SEBI notifies new ESOP regulations

Mar­ket reg­u­la­tor Sebi has noti­fied new ESOP reg­u­la­tions, includ­ing for pur­chase of shares by employ­ee wel­fare trusts from the sec­ondary mar­ket with ade­quate safe­guards. The Secu­ri­ties and Exchange Board of India (Sebi) has allowed com­pa­nies to have employ­ee stock option pro­grammes where they can buy their own com­pa­ny shares sub­ject to cer­tain conditions. 

Some of the safe­guards as out­lined by the reg­u­la­tor include, require­ment of share­hold­ers’ approval through spe­cial res­o­lu­tion for under­tak­ing sec­ondary mar­ket acqui­si­tions; restric­tions on sale of shares by trusts; at least six month hold­ing peri­od for shares acquired from sec­ondary market.

Among oth­er safe­guards include, stricter dis­clo­sure and oth­er reg­u­la­to­ry oblig­a­tions; a lim­it of 10 per cent of the assets held by gen­er­al employ­ee ben­e­fit schemes oth­er than ESOS type of schemes and cer­tain lim­its on sec­ondary mar­ket acquisitions.

To ensure a smooth tran­si­tion for com­ply­ing with the new reg­u­la­to­ry frame­work, the exist­ing employ­ee ben­e­fit schemes have been pro­vid­ed with a time peri­od of one year from the date of notification.

Fur­ther a longer tran­si­tion peri­od of five years has been pro­vid­ed for re-clas­si­fy­ing share­hold­ing of exist­ing employ­ee ben­e­fit schemes sep­a­rate­ly from ‘pro­mot­er’ and ‘pub­lic’ category.

Bring­ing down the lev­el of shares acquired from sec­ondary mar­ket with­in the per­mis­si­ble lim­its and reduc­ing own share com­po­nent to 10 per cent of the total assets of gen­er­al employ­ee ben­e­fit schemes.

In a noti­fi­ca­tion, Sebi said, “the trust shall be required to hold the shares acquired through sec­ondary acqui­si­tion for a min­i­mum peri­od of six months.”

“Sec­ondary acqui­si­tion in a finan­cial year by the trust shall not exceed two per cent of the paid up equi­ty cap­i­tal as at the end of the pre­vi­ous finan­cial year,” it added.

The reg­u­la­tor said option, SAR (stock appre­ci­a­tion right) or any oth­er ben­e­fit grant­ed to an employ­ee under the reg­u­la­tions should not be trans­fer­able to any person.

Sebi said a com­pa­ny would have to con­sti­tute a com­pen­sa­tion com­mit­tee for admin­is­tra­tion and super­in­ten­dence of the schemes.

Down­load the New ESOP Regulation