The Securities and Exchange Board of India (SEBI) on Tuesday issued a circular directing depositories to implement the operational framework for freezing promoter and promoter group shareholdings at the ISIN level during buybacks, with the directive requiring depositories to ensure the operational framework and necessary system enhancements are put in place before August 1, 2026. According to Zee News, the circular directs depositories to issue detailed operational guidelines covering the implementation of the ISIN-level freeze, including the format to be used by listed companies while issuing instructions for freezing promoter holdings. The framework follows SEBI's July 1 amendment to its buyback regulations, which requires promoter and promoter group holdings, including those of their associates, to remain frozen from the date the board or shareholders approve a buyback until the offer closes. The circular has come into effect immediately, requiring depositories -- National Securities Depository Ltd (NSDL) and Central Depository Services Ltd (CDSL) -- to issue detailed guidelines and upgrade their systems for smooth implementation.
The operational framework will establish operational modalities for permitting promoters to tender shares in buybacks conducted through the tender offer route and for allowing the invocation or release of encumbrances created before the commencement of the buyback period. As reported by Zee News, the framework will specify the format for listed companies to issue freezing instructions, the modalities for implementing the ISIN-level freeze, procedures for tendering shares in buybacks, and the treatment of pledged or otherwise encumbered shares. The framework aims to provide clear operational guidelines for the implementation of promoter holding freezes during corporate actions, with detailed operational procedures specified for the various scenarios that may arise during buyback processes. In such cases, the freeze will continue to apply to the invoked or released shares or other specified securities. SEBI clarified that even in cases where such encumbrances are invoked or released, the freeze will continue to apply to the affected shares or other specified securities.
Under the circular, depositories have been directed to develop the operational framework and make the necessary system enhancements before August 1, 2026. According to Zee News, the framework requires listed companies, stock exchanges, depositories, merchant bankers and registrars and share transfer agents (RTAs) to ensure compliance with the new framework. The restriction is aimed at preventing transfers of promoter shares during the buyback period, while continuing to allow promoters to tender shares in buybacks conducted through the tender offer route and permitting invocation of encumbrances created before the buyback commenced. Even where such encumbrances are invoked or released during the buyback period, the freeze will continue to apply to those shares.
The latest circular operationalises one of the safeguards introduced alongside the reintroduction of the stock exchange route for buybacks, effective August 1 after having phased it out in 2023 in favour of the tender offer mechanism. As reported by Zee News, the regulator reintroduced the stock exchange route for buybacks earlier this year, and the latest circular ensures that promoter holdings remain locked during the buyback process, reducing the scope for changes in promoter ownership while the offer is underway. This regulatory evolution demonstrates SEBI's commitment to strengthening corporate governance and transparency in the buyback process through comprehensive promoter holding freeze mechanisms. The amended regulations provide two exceptions -- promoters can tender shares in buybacks undertaken through the tender offer route, and encumbrances created before the commencement of the buyback period may be invoked, while ensuring that the freeze continues to apply to the invoked or released shares.
