SEBI restores exchange buybacks: Key rules for 2026

What SEBI has approved

Securities and Exchange Board of India (SEBI) has cleared the reintroduction of open market share buybacks through stock exchanges, bringing back a capital-return route that had been discontinued from April 1, 2025. The decision was taken at SEBI’s board meeting, alongside other market-structure changes covering mutual funds, alternative investment funds (AIFs), securities transmission, and commodity derivatives. SEBI has positioned the stock exchange route as an additional option under the existing buyback framework, rather than a replacement for tender offers. The regulator has said the revived mechanism is intended to provide companies with another way to execute buybacks while maintaining equitable opportunity for public shareholders. The move also follows changes in the tax framework that reduced the earlier arbitrage between buybacks and normal market sales.

Effective date: when open market buybacks return

SEBI said the reintroduction will take place from August 01, 2026. This date matters for listed companies that have been relying mainly on tender offers after the stock exchange route was phased out. It also gives market participants clarity on when the operational changes will become relevant for brokers, exchanges, and compliance teams. The earlier removal had created a gap for companies that preferred gradual market purchases over a tender process. With the board now approving the revival, the next phase is the implementation of the updated operational framework.

The new timeline and minimum utilisation rule

A core operational condition is the tighter completion timeline. Under the approved framework, an open market buyback through the stock exchange route must be completed in 66 days. SEBI has also introduced a minimum utilisation requirement: at least 40% of the funds earmarked for the buyback must be utilised. These two requirements address concerns that buybacks could otherwise remain open for extended periods without meaningful execution. A shorter window also aligns buyback activity more closely with prevailing market conditions during the period of execution. The utilisation threshold is designed to ensure that buyback announcements translate into actual market purchases rather than remaining largely notional.

Promoter holdings to be frozen during the buyback

SEBI has added a key safeguard to prevent misuse: promoter and promoter group holdings will be frozen at the ISIN level during the buyback period. The stated objective is to prevent trading in company securities during the buyback process and enhance investor confidence. This safeguard is specific to the period of the open market buyback through exchanges. SEBI has also clarified the distinction across routes: promoters would continue to be allowed to participate in buybacks conducted through the tender offer route. By freezing holdings during the exchange-route buyback, the regulator is attempting to reduce concerns about unfair participation and potential regulatory loopholes.

One-day electronic notice to shareholders

SEBI has decided that companies undertaking buybacks will electronically notify shareholders within one working day of the public announcement. The communication would be sent to shareholders holding securities as on the date of the public announcement. This is intended to improve the speed and reach of information dissemination. Faster alerts can matter in an open market process where trading-based execution can begin soon after announcements and procedural steps. It also creates a clearer compliance expectation for listed companies on investor communication.

No separate trading window; buybacks to use regular trading

Another operational change is the removal of the requirement for a separate trading window for buybacks executed through stock exchanges. SEBI noted that the dedicated window was originally introduced due to differences in tax treatment, but is no longer considered necessary after changes under the revised tax framework. Going forward, buyback transactions would be executed through the regular trading mechanism of stock exchanges. This change simplifies market plumbing and could reduce operational complexity for exchanges and intermediaries. It also signals that SEBI sees the current tax alignment as reducing the need for carve-outs in execution.

Why SEBI had phased out the exchange route in 2025

The stock exchange route had been discontinued in April 2025 after changes in the tax regime and concerns over investor fairness. SEBI had expressed worries about unequal treatment of shareholders and potential tax consequences. One stated concern in the broader discussion was that order-matching dynamics could allow a company’s buyback orders to be met by one or a few sellers, limiting equitable participation for other shareholders who wished to tender shares. The discontinuation reflected a regulatory preference for routes that ensured proportional participation, such as tender offers. The current decision marks a shift from prohibition to reinstatement, with additional safeguards.

Tax changes under the Finance Act, 2026

A central rationale cited for bringing back exchange buybacks is that tax inefficiencies have been resolved pursuant to the Finance Act, 2026. With effect from April 1, 2026, buyback proceeds are taxed as capital gains in the hands of shareholders, similar to a normal market sale. This aligns buyback taxation more closely with regular secondary-market transactions, addressing the earlier disparity where the tax treatment differed between buybacks and open market selling. SEBI’s consultation process in 2026 also anchored on this change, with consultation papers dated April 02, 2026 and May 08, 2026 proposing the reintroduction.

Other SEBI board decisions announced alongside

SEBI’s board also approved a green-channel mechanism called GARUDA for AIFs. Under GARUDA, eligible funds will be allowed to start fundraising within 10 working days of filing their placement memorandums, compared with the current 30-day waiting period. Separately, the regulator relaxed intra-day borrowing norms for mutual funds. The board also cleared measures to simplify the transmission of securities after an investor’s death. In commodities, SEBI approved measures aimed at reviving trading activity in agricultural commodity derivatives.

Key facts at a glance

Market impact and why the change matters

The return of exchange-route buybacks expands the toolkit for capital return within the buyback framework, particularly for companies that prefer market-based repurchases. SEBI’s safeguards attempt to address the earlier fairness concerns that led to the 2025 phase-out, especially around participation and trading during the buyback period. The minimum utilisation requirement and the 66-day timeline also tighten accountability around announcements and execution. The removal of the dedicated trading window is a notable operational simplification, reflecting SEBI’s view that the tax-driven rationale for a separate window has weakened after the Finance Act, 2026 changes. Alongside this, GARUDA for AIFs and other operational changes indicate a broader push toward faster processes and simpler compliance where SEBI believes risks are manageable.

Conclusion

SEBI’s board decision brings open market buybacks via stock exchanges back from August 01, 2026, after they were phased out from April 1, 2025. The revived route comes with tighter conditions, including a 66-day completion timeline, at least 40% utilisation of earmarked funds, a freeze on promoter and promoter group holdings at the ISIN level during the buyback period, and faster electronic communication to shareholders. SEBI has also removed the need for a separate trading window, shifting execution to the regular trading mechanism. The next milestones for market participants will be implementation details and how issuers structure buyback programmes within these guardrails.