Introduction
The Securities and Exchange Board of India (SEBI) has issued a circular that introduces a new framework for the Offer for Sale (“OFS”) of shares to employees through the stock exchange mechanism. This initiative aligns with SEBI’s commitment to protecting investor interests and promoting the development and regulation of the securities market.
Background and existing framework
Promoters of eligible company were allowed to sell shares to employees within 2 weeks from the OFS transaction outside the stock exchange mechanism.
Purpose of the circular
Based on the feedback received from stakeholders, the offer for sale outside the stock exchange mechanism was time-consuming and involved additional costs. Hence, to streamline the existing process, enhance efficiency, and reduce costs associated with the current procedure, SEBI in discussions with stock exchanges and clearing corporations, decided to allow the promoters to offer the shares to employees in OFS through the Stock Exchange Mechanism.
However, this procedure is an additional option to the existing procedure of OFS for employees.
Procedure for OFS to employees via stock exchange mechanism:
OFS to employees shall be on T+1 day along with the retail category under a new category called “Employee”.
While bidding, the employee shall select the "Employee" category for employee bids. However, the employees can also bid for other categories, as per the applicable limits.
For employee OFS, a 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).
Bidding shall be allowed during trading hours on T+1 day only.
The floor price of the retail category shall be disclosed to the participants under the Employee category.
Employees shall place bids only at the 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.
The maximum bid amount shall be INR 5,00,000 (Indian Rupees Five Lakhs).
Each employee is eligible for allotment of equity shares up to INR 2,00,000 (Indian Rupees Two Lakhs). 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 (Indian Rupees Two Lakhs), subject to the total allotment to an employee not exceeding INR 5,00,000 (Indian Rupees Five Lakhs).
The employees shall pay upfront the margin to the extent of 100% of the order value in cash or cash equivalents.
Bids for the "Employee" category shall not be displayed on the stock exchange website.
The bid book of the Employee Category shall be segregated from the Retail Category book for allotment.
Allotment under the Employee category shall be based on the PAN details of employees shared by the company on T-1 day. The PAN mismatched bids shall be rejected.
The promoters shall transfer the total shares of OFS on T-1 day including shares reserved for "Employee” category, to the designated clearing corporation.
Effective Date
The provisions of this circular shall come into effect from the 30th day of issuance of this circular.
Note: The SEBI has issued a circular, SEBI/HO/MRD/MRD-PoD-3/P/CIR/2024/6, dated January 23, 2024 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.
Credits: This article has been co-authored by Purvi Jani, Principal Associate, Transaction Advisory - Legal & Compliance and Sapna Jaiswal, Executive, Transaction Advisory - Legal & Compliance at Constellation Blu.
Disclaimer: This article is provided for informational purposes only and does not constitute legal advice or an official legal opinion. The views expressed are those of the author and are based on the applicable law and facts available at the time of writing. The information has been prepared with due diligence and accuracy. Readers are advised to consult their own advisors, and refer relevant statutory provisions, latest judicial decisions, circulars, and clarifications before taking any action based on the information in this article. Alternative interpretations of the subject matter may exist. By utilizing this information, you agree that the author and Constellation Blu are not liable for the accuracy, authenticity, completeness, or any errors or omissions contained herein, nor for any actions taken based on this information.
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