Tuesday, May 14, 2013

Extension of Date for Implementation of Modified ESOP Rules


Earlier this year, SEBI had announced the implementation of amended rules for the issue of employee stock options (ESOPs), which restricted the types of schemes to only those that comply with SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. Particularly, curbs were imposed on the acquisition of shares in the secondary markets by ESOP trusts. The rationale for these measures was previously discussed on this Blog. These measures were to take effect on June 30, 2013 by which time companies were required to ensure compliance of their ESOP programmes with these requirements.
SEBI has now extended the implementation of these new requirements until December 31, 2013, primarily due to representations received from industry participants. By then, the ESOP schemes of companies must be brought in line with these rules. Failing this, the securities acquired by the ESOP trusts must be divested by that date. It has also been clarified that this revised set of guidelines is applicable to all employee benefit schemes involving the securities of the company provided that the schemes are set up, managed or financed by the company directly or indirectly if any of the following conditions are satisfied:
a)  if the company has set up the scheme or the trust/agency managing the 
scheme; or
b)  if the company has direct or indirect control over the affairs of the scheme 
or the trust/agency managing the scheme; or
c)  if the company has extended any direct or indirect financial assistance to 
the employee benefit schemes or the trust/agency managing such schemes.
In other words, the stringency of these guidelines operates when there is a close nexus between the company and the trust, but not if the trust is set up and managed truly independently. The recent circular also sets out disclosure requirements regarding the operation of the ESOP schemes.

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