Companies can’t trade in ESOS, ESPS shares: SEBI

To address the concerns over acquisition of shares by employee welfare trusts from secondary market

The Securities and Exchange Board of India (SEBI) has amended its Employee Stock Option Scheme (ESOS) and Employee Stock Purchase Scheme (ESPS) Guidelines, 1999, by prohibiting companies from dealing in their own shares in the secondary market under these schemes, with immediate effect.

“No ESOS / ESPS shall involve acquisition of securities from the secondary market,” said the capital market regulator while adding a new clause in the guidelines.

“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,” SEBI added.

SEBI said 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.”

“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,” said SEBI in a notification.

“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,” SEBI warned.

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 and are not in accordance with SEBI (ESOS and ESPS) Guidelines, the regulator directed those companies to inform the details of their schemes to the stock exchanges within 30 days from date of this circular.

They were also asked to align any existing employee benefit schemes with SEBI (ESOS and ESPS) Guidelines on or before June 30, 2013.