Over the years, the Securities and Exchange Board of India (Sebi) has done a good job of rewriting the rules and regulations to ensure India’s stock markets and the ecosystem around it function efficiently. But some loopholes obviously remained—on Tuesday, the regulator moved to plug them in two important areas—share buybacks and market infrastructure institutions (MII). Indeed, the changes in the rules relating to share buybacks were long overdue. The new norms should ensure that companies can no longer take shareholders for a ride or be partial to some. In an excellent move, Sebi has decided to gradually phase out buybacks via the stock exchange route. Until then, companies must buy 75% of the amount announced, and not just 50% as at present. Shareholders are now not sure of the price they will get for their shares because the company announces a ceiling, rather than a fixed price. They also have no clue about when the company is actually buying on the exchanges; so, it is possible some shareholders are favoured.
The separate window on the exchanges until the buyback is complete should give shareholders a better deal. For buybacks via the tender route, Sebi is attempting to save time by doing away with the need to file draft papers and also by trimming the durations for other processes. The Keki Mistry Committee had suggested that the timeline be first reduced, from six months currently, to 66 days from April 2023, and to 22 days from April 2024. Perhaps Sebi will review this later because six months is a very long period, especially if the price for the buyback has been fixed. Allowing an upward revision of the buyback price, until the very last minute, will work in favour of shareholders as will the rules that call for better disclosures via advertisements and documents on the relevant platforms. Sebi chairman Madhabi Puri Buch said at a press conference that some of the suggestions of the Mistry Committee, such as allowing more than one buyback within a period of 12 months and raising the amount that companies can re-purchase relative to their net worth, had not been disregarded; these rules needed to be harmonised with those in other laws like the Companies Act. It is commendable that the Sebi chief seems determined to cut down the time taken to process an initial public offering (IPO) document and has not hesitated to call out errant brokers.
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Against the backdrop of the events at the National Stock Exchange (NSE), the re-organisation of market infrastructure institutions (MIIs), into three distinct areas, will help them function better. The Mahalingam Committee was of the view the accountability structure should be a clear one and, consequently, the roles and responsibilities of the key personnel should be defined clearly. In fact, Sebi has disallowed an employee of an MII from simultaneously holding a post in a subsidiary of the MII. To bring in more accountability, their responsibilities in the areas of regulation, compliance and risk management would be delineated. A board member or an important employee would be seen to have failed in their duties if they do not report any malpractices or malfeasance. The new rules include increased accountability of directors, stricter investment policy, and data sharing. The cleaner and transparent structure should deter malfeasance; as we have seen in the NSE case, penalties and court cases are best avoided.
