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Amendment in ESOP Guidelines

Written By Admin on Saturday, 19 January 2013 | Saturday, January 19, 2013


January 17, 2013


All Stock Exchanges
All Registered Merchant Bankers

Dear Sir/Madam,

Sub: Amendments to SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 and Equity Listing Agreement.

1. SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 ("SEBI (ESOS & ESPS) Guidelines") were issued to enable listed entities to reward their employees through stock option schemes and stock purchase schemes and to ensure that such schemes introduced by the companies are within the regulated framework. 

2. It has come to the notice of SEBI that some listed entities have been framing their own employees benefit schemes wherein Trusts have been set up to deal in their own securities in the secondary market, which was not envisaged within the purview of SEBI (ESOS and ESPS) Guidelines 1999.

3. 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. 

4. In order to address the concerns over acquisition of shares by employee welfare Trusts from the secondary market, it has been decided to prohibit the listed entities from framing any employee benefit schemes involving acquisition of own securities from the secondary market.

5. In order to implement the above decision, certain listing conditions are hereby specified by way of inserting Clause 35C in the Equity Listing Agreement as given in Annexure I.

6. In respect of those companies, which have already framed and implemented before the date of this circular any employee benefit schemes involving dealing in the securities of the company, which are not in accordance with SEBI (ESOS and ESPS) Guidelines, it has been decided that:-

(i) such companies will be required to inform the details of their schemes to the Stock Exchanges within 30 days from date of this circular, in the format provided in Annexure II to this circular and to disseminate the said information on their website. 

(ii) such companies shall align any existing employee benefit schemes with SEBI (ESOS and ESPS) Guidelines on or before June 30, 2013. 
7. In view of the above, it has also been decided to amend the SEBI (ESOS and ESPS) Guidelines 1999 as provided in Annexure III. The amendments made vide this circular shall come into force with immediate effect. 

8. All stock exchanges are advised to ensure compliance with this circular, and carry out the necessary amendments in their Listing Agreement accordingly.

9. This circular is being issued in exercise of the powers under Section 11 read with Section 11A of the Securities and Exchange Board of India Act, 1992. 

10. This circular is available on SEBI website at under the categories “Legal Framework” and “Issues and Listing”.

Yours faithfully,

Sunil Kadam
General Manager

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