SEBI Proposes Streamlined Timeline for Bonus Share Trading

On Monday, the Securities and Exchange Board of India (Sebi) proposed a standardised timeline to ensure timely credit and trading of bonus shares. This move aims to enable T+2 trading of such shares after the record date. In its consultation paper, Sebi suggested that bonus shares should be available for trading within two days (T+2) from the record date, where T represents the record date.

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Proposed Changes to Bonus Share Trading

Currently, the Issue of Capital and Disclosure Requirements (ICDR) rules set overall timelines for implementing bonus issues. However, they lack specific timelines for crediting and trading bonus shares from the record date. This absence of guidelines leads to inconsistencies in how quickly shares are credited and made available for trading in bonus issues, according to Sebi.

At present, existing shares continue to trade under the same ISIN after a bonus issue. The new bonus shares are credited and become available for trading within 2-7 working days post-record date. To address this non-uniformity, Sebi emphasised the need for prescribed timelines for crediting and trading bonus shares from the record date.

Streamlining the Process

Sebi proposed that issuers should apply for in-principle approval from the stock exchange within five working days of the board meeting that approves the bonus issue. When setting and notifying the record date (T day) to the stock exchange, issuers must record the deemed date of allotment as the next working day (T+1 day).

After receiving the record date and necessary documents, the exchange should notify acceptance of the record date and number of shares in the bonus issue, including the deemed date of allotment (T+1 day). Issuers should submit required documents to depositories for crediting bonus shares by 12 PM on T+1 day.

Ensuring Timely Implementation

The issuer must upload distinctive number ranges in the depository's database, and the stock exchange should update relevant dates before crediting bonus shares. According to Sebi, "The bonus shares will be available for trading on the next working day after allotment (T+2 day)." This streamlined process aims to reduce investors' risk of market volatility due to delays in crediting bonus shares.

Sebi has invited comments on these proposals until August 26. The regulator believes that prescribing specific timelines will ensure timely implementation of bonus issues and facilitate faster credit and trading of allotted shares.

The proposed changes aim to create uniformity in timelines for crediting and trading bonus shares. This will help reduce investors' exposure to market volatility caused by delays in crediting bonus shares. Sebi's initiative seeks to streamline and expedite the process, enabling T+2 trading of shares post-record date (T day).

The current practice allows new bonus shares to be credited and available for trading within 2-7 working days post-record date. By introducing a uniform timeline, Sebi aims to ensure that bonus issues are implemented promptly.

This proposal is part of Sebi's efforts to enhance market efficiency and protect investors' interests by reducing risks associated with delayed crediting of bonus shares. The regulator's consultation paper outlines steps issuers must follow to comply with these new timelines.

Sebi's initiative underscores its commitment to improving market practices by ensuring timely credit and trading of bonus shares. The proposed changes will benefit investors by providing a more predictable timeline for when they can trade their new bonus shares.