Wednesday, 29 October 2014

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.
Employee stock options (ESOP) are a practice followed world over and the market regulator has outlined certain safeguards to improve the governance and transparency of the schemes and also address concerns regarding potential market abuse.
Generally, in India, some companies count it (shares held by ESOP Trusts) in the promoter category and some companies count it in the public category.
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.
In case new issue of shares is made under any scheme, shares so issued would be required to be listed immediately in any stock exchange where the existing shares are listed.
The shares arising after the initial public offering (IPO) of an unlisted company, out of options or SAR granted under any scheme prior to its IPO to the employees would have be listed immediately upon exercise in all the recognised stock exchanges.
Sebi said the employee should not have right to receive any dividend or to vote or in any manner enjoy the benefits of a shareholder in respect of option granted to him, till shares are issued upon exercise of option.
"The amount payable by the employee, if any, at the time of grant of option, -may be forfeited by the company if the option is not exercised by the employee within the exercise period; or may be refunded to the employee if the options are not vested due to non-fulfilment of conditions relating to vesting of option as per the ESOS," it added.