Sebi has released new guidelines governing issues and allotment of bonus issues. Sebi has eliminated the requirement to use a temporary ISIN for bonus shares, thus permitting direct credit into the existing permanent ISIN of the company’s shares
The Securities and Exchange Board of India (Sebi) has announced that from October 1, 2024 investors will be able to trade bonus shares just two days after the record date. This is expected to help investors significantly reduce their waiting period. A record date or ‘T day’ is the last date on which the company issuing the bonus shares decides which shareholders are eligible for bonus issue.
How Will This Help Investors?
At present, there are specific timelines for executing bonus issues, but the credit of bonus shares into the demat account and their subsequent trading from the record date follows no specific timeline guidelines from Sebi.
This has often led to delays, leaving investors unable to trade their newly-issued shares promptly. The new rule is expected to benefit many investors who participate in bonus share issues and will bring more clarity to market operations surrounding corporate actions.
Erstwhile System
Typically, it takes around 15 days from the record date for bonus shares to be credited to the shareholder’s demat account, but this can vary depending on the Registrar and Share Transfer Agents (RTAs).
Shareholders receive a notification from the Central Depository Services (India) Limited (CDSL) when the bonus shares are credited into their demat account. The bonus shares are first credited under a temporary ISIN and are not immediately admitted for trading. It usually takes around 4-5 days for the shares to move from the temporary ISIN to the permanent ISIN after receiving approval for trading.
New System
Now, Sebi has eliminated the requirement to use a temporary ISIN for bonus shares, thus permitting direct credit into the existing permanent ISIN of the company’s shares.
Sebi mandated that issuers must submit all documents to the depositories by 12 pm noon on T+1 day to facilitate the quick credit of bonus shares.
Elaborating on the entire operational procedure, Sebi has specified 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. When the company sets the record date (T day) for the bonus issue, it must note the deemed date of allotment, which is the next working day (T+1 day).
After receiving the record date and necessary documents, stock exchanges were required to issue a confirmation notice that includes the deemed allotment date and the number of shares being issued as bonuses. This decision will act as an enabler for trading within two days since issue of bonus shares.