Executive Summary:
This circular from SEBI introduces a framework for offering shares to employees through the Stock Exchange Mechanism during Offer for Sale (OFS) transactions. It aims to enhance efficiency and reduce costs associated with employee OFS. The provisions of this circular will be effective from the 30th day of issuance. Stock exchanges and clearing corporations must implement necessary systems and amend relevant bylaws.
Key Points / Main Content:
* **Background:**
* SEBI's Master Circular dated October 16, 2023, already addresses OFS, including employee share offerings.
* The existing procedure for employee OFS occurs outside the stock exchange mechanism, which can be time-consuming and costly.
* **New OFS Procedure for Employees:**
* Promoters can offer shares to employees through the Stock Exchange Mechanism as an additional option.
* Employee OFS will occur on T1 day alongside the retail category, under a new "Employee" category.
* Employees can bid in the "Employee" category or other categories, subject to applicable limits.
* A specific number of shares must be reserved for employees, as stated in the OFS notice.
* Bidding is allowed only during trading hours on T1 day.
* The floor price of the retail category will be disclosed to participants under the Employee category.
* Employees must place bids at the cutoff price of T1 day. The allotment price will be based on the Cutoff of the retail category, subject to discount, if any.
* The maximum bid amount is INR 5,00,000.
* Each employee is eligible for allotment of equity shares up to INR 2,00,000. Undersubscribed portions may be allotted to employees with higher bids on a proportionate basis, up to INR 5,00,000.
* Employees must pay 100% margin upfront in cash or cash equivalents.
* Bids for the "Employee" category will not be displayed on the stock exchange website.
* The Employee Category bid book will be segregated from the Retail Category book for allotment purposes.
* Allotment under the Employee category will be based on employee PAN details shared by the company on T1 day; mismatched bids will be rejected.
* Promoters must transfer total OFS shares, including those reserved for the "Employee" category, to the designated clearing corporation on T1 day.
Impact Analysis:
* **Recognized Stock Exchanges and Clearing Corporations:**
* *Impact:* Required to facilitate the new OFS mechanism for employees.
* *Action Required:* Implement necessary systems, amend relevant bylaws, and disseminate the circular's provisions to market participants, including investors, via their websites.
* **Companies and Promoters:**
* *Impact:* Provided with an additional option for offering shares to employees during OFS.
* *Action Required:* Disclose the number of shares offered to employees and any discounts in the OFS notice to the exchange; share employee PAN details with the clearing corporation on T1 day.
* **Employees:**
* *Impact:* Given a new avenue to participate in OFS through the stock exchange mechanism, potentially at a discounted price.
* *Action Required:* Select the "Employee" category while bidding; ensure PAN details match company records; pay upfront margin.
* **Investors:**
* *Impact:* General awareness of changes in OFS procedures.
* *Action Required:* Stay informed about the new OFS framework.
Key Entities Referenced
Securities and Exchange Board of India (SEBI): The regulatory body issuing the circular and responsible for regulating the securities market in India.
Offer for Sale (OFS): A mechanism used by promoters of eligible companies to sell their shares to the public through the stock exchange.
Stock Exchange Mechanism: The system through which shares are bought and sold, and in this context, used for OFS transactions including offers to employees.
Secondary Market Advisory Committee of SEBI: A committee within SEBI that deliberated on the enhancement of efficiency and ease of compliance for OFS to employees.
Recognized Stock Exchanges: Stock exchanges that are recognized by SEBI and are subject to its regulations.
Recognized Clearing Corporations: Clearing corporations recognized by SEBI that handle the clearing and settlement of trades executed on stock exchanges.
Securities and Exchange Board of India Act 1992: The act that establishes SEBI and grants it the power to regulate the securities market.
Securities Contracts Regulation Stock Exchanges and Clearing Corporations Regulations, 2018: Regulations pertaining to the functioning of stock exchanges and clearing corporations, under which this circular is issued.
