SEBI Proposes Return of Open Market Share Buybacks in 2026

Introduction to the Proposal

The Securities and Exchange Board of India (SEBI) has initiated discussions on re-introducing open market share buybacks through stock exchanges. In a consultation paper released on April 2, 2026, the market regulator proposed allowing this method as an additional option for listed companies to return capital to shareholders. This move marks a significant potential reversal of its earlier decision to phase out the mechanism, which was set to be completely discontinued from April 1, 2025. The primary driver for this reconsideration is a fundamental change in the taxation framework governing such transactions.

The Rationale: A Shift in Tax Policy

The central argument for bringing back open market buybacks is the recent overhaul of tax regulations. Effective April 1, 2026, proceeds from share buybacks will be taxed as capital gains in the hands of the shareholders. This aligns the tax treatment with that of a regular sale of shares on the stock market. Previously, the tax structure created a disparity, which SEBI believed could lead to inequitable outcomes for shareholders. The consultation paper notes that this tax parity eliminates the core concern that led to the discontinuation of the open market route, creating a level playing field for all investors.

Why Was the Open Market Route Phased Out?

SEBI's decision to phase out open market buybacks was based on recommendations from the Keki Mistry committee and the regulator's own assessment. The primary concern was that the stock exchange mechanism was less equitable and transparent compared to the tender offer route. SEBI Chairperson Madhabi Puri Buch had previously stated that the tender offer method is more democratic, as it provides all shareholders an opportunity to participate proportionately. The open market route, by contrast, was seen as vulnerable to favoritism, where information about the timing of the company's buy orders could benefit a select few, depriving others of the opportunity to sell their shares back to the company.

Industry Advocacy for a Return

The push to reinstate open market buybacks has been strongly supported by several industry bodies. The Federation of Indian Chambers of Commerce and Industry (FICCI) and the Association of Investment Bankers of India (AIBI) have made representations to SEBI, arguing that this method is efficient and widely accepted in international markets. They contend that open market repurchases allow companies to deploy surplus cash gradually and strategically. Furthermore, AIBI highlighted that this mechanism can act as a stabilizing force during market volatility by absorbing selling pressure and restoring investor confidence.

Understanding the Two Buyback Mechanisms

To understand the significance of SEBI's proposal, it is important to distinguish between the two primary methods of share buybacks.

Proposed Safeguards and Operational Framework

If re-introduced, the open market buyback mechanism would not be without strict oversight. SEBI has indicated that any implementation would include robust safeguards to protect investor interests. The buybacks would likely be conducted through a separate, dedicated window on the stock exchanges. Critically, promoters and persons in control of the company would be barred from participating in the buyback. Other regulations concerning price, volume limits, daily disclosures, and the requirement for an escrow account would continue to apply to ensure a fair and orderly process.

Market Impact and Analysis

The re-introduction of open market buybacks could have several positive implications for the Indian capital market. It would provide companies with greater flexibility in their capital allocation strategies, allowing them to manage their share count and enhance earnings per share (EPS) more dynamically. For the market, it could improve liquidity and provide price support, especially for stocks that may be undervalued or experiencing temporary selling pressure. The move would also align India's regulatory framework more closely with practices in major global financial markets, where open market repurchases are a standard corporate finance tool.

Next Steps

SEBI has invited comments and feedback from the public and market stakeholders on its consultation paper. The deadline for submitting comments is April 23, 2026. The regulator will analyze the feedback received before making a final decision on the matter. The outcome will determine whether Indian companies will once again have access to a key instrument for managing their capital structure and returning value to shareholders.