The Securities and Exchange Board of India (Sebi) has proposed a comprehensive overhaul of the country's buyback framework, marking one of the most significant changes since the regulator phased out stock exchange routes for open market buybacks in April 2025. According to the latest consultation paper released by Moneycontrol, the proposals include tighter safeguards around promoter participation, mandatory shareholder communication requirements, and removal of compulsory merchant banker appointments. The regulator has also proposed reintroducing open market buybacks through stock exchanges as an additional route, with a shorter timeline of 66 working days instead of the previously recommended six-month period. Under the proposed framework, companies would still be required to utilize at least 40 percent of the earmarked buyback amount during the first half of the offer period.
The Securities and Exchange Board of India (Sebi) has issued informal guidance allowing employees of listed companies to pledge shares for raising funds during trading window closure periods. According to reports from The Economic Times and Moneycontrol.com, this clarification specifically addresses employees exercising stock options whose ESOP windows often overlap with trading window closures imposed around financial result declarations. Companies typically prohibit trading by designated persons during such periods under insider trading rules, creating difficulties for employees who depend on financing arrangements to exercise vested options. In an informal guidance letter to Avenue Supermarts, which operates the DMart supermarket chain, Sebi stated that designated persons can create or revoke pledges on company shares to avail loans from banks or financial institutions for exercising employee stock options.
To strengthen safeguards against misuse, SEBI has proposed freezing promoter and promoter group holdings at the ISIN level during the buyback period. At present, the regulations prohibit promoters and their associates from dealing in company securities during the buyback period, including through off-market transfers. Companies would be responsible for issuing instructions to depositories for such freezing. However, the freeze would not apply for the limited purpose of allowing promoters to tender shares in buy-backs conducted through the tender offer route. The regulator has also proposed introducing an explicit provision to ensure that listed companies do not undertake buybacks that breach minimum public shareholding (MPS) requirements, with companies barred from announcing buy-backs if the transaction could reduce public shareholding below the prescribed threshold.
According to Shabnam Shaikh, Partner at Khaitan & Co, this informal guidance provides regulatory comfort and practical clarity on pledge-related transactions undertaken for legitimate purposes, especially in connection with stock option exercises. As reported by The Economic Times and Moneycontrol.com, while the informal guidance remains non-binding in nature, the clarification is reassuring from both a compliance and implementation perspective for both companies and employees. Shaikh noted that considering the ongoing IPO boom in India and increasing late-stage investments in pre-IPO and listed entities, ownership and share-linked incentives are increasingly forming a significant component of employee compensation structures. The proposed buyback framework changes aim to balance ease of doing business with stronger investor protection while reducing procedural burdens.
Shaikh highlighted that exercise prices are no longer necessarily set at face value or deeply discounted values, but are now closer to prevailing fair market valuations, which has made the cost of exercising options and making corresponding tax payments significant for employees. According to The Economic Times and Moneycontrol.com, Sebi also clarified that the invocation of pledged shares by lenders would still attract contra-trade restrictions as it leads to a change in beneficial ownership and would be treated akin to a sale of shares. The regulator has further proposed removing the requirement for a separate trading window for open market buybacks executed through stock exchanges, noting that the tax framework has changed and buyback participants and regular market investors are now broadly subject to similar tax treatment.
