SEBI Allows Promoters to Offer Shares to Employees in ‘Offer for Sale‘ Through Stock Exchange Mechanism

Circular No. SEBI/HO/MRD/MRD-PoD-3/P/CIR/2024/6, Dated 23.01.2024

As per the extant procedure of Offer for Sale (OFS) to employees of the eligible company is happening outside the stock exchange (SE) mechanism. SEBI observed that said procedure is time-consuming & involves additional costs, therefore, it has now decided that the promoters can also offer the shares to employees in OFS through the SE Mechanism. The procedure for OFS to employees through the SE Mechanism is an additional option to the existing procedure of OFS to employees.

This initiative has been taken to enhance efficiency, ease of compliance and reduce cost, based on deliberations in the Secondary Market Advisory Committee of SEBI and discussions with SE and clearing corporations.

SEBI has prescribed the procedure for offering shares to the employees in OFS through SE. As per the procedure, the OFS to employees must be on T+1 day along with the retail category under a new category called ‘Employee’, for whom a certain number of shares must be reserved. Bidding must be allowed during trading hours on T+1 day only. And the employees must place bids only at the cut–off price of T+1 day.

Likewise, the floor price of the retail category must be disclosed to the participants under the ‘Employee’ category. The employees shall be allotted shares at price based on cut-off of the retail category, subject to discount, if any.

Each employee is eligible for allotment of equity shares up to INR 2,00,000. 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 over INR 2,00,000, subject to the total allotment to an employee not exceeding INR 5,00,000.

The maximum bid amount must be INR 5,00,000. Also, the employees are required to make upfront payments in cash or cash equivalents to the extent of 100% order value.

In circumstances like a mismatch of the ‘Employee’ category PAN, bids shall be rejected as their allotment is based on the PAN details of employees shared by the company on T+1 day. The total shares on T+1 day including reserved shares for the ‘Employee’ category must be transferred to the designated Clearing Corporation.

For implementation of this framework, SEBI has advised all recognized stock exchanges & clearing corporations to take necessary steps, make necessary amendments to the relevant bye-laws, rules & regulations, and bring these provisions to the notice of market participants along with disseminating the same on their website.

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

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