-
  • Quick Contact:
  • +91 22 2167 8100
  • Home
  • Knowledge Hub
  • Securities and Exchange Board of India’s Consultation Paper on streamlining the process and reduction in timelines of Bonus Issue (enabling T+2 trading of shares where T being record date)
August 21, 2024

Securities and Exchange Board of India’s Consultation Paper on streamlining the process and reduction in timelines of Bonus Issue (enabling T+2 trading of shares where T being record date) - MMJC

  1. Securities Exchange Board of India (‘SEBI’) vide its circular dtd August 5,2024 has come up with Consultation Paper proposing to streamline and reduce timelines of bonus issue enabling T+2 trading of shares post record date (T Day).
  2. Existing provision: Presently, as per regulation 295(1) of SEBI (Issue of Capital and disclosure requirement) (‘ICDR’) regulation 2018 a bonus issue must be implemented within 15 days from board approval. If shareholders’ approval is needed, the bonus issue must be implemented within two months from the board meeting decision. This means that ICDR regulations have prescribed timeline for implementation of bonus issue.
  3. However, the ICDR Regulations do not specify timelines for crediting bonus shares and making them available for trading after the record date, leading to non-uniformity w.r.t. timelines in which shares are credited and made available for trading in bonus issue.
  4. Proposal: By proposing to prescribe specific timelines for trading of such bonus shares i.e. T+2 which means shares will be available for trading two days after the record date, SEBI aims to standardize the process across all issuers, ensuring that all bonus shares are credited and made available for trading within the same timeframe. The consultation paper also has included proposed circular for operational procedure with regards to such bonus issue which is as follows:

Operational procedure proposed by SEBI to reduce time taken for credit of bonus shares and trading of such shares:              

         

TransactionOld Provision/timelineNew Provision/timeline
Application for in principle approval to Stock ExchangeRegulation 28 of SEBI (LODR) Regulations 2015   Currently there is no standard timeline/ practices for Obtaining  in-principle approval from recognised stock exchange.Regulation 28 of SEBI (LODR) Regulations 2015   Now Timeline proposed shall be -application to stock exchange for in principle approval within 5 working days from the date of board meeting approving the Bonus issue.
Issuer to fix and intimate record date to Stock exchangeRegulation 42 of SEBI (LODR) Regulations 2015   Fix record date for purpose of identifying members of the company who are eligible for bonus shares   Intimate to Stock exchange the record date specifying purpose of record date at least 7 working days in advanceRegulation 42 of SEBI (LODR) Regulations 2015   Fix record date for purpose of identifying members of the company who are eligible for bonus shares   Intimate to Stock exchange the record date specifying purpose of record date at least 7 working days in advance   Issuer also take on record deemed date of allotment on next working date of record date (T+1 day).
Stock Exchange shall then issue notification accepting record date. This notification shall consist of deemed date of allotment (T+1 day)No such provision currentlyNow record date will be approved by the stock exchange.
After receipt of notification of acceptance from Stock Exchange , Issuer shall ensure submission of requisite documents to Depositories for credit of bonus shares in DP systemNo such provision currentlyLatest by 12 p.m. of next working day of the record date.
Shares allotted pursuant to the bonus issue shall be made available for trading8 to 10 working days post record dateOn next working date of allotment (T+2 day)

Currently post record date for bonus issue it takes around 8 to 10 days for bonus shares to get credited to demat account of members of the company and be available for trading.

With SEBI’s proposed measure bonus shares will be available for trading from the second day after record date. Currently companies undertake corporate action for bonus issue post record date. Once corporate action is done companies apply for trading approval. So, it takes 8 to 10 days for bonus issue to get over after record date. As now it is proposed to credit bonus shares on T+2 basis after record date it seems there would be a total revamp in the process of bonus issue right from in-principle approval till shares are available for trading. Comments on the above proposed consultation paper are invited by August 26, 2024.