Understanding the New Timeline for Bonus Shares as per SEBI Regulations
The Securities and Exchange Board of India (SEBI) has recently revolutionized the way bonus shares are issued to shareholders. As of October 1, 2024, investors will experience a more efficient process that significantly reduces the time it takes to receive bonus shares. Previously, shareholders had to wait up to two weeks from the record date before the shares were made available. Now, with the new T+2 trading days policy, these shares will be accessible just two business days after the record date.
What Are Bonus Shares?
Bonus shares are additional shares given to existing shareholders at no extra cost, based on the number of shares they already own. Companies typically issue these shares to reward shareholders, improve liquidity, and lower the trading price of existing shares. This is a common practice among publicly traded companies in response to strong earnings performance.
SEBI’s New Circular Explained
On September 16, SEBI issued a circular that outlines the new procedures and timelines for the issuance of bonus shares. This change aims to enhance transparency and efficiency within the market while also establishing strict penalties for companies that fail to comply with the outlined processes. This move marks a significant step towards investor-friendly practices in the Indian stock market.
The New Process for Bonus Shares
The streamlined process for issuing bonus shares is as follows:
| Step | Description |
|---|---|
| 1. Application for Approval | The company must apply to the stock exchange for approval of the bonus share issue in accordance with SEBI (LODR) Regulations, 2015 within five working days post-approval at the board meeting. |
| 2. Setting the Record Date | The issuing entity must establish a record date (referred to as T Day) and notify the stock exchanges accordingly. Allotment information should be communicated on the next working day after the record date. |
| 3. Stock Exchange Notification | Post-receiving necessary documents and the record date, the stock exchange will issue a notification about the record date and the total number of bonus shares, alongside a probable allotment date (T+1 day). |
| 4. Submission of Documents to Depositories | Once the record date notification is accepted, the issuing company must submit the required documents to the depositories the day after the record date for the bonus shares to be credited within the depository system. |
| 5. Trading Availability | Bonus shares will be available for trading starting from the next working day after allotment (T+2 day). |
Impact of the Changes
The introduction of the T+2 settlement cycle for bonus shares not only benefits investors by providing quicker access but also encourages companies to maintain compliance with regulations. In case of non-compliance, companies will face penalties based on SEBI’s previously established guidelines, thus ensuring accountability.
Conclusion
This new regulatory framework aims to foster a more dynamic and transparent trading environment, enhancing investor confidence in the Indian stock market. As the financial landscape continues to evolve, these changes signify a commitment to improving shareholder experiences while ensuring that companies adhere to best practices.
