Sebi provides clarity on employee stock option norms

Capital market regulator Sebi on Friday said companies are barred from acquiring shares from the secondary market under the employee stock option schemes till the new regulations in this regard are notified.            

Sebi has also extended the timeline for companies to align their schemes with that of its guidelines as the watchdog is in the process of preparing new norms.            

Earlier this month, the board of Securities and Exchange Board of India (Sebi) approved certain proposals for framing a new set of regulations concerning Employee Stock Option Scheme (ESOS) and Employee Stock Purchase Scheme (ESPS) dealing in shares of the company.            

Citing the board's decision, the market regulator said that time line has been extended for "aligning existing employee benefit schemes with the Sebi (ESOS and ESPS) Guidelines, 1999 till the new regulations are notified".  

"it is reiterated that prohibition on acquiring securities from the secondary market shall continue till the existing schemes are aligned with the new regulations to be notified," Sebi said in a circular.            

In a circular issued in November last year, Sebi had given time till June 30 for alignment of existing employee benefit schemes with the Sebi (ESOS and ESPS) Guidelines, 1999.  

Meanwhile, under the new norms approved by the Sebi board during its meeting last Thursday, companies would have employee stock option programmes where they can buy their own company shares subject to certain conditions.  

Employee stock options is 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.    

Besides, the regulator has decided to classify ESOP Trust as a separate group of shareholding entities.  

Some of the safeguards as outlined by Sebi 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.