New SEBI guidelines

SEBI’s New Guidelines for Faster Trading of Bonus Shares: A Game-Changer for Investors

Good news for investors! Starting October 1, 2024, SEBI’s new guidelines will allow trading of bonus shares just two days after the record date. This is a significant shift from the previous 2-7 day timeline, enhancing market efficiency and offering quicker access to bonus shares for investors. How will this impact the trading landscape and what should investors be aware of? Let’s break it down!

SEBI’s Game-Changing Move: Faster Credit and Trading of Bonus Shares

On Monday, the Securities and Exchange Board of India (SEBI) introduced new guidelines aimed at speeding up the process of crediting and trading bonus shares. Under these new rules, investors will be able to trade their bonus shares just two days after the record date, starting from October 1, 2024. This is a major step forward in reducing delays and boosting efficiency in the Indian stock market.

Previously, the rules under SEBI’s ICDR (Issue of Capital and Disclosure Requirements) prescribed overall timelines for the implementation of bonus issues but did not specify when bonus shares would be credited or traded. Investors often had to wait between 2-7 working days after the record date to trade their new shares. SEBI’s new T+2 system will dramatically reduce this waiting period.

What Does T+2 Mean for Investors?

The term T+2 refers to the time frame in which bonus shares will now be credited and available for trading—specifically two working days after the record date (T day). For example, if the record date for a bonus issue is a Monday, investors can begin trading those shares by Wednesday (T+2). This faster process will apply to all bonus issues announced on or after October 1, 2024.

Why is this important? The quicker access to bonus shares will not only benefit investors by enabling faster trading but will also improve market liquidity and overall efficiency.

What Changes Under SEBI’s New Guidelines?

SEBI’s new guidelines will streamline the entire process of bonus share issuance and trading. Here are the key changes:

Faster Trading: Bonus shares will now be available for trading just two days (T+2) after the record date, significantly reducing the previous waiting period of 2-7 days.
Direct Credit to Permanent ISIN: Earlier, bonus shares were credited through a temporary ISIN (International Securities Identification Number). SEBI has now removed this requirement, allowing bonus shares to be credited directly into the existing permanent ISIN of the company’s shares.
In-Principle Approval Timeline: Companies proposing a bonus issue must now apply for in-principle approval from the stock exchange within five working days of the board meeting that approves the bonus issue.
Deemed Date of Allotment: The deemed date of allotment will now be the working day after the record date (T+1 day). Stock exchanges will issue a confirmation notice with the number of bonus shares being issued and the deemed allotment date.
Faster Credit to Depositories: Issuers must submit all necessary documents to the depositories by 12 pm on T+1 day to facilitate the quick credit of bonus shares.

Benefits of the New Guidelines for Investors and Issuers

SEBI’s new guidelines are expected to provide significant benefits to both investors and issuers:

For Investors: The reduced time gap between the allotment of bonus shares and their availability for trading means investors can capitalize on their shares much sooner. This will enhance market liquidity and enable quicker profits from bonus share allocations.
For Issuers: Companies will benefit from streamlined processes and improved investor confidence. The elimination of the temporary ISIN requirement will also simplify administrative procedures, making the process more efficient for issuers.

The Broader Impact on the Stock Market

By implementing these guidelines, SEBI is addressing a long-standing issue in the Indian stock market. The quicker crediting and trading of bonus shares will help make the market more efficient and investor-friendly. For institutional investors and retail traders alike, this means faster access to bonus shares, which can lead to more timely trading decisions and potentially better returns.

Additionally, this move could boost overall participation in bonus share issues, as the reduced timeline makes it a more attractive option for investors looking for quicker liquidity.

Conclusion:

SEBI’s new guidelines for the faster trading of bonus shares mark a major milestone in improving market efficiency. With the implementation of T+2 trading starting October 1, 2024, New SEBI guidelines, investors can now look forward to faster access to bonus shares and reduced delays in the trading process. This change is not just a win for investors but also for the broader market, enhancing liquidity and streamlining operations for issuers. As SEBI continues to modernize its regulations, the Indian stock market is set to become more dynamic, efficient, and investor-friendly.