CIRCULAR
SEBI/HO/MRD/MRD-PoD-3/P/CIR/2024/6 January 23, 2024
To
All Recognized Stock Exchanges
All Recognized Clearing Corporations
All Depositories
Sir/Madam,
Subject: Framework for Offer for Sale (OFS) of Shares to Employees through
Stock Exchange Mechanism
1. SEBI vide Master Circular No.SEBI/HO/MRD2/PoD-2/CIR/P/2023/171 dated October
16, 2023 at paragraph 19 of Chapter 1 has specified the comprehensive framework
on Offer for Sale (OFS) of shares through stock exchange mechanism. Under the
said framework, the relevant provisions regarding offering of shares to employees by
the promoters of the company have been prescribed as under:
“19.1.2.2.4. Promoters of eligible companies shall be permitted to sell shares within
a period of 2 (two) weeks from the OFS transaction to the employees of such
companies. The offer to employee shall be considered as a part of the said OFS
transaction.
……….
19.1.5.3.2. The promoters may at their discretion offer these shares to employees at
the price discovered in the said OFS transaction or at a discount to the price
discovered in the said OFS transaction.
Page 1 of 419.1.5.3.3. Promoters shall make necessary disclosures in the OFS notice to the
exchange including number of shares offered to employees and discount offered, if
any.”
2. The existing procedure of OFS to employees of the eligible company is happening
outside the stock exchange mechanism. Based on the feedback received from
stakeholders, it is observed that the said procedure is time consuming, involves
additional costs and multiple activities.
3. In order to enhance efficiency, ease of compliance and reduce cost, based on
deliberations in the Secondary Market Advisory Committee of SEBI and discussions
with stock exchanges and clearing corporations, it has been decided that the
promoters can also offer the shares to employees in OFS through the Stock
Exchange Mechanism.
4. The procedure for OFS to employees through the Stock Exchange Mechanism is an
additional option to the existing procedure of OFS to employees outside the
exchange mechanism.
5. The procedure for offering shares to the employees in OFS through stock exchanges
is as under:
i. OFS to employees shall be on T+1 day along with the retail category under a
new category called as "Employee".
ii. While bidding, the employee shall select "Employee" category for employee
bids. However, the employees can also bid for other categories, as per the
applicable limits.
Page 2 of 4iii. For employee OFS, certain number of shares shall be reserved for the
employees. The same shall be mentioned in the OFS notice to the stock
exchanges by the promoter(s).
iv. Bidding shall be allowed during trading hours on T+1 day only.
v. Floor price of the retail category shall be disclosed to the participants under
the “Employee” category.
vi. Employees shall place bids only at cut-off price of T+1 day. The allotment
price shall be based on the Cut-off of the retail category, subject to discount, if
any.
vii. The maximum bid amount shall be INR 5,00,000.
viii. Each employee is eligible for allotment of equity shares up to INR 2,00,000.
Provided that in the event of under-subscription in the employee portion, the
unsubscribed portion may be allotted to such employees whose bid amount is
more than INR 2,00,000, on a proportionate basis, for a value in excess of
INR 2,00,000, subject to the total allotment to an employee not exceeding INR
5,00,000.
ix. The employees shall pay upfront the margin to the extent of 100% of the order
value in cash or cash equivalents.
x. Bids for "Employee" category shall not be displayed on the stock exchange
website.
xi. The bid book of “Employee” Category shall be segregated from Retail
Category book for allotment.
xii. Allotment under the “Employee” category shall be based on the PAN details of
employees shared by the company on T-1 day. The PAN mis-matched bids
shall be rejected.
xiii. The promoters shall transfer the total shares of OFS on T-1 day including
shares reserved for "Employee” category, to the designated clearing
corporation.
Page 3 of 46. The provisions of this circular shall come into effect from 30th day of issuance of this
circular.
7. All recognized stock exchanges and clearing corporations are advised to:
i. take necessary steps and put in place necessary systems for
implementation of the above.
ii. make necessary amendments to the relevant bye-laws, rules and
regulations, wherever required, for the implementation of the above; and.
iii. bring the provisions of this circular to the notice of the market participants
(including investors) and disseminate the same on their website.
8. This circular is issued in exercise of the powers conferred under Section 11(1) of the
Securities and Exchange Board of India Act 1992 read with Regulation 51 of
the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations)
Regulations, 2018 to protect the interests of investors in securities and to promote
the development of, and to regulate the securities market.
9. This circular is available on SEBI website at www.sebi.gov.in at “Legal Framework -
Circulars.”
Yours faithfully,
Hruda Ranjan Sahoo
Deputy General Manager
Tel no.: 022-26449586
Email: hrsahoo@sebi.gov.in
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