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With our endeavor to disseminate information upon the SEBI’s new Regulations, we have prepared a small presentation on Promulgation of SEBI (Share Based Employee Benefit) Regulations, 2014.
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Promulgation of SEBI (Share Based
Employee Benefit) Regulations, 2014
Background….
In 2013: The Market Regulator, SEBI, noticed that some Listed Entities
were framing their own Employee Benefit Schemes wherein Trusts have
been set up to deal in their own securities in secondary market with the
object of manipulating the price of the securities by engaging in fraudulent
& unfair trade practices.
17th January, 2013: SEBI restrained Employee Welfare Trusts from
Secondary Market Acquisitions.
13th May, 2013: SEBI allowed Trusts to hold securities acquired prior to
17th January, 2013, provided that such securities are used only in
accordance with such aligned schemes.
29th November, 2013: SEBI extended the deadline for re-alignment of the
Scheme from 31st December, 2013 to 30th June, 2014.
Discussion Paper & Press Release…
SEBI issued a discussion paper in December, 2013, for public
comments with the primary objective of framing a
comprehensive set of regulations not only governing the
working of employee welfare trusts dealing in secondary market
acquisitions but also bringing all types of Employee Welfare
Trusts under the ambit of said regulations.
SEBI, in its meeting held on 19th June, 2014, approved the
proposal to review SEBI (ESOS & ESPS) Guidelines, 1999 and
to frame a new set of Regulations.
New Regulations…Bringing the ongoing dilemma to an end…
• The Market Regulator, SEBI has now floated new
Regulatory framework governing the regime of Employee
Welfare Programmes wherein the company securities are
involved. These new Regulations have been named SEBI
(Share Based Employee Benefit Schemes) Regulations,
2014, notified on 28th October, 2014.
• This move of SEBI is a welcoming step that aims at
streamlining the regulatory framework with the dynamic
business environment thereby ensuring transparency in
the operations of the Employee Welfare Trusts on one
hand and bringing all Welfare Schemes involving Shares
of the Listed Entities under the regulatory arena.
SEBI (Share Based Employee
Benefit) Regulations, 2014
Applicability of SEBI (SBEB) Regulations,
2014…
Equity based schemes Non-equity schemes
Employee Stock Option
Scheme
Employee Stock
Purchase Scheme
Stock Appreciation
Rights
Stock Appreciation
Rights
GEBS
RBS
Any scheme set up/funded/controlled by the
Company or any company in its group.
Appreciation ‘ Difference between market price on the date of exercise of SAR
and the SAR Price.’
Associate Company- As defined under Companies Act, 2013.
Employee- Now also includes the employees of associate company.
Key Managerial Personnel- As defined under Companies Act, 2013.
Market price- Latest available closing price on Recognised Stock Exchange.
General Employee Benefit Schemes (GEBS)
Few New Definitions Introduced
Retirement Benefit Schemes (RBS)
Relevant Date- In case of grant and exercise.
Secondary Acquisition- Acquisition of existing shares of company from
recognised stock exchange.
Stock Appreciation Right Or SAR- Giving cash incentive in the form of
appreciation to employees
Trust- Trust established under Indian Trusts Act, 1882.
Trustee- Trustee of the Trust.
Continued……..
ESOS/ESPS
SCHEMES
Trust
RouteDirect
Route
No major change
introduced.
New provisions have been
incorporated.
Employee Stock Plans
GEBS
RBS
SARs
Employee Welfare Trusts- Elaborative
Approach…
The new ESOP Regulations aim at streamlining the
regulatory framework with regard to Employee Welfare
Trusts under ESOP/ESPS Schemes, which is outlined
below:
• Trust route:- To be decided upfront at the time of taking
shareholder approval for the scheme;
• Trust route mandatory:- If the Scheme involves
secondary market acquisition or gift or both;
• Several Schemes can be implemented through a single
Trust;
• Trustees shall not have the power to vote/ receive
dividend on the shares held by the Trust;
• Secondary market acquisitions by Employee Welfare
Trusts:- Allowed subject to special resolution.
