Sebi releases framework for Offer for Sale to employees through stock exchange; details here

Capital markets regulator Securities and Exchange Board of India (Sebi) has released a circular encapsulating the framework for offer for sale (OFS) of shares to employees through stock exchanges such as BSE and NSE.

The promoters of eligible companies will be permitted to sell shares within two weeks from the offer for sale (OFS) transaction to the employees of such companies.

The circular also stipulates that the promoters are meant to make necessary disclosures in the OFS notice to the stock exchange including number of shares offered to employees and discount offered.

Why this rollout?

As of now, the existing procedure of OFS to employees of the eligible company is happening outside the stock exchange mechanism. However, based on the feedback received from stakeholders, it was realised that the procedure is time consuming and involves additional costs. 

Therefore, the regulator has decided that the promoters can also offer the shares to employees in OFS through the stock exchange mechanism.

The new method will be an add-on method in addition to the existing procedure outside the stock exchange mechanism.

Key provisions of this circular include the following:

1. Bidding will be allowed during trading hours on T+1 day only.

2. Employees will place bids only at cut-off price of T+1 day. 

3. The maximum bid amount will be ₹5 lakh.

4. Each employee is eligible for allotment of equity shares up to ₹2 lakh.

5. In case there is under-subscription in the employee portion, the unsubscribed portion may be allotted to such employees whose bid amount is over ₹2 lakh on a proportionate basis for a value in excess of ₹2 lakh subject to the total allotment to an employee not exceeding ₹5 lakh.

6. The employees are supposed to pay upfront the margin to the extent of 100 percent of the order value in cash or cash equivalents.

The regulator also issued instructions stating that stock exchanges and clearing corporations are meant to take necessary steps and put in place necessary systems for implementation of these provisions.

The circular is available on the regulator’s website at sebi.gov.in at ‘Legal Framework – Circulars’. The provisions of this circular dated Jan 23, 2024 will come into effect from 30th day of issuance of this circular.