SEBI Introduces T+2 Rule for Bonus Shares: Faster Trading Starts October 1 - Read Now

In a major move aimed at improving market efficiency, the Securities and Exchange Board of India (SEBI) has announced a new regulation allowing bonus shares to be available for trading within two working days of their issuance. This significant update to the trading framework, set to take effect on October 1, shortens the waiting period for investors and brings greater fluidity to market transactions.

Faster Access to Bonus Shares with T+2 Rule

Currently, investors face a waiting period of up to two weeks before being able to trade bonus shares after their issuance. However, the new T+2 rule—with “T” representing the date of issuance—drastically shortens this waiting period. Under the new regulation, investors can begin trading bonus shares within two working days following issuance. This change not only brings convenience to investors but also accelerates the process for brokers, companies, and stock exchanges.

For example, if a company issues bonus shares on a Friday, they will be available for trading by Tuesday, according to the new rule. This shift marks a significant improvement in the speed and efficiency of bonus share transactions in India’s stock markets.

SEBI’s Revised Guidelines for Bonus Shares

As part of this regulatory change, SEBI has laid out updated guidelines for companies. Upon a board approval of bonus shares, companies must now submit their issuance plans to stock exchanges for approval within five working days. They are also required to set a record date for the distribution of bonus shares and notify the stock exchanges accordingly.

The process is designed to streamline the issuance of bonus shares and ensure transparency and smooth operations across the board. By adhering to these tighter timelines, companies can expedite their bonus share distribution and contribute to a more dynamic trading environment.

This change is part of SEBI's broader goal to enhance liquidity and create a more responsive market. Bonus shares are typically awarded by companies to existing shareholders, and this move aims to make the distribution and trading of these shares more seamless for all parties involved.

Impact on Investors and the Stock Market

For investors, the shortened trading timeline for bonus shares brings several benefits. First, investors can immediately capitalize on market movements by trading their bonus shares shortly after issuance. This is particularly useful for active traders and institutional investors looking to quickly adjust their portfolios based on the additional shares.

Second, the new rule allows for better planning and faster realization of gains from bonus shares. The previously longer waiting period often resulted in lost opportunities due to fluctuating market conditions. Now, with the T+2 rule, investors can engage with bonus shares much sooner, potentially capturing greater returns.

SEBI's decision also has far-reaching implications for companies issuing bonus shares. The faster availability of these shares for trading will enhance market confidence and liquidity, giving companies more flexibility in managing shareholder expectations. Additionally, brokers and stock exchanges will benefit from increased transaction volumes and faster processing of trades.

Key Differences Between Bonus Shares and Stock Splits

While bonus shares and stock splits both increase the number of shares held by investors, they operate differently. Bonus shares are additional shares issued to existing shareholders at no cost, typically from the company’s retained earnings. In contrast, a stock split involves dividing the existing shares into smaller units, which lowers the price per share but does not affect the total market value of the company’s stock.

With bonus shares, shareholders receive extra shares in proportion to their existing holdings without any reduction in the face value of the stock. This makes bonus shares an attractive proposition for long-term investors, as they retain the same ownership percentage while receiving additional shares.

In a recent example, Reliance Industries announced a 1:1 bonus share distribution plan, where existing shareholders will receive one bonus share for every share they currently own. Although the company has yet to confirm the record date, it is expected to occur sometime in October, coinciding with SEBI's new T+2 rule.

A More Dynamic Market

This new regulation from SEBI is widely seen as a positive step for India’s financial markets. It reduces the lag time in trading bonus shares and fosters a more active trading environment. Both retail and institutional investors are expected to benefit from the increased flexibility, faster liquidity, and improved market responsiveness.

The implementation of the T+2 rule for bonus shares marks a crucial moment in SEBI’s ongoing efforts to modernize India’s stock markets and ensure that all market participants can trade efficiently and confidently.

As this new framework takes effect in October 2023, it represents another stride towards making the Indian stock market more investor-friendly, efficient, and transparent.