SEBI Reduces Trading Window For Bonus Shares To T+2: What It Means for Investors

The Securities and Exchange Board of India on Monday reduced the time taken for credit of bonus shares and their trading to two working days, i.e., the T+2 system. The changes will be applicable for all bonus issues announced on or after Oct. 1.

The revision has been done to facilitate fast credit and trading of bonus shares and to reduce investors' risk of market volatility due to any delay in credit of such shares.

The issuer proposing a bonus issue shall apply for the in-principle approval to the stock exchange within five working days from the date of board approval, SEBI said in a circular.

After the stock exchange notifies the record date, the issuer shall ensure submission of the requisite documents to depositories for credit of bonus shares in the depository system by 12 p.m. of the next working day of the record date.

The record date is the date set by the company to decide the shareholders who are eligible to receive the offer and is denoted as 'T'.

The date of allotment of bonus shares will be the one after the record date (T+1). The shares allotted pursuant to the bonus issue shall be made available for trading on the next working date of allotment, i.e., T+2 day, SEBI said.

Earlier, the shares from bonus issues were available only 2–7 working days after the record date, which led to non-uniformity in the timeline.

The market regulator has asked exchanges and depositories to make amendments to the relevant bylaws, rules and regulations for the implementation of the changes.

A bonus issue is when a company gives extra shares to its existing shareholders at no cost. The number of shares increases, but the value of the investment remains the same.

The SEBI had floated a consultation paper proposing the changes last month to streamline the process of bonus issue of equity shares.

"... it is imperative that timelines are prescribed for credit and trading of bonus shares from the record date, ensuring bonus issue is implemented in a timely manner," the paper said.

Suppose a company's board has set the record date of bonus issue as Oct. 1 (Tuesday), then the allotment of shares to eligible shareholders will happen on Oct. 2 (Wednesday) and these will be available for trading on Oct. 3 (Thursday).