December 22, 2022
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The Sebi has decided to phase out the buyback of shares of listed companies through the exchange route. The regulator favours the repurchase of shares by companies from shareholders on a proportionate basis through the tender offer because that is considered more equitable, transparent, and fair. According to the Sebi chairperson Madhabi Puri Buch, the tender route is the more equitable route for buybacks.
What is the stock exchange route?
Under the stock exchange route, a company buys back shares only on the stock exchanges having nationwide trading terminals. The buyback of shares is made only through the order-matching mechanism. In this method, the promoters, or persons in control of a company are not allowed to participate.
Infosys opted for the stock exchange method for its recent buyback. Paytm, which witnessed a 76 per cent crash in share prices after its IPO last year, recently decided to opt for the open market route through the stock exchanges method for share buyback.
While TCS, which came out with share buybacks recently, used the tender route,
Why is Sebi against the exchange route?
The other routes are vulnerable to favouritism because nobody really knows that in the exchange mechanism when the company is going to come in order to buyback shares and only a few people may be aware of it, and benefits may flow to those few people. So, it (buyback through exchange) is not an equitable mechanism,
As per the recommendations of the Keki Mistry-headed committee, set up by Sebi to review the buyback regulations, under the stock exchange route, there is a possibility of one shareholder’s entire trade getting matched with the purchase order placed by the company, thus depriving other shareholders of availing the benefit of buyback. This runs contrary to the principle of equitable treatment, which forms the basis of all corporate actions.
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