Market regulator SEBI has taken a big decision for investors investing money in the stock market. The path of ‘Open Market Share Buyback’ is going to open again in the stock market from August 1. That is, if you invest in the stock market, now you are going to get a more transparent option to sell your stake. Earlier, SEBI had prepared to completely ban this process, but now with important changes in the rules, it has been given the green signal again.
Why did SEBI change its decision?
Till recently, SEBI was in favor of gradually stopping open market buybacks completely. The regulator believed that old tax rules were creating a kind of inequality among investors. But now the situation has changed. After the implementation of the reform in the tax system (Uniform Taxation), SEBI has changed its old stand. Now it has been offered as an additional option along with the existing ‘tender offer’. The main objective behind this decision is to reduce the expenses of the companies, speed up the buyback process and to save the share prices from falling during the huge fall in the stock market.
What is share buyback?
In fact, when a company listed in the stock market buys back its shares from its own existing investors, this entire process is called ‘share buyback’. After withdrawing their shares from the market, companies usually cancel them. Due to cancellation of shares, the total number of shares of that company in the market decreases. This makes the financial health of the company look strong and investors get benefits in the long run.
How different is open market buyback from tender offer?
At present, most of the companies use tender offer, where they buy shares from investors at a fixed price. But the method of open market buyback is completely different. It works just like normal trading in the stock market.
- First of all the company makes an official announcement of bringing buyback in the stock market.
- In this announcement it is clearly stated that the maximum number of shares the company will withdraw.
- The company also clarifies how much total funds have been allocated for this and how long this purchase will last.
How will investors get the benefit?
If your portfolio contains shares of the company which is bringing buyback, then you can easily participate in this open market deal. However, it is important to keep one thing in mind that there is no 100% guarantee of selling your shares. Since this process is like normal market trading, your sell order will be executed only when the front company or any other buyer is ready to buy it at the same price.
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