SEBI Reforms: Open Market Buybacks Return and Major Liquidity Shifts

The Securities and Exchange Board of India (SEBI) has announced a sweeping set of regulatory reforms designed to enhance market efficiency, streamline compliance, and strengthen investor protection. These decisions, taken during the recent board meeting, touch upon critical sectors including mutual funds, alternative investment funds (AIFs), and municipal debt.

Return of Open Market Buybacks via Stock Exchanges

In a significant move for corporate actions, SEBI has approved the reintroduction of open market buybacks through stock exchanges, effective August 1, 2026. Previously discontinued due to changes in the tax regime, companies will now have the flexibility to choose between the tender offer route and open market purchases.

To ensure market integrity, SEBI has introduced several safeguards:

  • Mandatory Utilization: Companies must use at least 40% of earmarked funds during the first half of the buyback period.
  • Strict Timelines: The entire buyback process must be completed within 66 working days.
  • Promoter Restrictions: Promoters and their associates are prohibited from participating, and their holdings will remain frozen throughout the period.
  • Cost Reduction: The appointment of a merchant banker is now optional, aimed at lowering compliance costs for issuers.

Mutual Fund Liquidity and AIF Speed Up

To manage operational nuances, SEBI has amended Mutual Fund Regulations to allow intraday borrowing. This facility is intended to manage temporary liquidity mismatches, such as settlement timing differences, foreign exchange settlements, and mark-to-market obligations in derivatives. Crucially, SEBI clarified that this borrowing cannot be used for leverage and must be repaid by the end of the trading day.

For Alternative Investment Funds (AIFs), the regulator introduced the GARUDA (Green-Channel: AIF Rollout Upon Document Acknowledgement) mechanism. This initiative aims to accelerate capital deployment:

  • Regular AIF schemes can now be launched within 10 working days.
  • AI-only schemes and Angel Funds can launch immediately upon registration or filing of the placement memorandum, bypassing the need for merchant banker reviews.

Deepening the Municipal Bond Market

SEBI is also making strides to bolster India's municipal debt market. Municipalities will now be permitted to raise funds to refinance existing project debt and can utilize a pooled financing framework involving multiple municipalities.

To drive retail participation, SEBI has allowed issuers to offer incentives like additional interest or issue-price discounts specifically for senior citizens, women, and retail investors. Furthermore, the face value for privately placed municipal bonds has been reduced to as low as ₹10,000 under specific conditions.

Addressing a long-standing pain point for investors, SEBI has simplified the process of transmitting securities to legal heirs. The regulator has removed the mandatory requirement for the probate of wills where succession laws permit.

Key improvements include the introduction of a combined affidavit-cum-No Objection Certificate (NOC) to reduce paperwork and the acceptance of death certificates with QR codes for easier verification. These steps are expected to minimize procedural hardships and reduce the costs associated with claiming deceased relatives' assets.

Key Takeaways

  • Enhanced Corporate Flexibility: The return of open market buybacks gives companies more strategic options for returning value to shareholders.
  • Operational Efficiency: The GARUDA mechanism and intraday borrowing for MFs are set to reduce delays and manage liquidity more effectively.
  • Increased Accessibility: Lower face values in municipal bonds and simplified inheritance processes make the market more inclusive for retail investors and heirs.