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SEBI amends ESOP guidelines, prohibits employee trusts from share purchase in secondary market

17 January, 2013

Market regulator Securities and Exchange Board of India (SEBI) has tweaked the employee stock option guidelines by prohibiting listed companies from framing any employee benefit scheme which involves acquisition of own securities from the secondary market.

According to SEBI, the ESOS & ESPS guidelines were first issued to enable listed entities to reward their employees through stock option schemes and stock purchase schemes. But it has found that some listed entities have been framing their own employees’ benefit schemes where trusts have been set up to deal in their own securities in the secondary market – a practice which has not been envisaged within the purview of its guidelines.

SEBI noted, “It is apprehended that some entities may frame such schemes with the purpose of dealing in its own securities with the object of inflating, depressing, maintaining or causing fluctuation in the price of the securities by engaging in fraudulent and unfair trade practices. Such dealing in the company’s shares by the trusts may also raise regulatory concerns regarding compliance with SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 2003, and SEBI (Prohibition of Insider Trading) Regulations, 1992.”

In order to implement the above decision, it has inserted certain listing conditions.

It has also added that any company, which has framed and implemented before the date of this circular, any employee benefit scheme involving dealing in the securities of the company which is not in accordance with SEBI (ESOS and ESPS) Guidelines, would need to meet the requirement by June 30, 2013.

Such companies will also be required to inform the details of their schemes to the stock exchanges within a month.

The amendments will be implemented with immediate effect.

In a revised disclosure form for such employee benefit schemes, SEBI has also asked for details of all secondary market purchases and sales since April 2012.

(Edited by Sanghamitra Mandal)

 


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SEBI amends ESOP guidelines, prohibits employee trusts from share purchase in secondary market

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