August 6, 2024
New Delhi, India
The Securities and Exchange Board of India (SEBI) has proposed new regulations to streamline and reduce the timelines for issuing and trading bonus shares. The draft circular, issued on August 5, seeks to ensure uniformity and faster processing, which could benefit investors and stabilize the market.
Key Proposals from SEBI
Implementation and Trading Timelines
SEBI has suggested that all bonus issues be implemented within 15 days from the date of board approval. Additionally, these shares should be available for trading within two days from the record date. This T+2 trading timeline aims to enable quicker access for investors and reduce market volatility caused by delays.
Uniform Timelines for Credit and Trading
The market regulator’s proposal emphasizes the need for uniform timelines for the credit and trading of bonus shares. By setting clear deadlines, SEBI aims to facilitate faster processes and minimize investors’ risk from market fluctuations due to delays in the issuance process.
Shareholder Approval Process
In cases where shareholder approval is required for the capitalization of profits or reserves, SEBI proposes that the bonus issue should be completed within two months from the announcement of approval. This ensures a timely process, preventing unnecessary delays.
Addressing Past Issues
The need for this regulatory review became evident after controversial incidents in 2022. Some companies issued bonus shares coinciding with the end of the lock-in period for pre-IPO investors, leading to stock crashes and attempts to deter investor exits. SEBI’s new proposal aims to prevent such scenarios by ensuring a more transparent and predictable process.
Implications for Investors and Companies
Reduced Market Volatility
By implementing faster credit and trading timelines, SEBI aims to reduce market volatility. Investors will benefit from having a clearer expectation of when they can trade their bonus shares, leading to a more stable market environment.
Boosting Investor Confidence
Clear and uniform timelines are expected to boost investor confidence. Investors can predict the availability of their bonus shares more accurately, reducing uncertainty and potential price fluctuations.
Administrative Efficiency
Companies will need to adjust their processes to meet the new timelines, leading to improved administrative efficiency. The streamlined approach will benefit both issuers and investors, fostering a fairer market environment.
Public Consultation
SEBI has invited public comments on the proposal by August 26. This consultation process will allow stakeholders to provide feedback, ensuring that the final regulations effectively meet the needs of the market.
SEBI’s proposal to streamline and reduce the timelines for bonus shares issuance and trading represents a significant step towards enhancing market efficiency and investor protection. By setting clear and uniform timelines, SEBI aims to reduce risks associated with market volatility and improve investor confidence in the process. The public consultation will help refine these proposals, ensuring they are well-suited to the needs of all stakeholders.
Disclaimer:
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