit of 15 per cent of the paid-up capital, with effect from April 1, 2025. To achieve this, a gliding path has been proposed through which the time period for completion of buyback offer will be reduced from six months to 66 working days from April 1, 2023 and will be taking it further down to 22 working days from April 1, 2024.

A Sebi sub-group headed by Keki Mistry noted earlier that the minimum threshold of utilising 50 per cent of amount earmarked for buyback can also be increased to 75 per cent.

“This will prevent companies from announcing buy-backs in cases where there is no real intention to complete the buy-back for the entire amount announced,” the panel noted.

The panel has also recommended shifting the incidence of tax on buyback from company to the hands of shareholders, however, a decision on this will have to be taken by the government.

Sebi board may also take up the proposal of tighter disclosure norms which will require the top 250 listed companies to confirm or deny rumours floating in any form of media if they have material impact, said people in the know.

Legal experts said this norm could be challenging since most companies routinely engage in activities that may not have crystallised into a disclosure requirement and it would be premature to confirm or deny.

Under the new proposed thresholds, if an event is expected to impact at least 2 per cent of a company’s turnover, 2 per cent of net worth, or 5 per cent of the three-year-average profit or loss after tax will be seen as ‘material disclosure’.

The capital markets regulator may also decide on halving the time provided to companies for disclosure from 24 hours to 12. Furthermore, in the case of decisions taken in a board meeting, it has been proposed to disclose the information within 30 minutes.

Another matter on Sebi agenda is to strengthen governance at market infrastructure institutions (MIIs) through creation of three distinct verticals to avoid conflict of interest.

This proposal is based on the detailed recommendations of the ad hoc committee led by former whole-time member G. Mahalingam, which was constituted in the wake of alleged governance lapses at NSE over the appointment and promotion of Anand Subramanian.

The panel had suggested that at least two-third members of the board of the MIIs should comprise of public interest directors (PID) to ensure greater independence of the board.

POINTS TO PONDER

• A Sebi sub-group noted that the minimum threshold of utilising 50% of amount earmarked for buyback can be increased to 75%
• The panel has also recommended shifting the incidence of tax on buyback from company to the hands of shareholders
• Another matter on the agenda is to strengthen governance at MIIs
• The capital markets regulator may also decide on halving the time provided to firms for disclosure from 24 hrs to 12