The Securities and Exchange Board of India (SEBI) has raised new rules to expedite the trading process for bonus shares, which will take result from October 1, 2024.
Under the revised policies, investors will be able to trade bonus shares just two working days after the record date (T+2), especially reducing the time lag approximated to the previous 2-7 working days timeframe.
This move is aimed at improving market efficiency, easing uncertainties, and aligning the process more closely with international best methods.
What Are Bonus Shares?
Bonus shares are more shares given to existing shareholders without any additional charge based on the number of shares they already have.
Companies often issue these shares as a way to spread earned earnings that are not paid out as dividends. Although they increase the total number of shares, the general investment significance remains the exact.
Previous and New Guidelines
Yet, there was no specific timeline for trading bonus shares after their issuance, which leads to some uncertainties and market inefficiencies. The new SEBI rules require that bonus shares should be available for trading on the second working day post-record date.
This change seeks to reduce the time gap between the distribution and trading, thereby reducing investors’ exposure to market volatility.
Operational Changes
The new SEBI framework needs companies issuing bonus shares to apply for in-principle approval from stock exchanges within five working days of the board meeting that supports the bonus issue.
The record date (T day) is followed by the supposed allotment date on the next working day (T+1 day), with the bonus shares credited straight to the current ISIN of the company.
This stops the need for a temporary ISIN, simplifying the process and easing administrative duties for issuers.
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Benefits for Investors and Issuers
The decreased timeline helps both investors and issuers by letting more rapid access to trading and minimizing the possible effect of market changes. Investors can capitalize on price movements shortly, while issuers benefit from a simplified and quicker process for enforcing bonus issues.
This initiative reflects SEBI’s dedication to enhancing market processes and providing a seamless knowledge for all market participants.
Compliance and Penalties
SEBI has run exchanges and depositories to update their bylaws, rules, and regulations in line with the new changes. Non-compliance with the revised timelines will result in fines, supporting the importance of sticking to the streamlined processes.
This development keeps an important step towards updating India’s securities market, boosting efficiency, and improving investor confidence. As companies and market participants adjust to these new rules, the trading environment for bonus shares is anticipated to become more powerful and evident.
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Disclaimer
The information provided in this article is for general informational purposes only and is not intended as legal, financial, or investment advice. The details about SEBI’s new rules on bonus share trading are based on publicly available sources and may not reflect the most current legal or regulatory developments. We recommend consulting with a professional advisor or SEBI’s official publications for specific guidance tailored to your situation.
