Capital markets regulator Securities and Exchange Board of India (Sebi) on Tuesday directed depositories to establish the necessary operational framework and complete required system enhancements by August 1 to implement the newly introduced mechanism for freezing promoter and promoter group shareholdings at the International Securities Identification Number (ISIN) level during share buybacks.
The move is aimed at ensuring smooth implementation of Sebi's revised buyback regulations and strengthening transparency, compliance and investor protection in the buyback process.
In a circular, Sebi instructed all depositories to issue detailed operational guidelines outlining the procedures for implementing the ISIN-level freeze on promoter and promoter group holdings during the buyback period. The regulator also asked depositories to prescribe a standard format through which listed companies can issue instructions for freezing eligible promoter holdings.
The ISIN-level freeze mechanism is intended to ensure that promoter shareholdings remain appropriately locked during the buyback process, preventing unauthorised transfers or transactions that could affect compliance with regulatory requirements. By freezing securities at the ISIN level, Sebi aims to create a uniform and efficient process across all listed companies undertaking buybacks.
According to the circular, the operational framework should clearly define the roles and responsibilities of depositories, listed companies and other market participants involved in implementing the freeze mechanism.
Sebi also directed depositories to specify the operational modalities that would allow promoters and members of the promoter group to tender their shares in buybacks conducted through the tender offer route. This is intended to ensure that while the holdings remain frozen for regulatory purposes, eligible shareholders are still able to participate in the buyback process in accordance with applicable rules.
In addition, the framework must provide procedures for handling encumbrances such as pledges or other charges that were created before the commencement of the buyback period. Depositories have been asked to establish a mechanism that allows the invocation or release of such encumbrances without compromising the integrity of the buyback process or violating regulatory requirements.
The regulator said the operational guidelines should ensure consistency across market infrastructure institutions and facilitate seamless coordination among listed companies, depositories, registrars and transfer agents, clearing corporations and other intermediaries involved in buyback transactions.
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Buybacks enable companies to repurchase their own shares from existing shareholders, helping optimise capital structure, improve earnings per share and return surplus cash to investors. They are carried out either through the tender offer route, in which shareholders can tender shares at a specified price, or through purchases from the open market, subject to Sebi regulations.
The latest directions are part of Sebi's broader efforts to strengthen governance standards in the securities market by improving operational efficiency and enhancing safeguards during corporate actions. The regulator has been introducing several measures in recent years to make market processes more transparent, technology-driven and investor-friendly.
Depositories are expected to complete all necessary technological upgrades and operational preparations before the August 1 deadline to ensure that the revised framework is implemented without disruption. Listed companies undertaking buybacks after the effective date will be required to comply with the new procedures prescribed under the operational framework.
Market participants believe the standardised mechanism will improve regulatory oversight, reduce operational risks and ensure smoother execution of buyback transactions while protecting the interests of all shareholders. The new framework is also expected to enhance transparency by providing clear procedures for freezing promoter holdings and managing transactions during the buyback period.
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