SEBI decided to review SEBI (ESOS and ESPS) Guidelines, 1999

SEBI at its Board Meeting, has approved the proposal to review the existing regulatory framework on Employee Stock Option Scheme (ESOS) and Employee Stock Purchase Scheme (ESPS) for listed entities and frame regulations for Employee Benefit Schemes involving shares of the company, replacing the existing SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999.
Ms. Mohini Varshney
Assistant Vice President
The proposed Regulations will, inter alia, cover all Employee Benefit Schemes which, directly or indirectly, deal in shares of the company. SEBI has intended to address the following issues through Regulations: 1. Composition of Trusts, 2. Secondary market acquisitions under Schemes and 3. Enhanced disclosures and better enforceability.

To improve governance and transparency of the Schemes, certain safeguards as outlined below are proposed to be incorporated:

  1. Acquisition from secondary market under certain conditions so as to avoid forced dilution of capital.
  2. Requirement of shareholders' approval through special resolution for undertaking secondary market acquisitions,
  3. Certain limits on secondary market acquisitions,
  4. A limit of 10% of the assets held by general Employee Benefit Schemes other than ESOS type of schemes on owning shares of the company / listed holding company,
  5. Trusts shall undertake only delivery based transactions and not deal in derivatives,
  6. Restrictions on sale of shares by the Trusts,
  7. At least six month holding period for shares acquired from secondary market,
  8. Classifying shareholding of such Trusts separately from 'promoter' and 'public' category,
  9. Stricter disclosure and other regulatory obligations.
For smooth transition to new regulatory framework, time period of one year would be provided to the existing Employee Benefit Schemes to align with the new regulatory framework. However, in respect of following compliances a longer transition period of 5 years would also be provided:
  1. Re-classifying shareholding of existing employee benefit schemes separately from 'promoter' and 'public' category.
  2. Bringing down the level of shares acquired from secondary market within the permissible limits.
  3. Reducing own share component to 10% of the total assets of general employee benefit schemes.


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