The Securities and Exchange Board of India (SEBI) has announced significant changes to the trading process for bonus shares, aiming to enhance market efficiency and reduce delays. Effective from October 1, 2024, investors will be able to trade their bonus shares just two days after the record date, a notable shift from the previous, more variable timeline.
Bonus shares are additional shares given to existing shareholders at no extra cost, based on the number of shares they already own. Under the old system, there was no fixed timeline for when bonus shares could be traded after issuance. Typically, bonus shares were credited and became available for trading within 2 to 7 working days following the bonus issue announcement.
New rules:
With the new rules, bonus shares will be available for trading on the second working day (T+2) after the record date. This streamlined process is designed to improve market efficiency and minimize delays for investors. For example, if a company announces a bonus issue with a record date of October 15, 2024, investors will be able to trade their bonus shares as early as October 17, 2024.
To facilitate this change, SEBI has mandated that companies proposing a bonus issue must apply for in-principle approval from the stock exchange within five working days of the board meeting that approved the bonus. Once the record date (T day) is set for the bonus issue, the deemed date of allotment, which is the next working day (T+1 day), must be noted. Following the record date and receipt of necessary documents, stock exchanges will issue a confirmation notice detailing the deemed allotment date and the number of shares being issued as bonuses.
Key changes:
- Reduced Time Gap: The new rules significantly shorten the time between the allotment of bonus shares and their availability for trading. This change will benefit investors by allowing them to start trading sooner and potentially capitalize on price movements.
- Simplified Process: Companies will need to apply for in-principle approval from the stock exchange within five working days of the board meeting. This requirement aims to streamline the bonus issue process and reduce administrative burdens.
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- Direct Credit: Bonus shares will be credited directly to the existing permanent International Securities Identification Number (ISIN) of the company’s shares, eliminating the need for a temporary ISIN. This simplifies the trading process and reduces administrative complexity for both issuers and investors.
Benefits for issuers and investors:
For investors, the ability to trade bonus shares sooner offers the potential for quicker benefits from price changes and market opportunities. The reduced time gap between allotment and trading improves overall market efficiency and enhances the trading experience.
Issuers will benefit from a simplified process, reducing the administrative burden associated with bonus issues. The streamlined approval process and direct crediting of shares will help in managing bonus issues more efficiently.
Overall, SEBI’s new regulations are expected to create a more efficient trading environment for bonus shares, improving the experience for both investors and companies involved in bonus share transactions.
