SEBI Reforms: Open Market Buybacks, MF Intraday Borrowing and More

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

Reintroduction of Open Market Buybacks

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

To ensure market integrity, SEBI has introduced several safeguards:

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

Enhanced Liquidity for Mutual Funds and AIFs

SEBI is also addressing operational bottlenecks for institutional players. Under the amended Mutual Fund Regulations, fund houses are now permitted to engage in intraday borrowing. This facility is strictly intended to manage temporary liquidity mismatches, such as settlement timing differences, foreign exchange settlements, and mark-to-market obligations in derivatives. Crucially, this cannot be used for leverage, and all borrowings must be repaid by the end of the trading day.

Furthermore, the regulator introduced the GARUDA (Green-Channel: AIF Rollout Upon Document Acknowledgement) mechanism to accelerate the launch of Alternative Investment Fund (AIF) schemes. Regular AIF schemes can now be launched within 10 working days, while AI-only schemes and Angel Funds can launch immediately upon registration or filing, bypassing merchant banker reviews.

Deepening the Municipal Bond Market

To encourage urban infrastructure financing, SEBI has eased the municipal bond framework. Municipalities can now raise funds to refinance existing project debt and utilize pooled financing structures. To drive retail participation, issuers are permitted to offer incentives like additional interest or issue-price discounts to senior citizens, women, and retail investors. Additionally, the face value for privately placed municipal bonds has been slashed to as low as ₹10,000 under specific conditions.

Recognizing the procedural hardships faced by families, SEBI has streamlined the transmission of securities after a holder's death. The regulator has removed the mandatory requirement for a probate of wills where succession laws permit. New measures include the acceptance of a combined affidavit-cum-No Objection Certificate (NOC) and the use of QR-coded death certificates for faster verification, significantly reducing documentation hurdles for legal heirs.

Key Takeaways

  • Corporate Flexibility: Companies regain the option for open market buybacks starting August 2026, with reduced compliance costs.
  • Faster Capital Deployment: The GARUDA mechanism will allow AIF schemes to hit the market much faster, improving ease of doing business.
  • Retail Inclusion: Lower face values and specific incentives in the municipal bond market aim to bring more individual investors into urban debt instruments.