• Notification Date: 25-09-2024
• Notification No: N/A

SEBI Fast-Tracks Bonus Share Trading: Launch on T+2 Basis

SEBI is making changes to make bonus shares faster and more accessible to investors. On September 16, 2024, SEBI, through Circular 1, decided to shorten the time frame for credit bonus shares and trading in such shares from the bonus issue record date. Issuers set a record date (T-day) and notify it to the exchanges, but they will also have to record the estimated allotment date on the business day ensuing the record date. Further, the shares will be available for trading on T+2 day. This circular is applicable for all bonus issues announced on or after October 1, 2024. This development represents a significant step forward, making the bonus share process more efficient and predictable, ultimately benefiting investors and fostering a more dynamic stock market environment.  

Current Regulatory Framework for Bonus Shares  

Pursuant to Rule 295(1) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, an issuer company announcing an issue of bonus shares must complete such issue of bonus shares within 15 days from the date on which the implementation of the issue is approved through the board of directors. SEBI has fixed the implementation date as the date on which trading of the bonus shares begins.  

In cases where the issuer is required to obtain shareholder approval, the issue of bonus shares must be effected within two months from the date of the board meeting at which the decision to announce the issue of bonus shares is taken, subject to shareholder approval. 

Although the ICDR Regulations specify a general timeline from the date of announcement of bonus issues of shares for implementing bonus issues, the ICDR Regulations do not specify any timeline for the credit of the bonus shares trading or for trading in bonus shares after the effective date of the issue. The absence of specific standards in this respect may lead to ambiguities and inconsistencies, and the stock market would be imprecise regarding the timeline for shares to be credited and traded upon issue of the bonus shares.  

Background and the Reasons for the Amendment  

SEBI published a consultation paper titled "Streamlining the Bonus Issue Process and Compressing the Timeline" on 5 August 2024, which aims to increase standardization of the credit and trading timeline of the bonus shares from a record date and lead to more timely implementation. It is proposed to streamline and compress the bonus issue timeline by allowing T+2 trading of shares after the record date.  

According to current share market practice, after the announcement of a bonus issue, existing shares will continue to be tradable under their original International Securities Identification Number (ISIN), and new bonus shares will be credited to the ISIN within 2–7 business days from the issue date or record date. The treatment of bonus issues is not standard, and the stock market is vulnerable to various types of risks, including price changes and share market volatility.  

To counter these issues, SEBI has suggested a schedule for the period for credit and trading of bonus shares open on the effective date, which for a stock can provide a more orderly and predictable process while mitigating the issue of inconsistencies and providing investors faster access to their entitlement claims. Overall, these efforts establish a more certain and efficient bonus share trading climate in the stock market by reducing delays and promoting transparency. For standardization purposes, a schedule would undoubtedly offer a consistent and predictable process, which is fundamental to improving investor trust and share market stability.  

SEBI reduces time taken for credit of bonus shares in trading  

SEBI has provided a timeframe for credit and bonus shares trading from the record date of a bonus issue as laid down in the SEBI Regulations (ICDR), 2018. So, the following timeline will apply:    

(a) Application for in-principle approval: An issuer proposing a bonus issue will apply according to Regulation 28(1) within five working days from the date of the board meeting approving the bonus issue. The LODR Regulations (2015) have applied for general approval from the stock exchanges.  

(b) Setting of date and confirmation of date: The issuer shall fix the record date (T day) of a proposed bonus and notify the exchanges about the record date, and then also have a date recorded on the next working day after the record date regarding the date of allotment of the nominal number (T+1 day).  

(c) Stock Exchange Notice: On receipt of the notice of record date and documents required by the issuer, the stock exchanges shall accept the record date and give notice as to the number of shares subject to the bonus. The notice will also include a fictional assignment date.  

(d) Bonus Shares to be credited in the depository system: The issuer shall ensure that after the exchanges give the Record Date Acceptance Notice, the documents to credit bonus shares in the depository system are submitted to the depository by 12 p.m. on the business day ensuing the record date.  

(e) Bonus shares trading: The bonus shares shall become tradable on the business day following the allotted shares (T+2 day). The issuer shall ensure that the Unique Number (DN) range is uploaded in the DN database of the creditory, and the exchanges must ensure that the relevant data is uploaded prior to the crediting of bonus shares.  

Conclusion: Enhanced market efficiency and investor confidence   

SEBI wants to add certainty and uniformity in the process through a timetable that is now established in a forward manner when they credit and trade their bonus shares, which will provide reconciliation activities and prompt crediting and disbursement of shares, which would mitigate the exposure of the investor to share market risk and duration.  

The compliance of issuers to this new way of doing things will ease process interruptions and respective/attributive problematization on impaired investors's claims, enabling informed decisions in a timely manner. These measures will promote stock market efficiency and enhance investor confidence by establishing a more predictable and reliable trading environment. SEBI's efforts to streamline the process of issuing bonus shares demonstrate SEBI's continued commitment to protecting the interests of investors and to fostering a resilient capital markets ecosystem.