Threshold of acquisition:- 2% of paid-up capital in a financial year;
Trusts cannot sell these shares again in the secondary market except in certain
circumstances such as cashless exercise, vesting/exercise of SARs or certain
circumstances emergency situations, subject to conditions;
A minimum holding period of 6 months for the shares bought from the market;
Trust shall comply with SEBI (Prohibition of Insider Trading) Regulations, 1992.
Trust to maintain proper books of accounts, records and documents;
No dealings in derivatives by Trusts;
Trust cannot be a revocable Trust;
Un-appropriated inventory to be appropriated upto end of subsequent Financial
Year;
Trust to be shown as Non-public-non-promoter category in the Shareholding
Pattern;
Continued……..
• Director;
• Promoter;
• Key managerial personnel;
• Relative of above mentioned persons;
OR
• Person who beneficially holds 10% or more of paid-up shares capital of the
company;
Who cannot be a Trustee?
Appointment of Individual or ‘One Person Company’ as a Trustee -
Mininum 2 Trustees to be appointed
In case of corporate trustee – Single entity is allowed
Stock Appreciation Rights
SAR scheme to contain the details of manner in which the
scheme will be implemented;
SARs can be equity settled or cash settled;
Minimum vesting period of one year;
No voting right or right to receive dividend to Employee for the SARs
granted ;
Any scheme dealing in shares of Company/ Listed
Holding Company, shall be in accordance with these
Regulations.
Employee
WelfareHealth
Benefit
Accident
Benefit
Scholarship
Benefit
The shares of the Company or its listed holding company shall not
exceed 10% of the book value or market value or fair value of total
assets of the scheme, whichever is lower.
General Employee Benefit Schemes
Retirement benefits to Employees
The shares of the Company or its listed holding company shall not
exceed 10% of the book value or market value or fair value of total
assets of the scheme, whichever is lower.
Retirement Benefit Schemes
Any scheme dealing in shares of Company/ Listed
Holding Company, shall be in accordance with these
Regulations.
Trust deed and any modifications thereto;
Shareholding of Trust to be shown as ‘non-promoter & non-public’;
In case of grant to a director as nominee:- Copy of contract or agreement to be
filed;
Board of Directors to disclose details of the scheme(s);
New shares issued to be listed immediately;
Trust to make disclosures regarding SEBI (Prohibition of Insider Trading)
Regulations, 1992;
Details of the current Un-appropriated inventory, if it does not get appropriated
within one year from the date of these new Regulations;
Mandatory Disclosures & Filings with
STOCK EXCHANGES
The Board may suo moto or on an application made by a
company, grant relaxation from strict compliance of these
regulations;
A company making application for relaxation, along with the
requisite fee;
Exemption Powers to SEBI…
Prohibition on secondary market acquisition:- continue till the schemes are
aligned with these regulations;
All listed companies having existing schemes, which are not aligned, shall align
the same within 1 year;
Trusts holding shares beyond permissible limits:- 5 years to bring down its
holding;
Trusts holding shares for GEBS/RBS, exceeding 10%:- 5 years to bring down its
holding;
For the purposes of the requirement of maintaining adequate public shareholding,
those trusts holding shares of the company which are shown either as ‗promoter‘
or ‗public‘ shareholding, shall be permitted to continue to be shown them as such
for a further period of only 5 years;
Current Un-appropriated inventory held by the Trust, can be sold on RSE within 5
years from the end of the 1 year of the new Regulations;
Timeline to comply with New Regulations…
Conclusion…
Any company having any Employee Benefit Scheme, dealing in
Company’s/ its Listed Holding Company’s shares, will have to comply
with these Regulations;
Any company having an Employee Benefit Scheme, proposing to come
out with an IPO, shall prior to the IPO, comply with these Regulations;
Companies following the Direct Route Model, can continue to follow
the same, without much amendments in the schemes/ Modus Operandi;
All companies having any Employee Benefit Schemes, which is not in
compliance with these Regulations, shall align the same within one
year from the date of these Regulations;
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