Sebi tweaks framework for OFS format for employees through stocks

Capital markets regulator Securities and Exchange Board of India (Sebi) has tweaked the process for offer for sale of shares to employees through stock exchanges. In a master circular issued on June 14, Sebi said that employees will have to place bids on T+1 (trading plus one day), but at the previous day's valuation. 

Sebi had first issued guidelines on Offer for Sale (OFS) of shares through the stock exchange mechanism on October 16, 2023. Again on January 23, 2024, it issued a Framework for Offer for Sale (OFS) of Shares to Employees through Stock Exchange Mechanism. 

SEBI permitted company promoters in January to offer shares to employees via the stock exchange mechanism in OFS, aiming for easier compliance. Before that, shares under OFS were given to employees outside the stock exchange mechanism.

"Based  on  the  feedback  received  from  certain  stakeholders and  deliberations  in the Secondary  Market  Advisory  Committee  of  SEBI (SMAC), it  has  been  decided  that employees shall place bids on T+1 day at cut-off price of T day," Sebi said in its master circular.

The provisions of this circular shall come into effect from the 30th day of issuance of this circular. 

Sebi further said all MIIs are advised to: 

i. Take necessary stepsand put in place the necessary systems for implementation of the above.

ii. make necessary amendments to the relevant bye-laws,  rules and regulations, wherever required, for the implementation of the above; and. 

iii. bring the provisions of this circular to the notice of the market participants (including investors) and disseminate the same on their.

This circular is issued 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, section  26(3) of the Depositories  Act,  1996  and regulation  97  of Securities and  Exchange  Board of  India  (Depositories and  Participants)  Regulations,2018to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

A company may resort to OFS when it requires additional capital to meet its goals. In an OFS, promoters of a company will dilute their stake by selling their shares to retail investors, companies, Foreign Institutional Investors (FIIs) and Qualified Institutional Buyers (QIBs) on an exchange platform. 

The exchange provides a separate window through the stockbrokers for the OFS process. Companies can route funds through OFS only if the promoters want to sell out their holdings or minimum public shareholding requirements.

Earlier shares were offered to staff outside the stock exchange, making the process, cumbersome.

Sebi specifies that a certain number of shares should be reserved for employees, and the same should be indicated in the OFS notice to the stock exchanges from the promoters.

The employees shall pay the margin upfront to the extent of 100 per cent of the order value in cash or cash equivalents, with a maximum bid amount set at Rs 5 lakh. Each employee is eligible for an allotment of equity shares up to Rs 2 lakh.

In case of undersubscription in the employee portion, the unsubscribed portion may be allotted to employees with bids exceeding Rs 2 lakh on a proportionate basis, for value in excess of Rs 2 lakh but total allotment should not exceed Rs 5 lakh, Sebi said.