Employee Share Bidding In Offer For Sale: SEBI’s Latest Amendments

Introduction:

The Securities and Exchange Board of India (SEBI), in an effort to streamline and enhance the framework for Offer for Sale (OFS) of shares, issued a significant modification through its Circular dated January 23, 2024. This circular focuses on the procedure for offering shares to employees via the stock exchange mechanism, building on the comprehensive framework previously outlined in the Master Circular dated October 16, 2023.

Background:

In the initial framework detailed in the January 2024 circular, SEBI outlined that the OFS to employees would occur on T+1 day, aligning with the retail category under a new “Employee” category. Specifically, paragraph 5(i) stated, “OFS to employees shall be on T+1 day along with the retail category under a new category called as ‘Employee’, and paragraph 5(vi) added, “Employees shall place bids only at cut-off price of T+1 day. The allotment price shall be based on the cut-off of the retail category, subject to discount, if any.” This structure was designed to simplify and synchronize the process for employee participation in OFS.

However, following feedback from various stakeholders and deliberations within the Secondary Market Advisory Committee (SMAC) of SEBI, it became apparent that the procedure required refinement. The stakeholders highlighted practical concerns and suggested improvements to ensure a more efficient and equitable process.

About the circular:

SEBI made a crucial amendment to the original procedure, particularly to paragraph 5(vi). According to the modification, employees are now required to place bids at the cut-off price of T day, rather than T+1 day. The revised paragraph 5(vi) reads, “Employees shall place bids only at cut-off price of T day. The allotment price shall be based on the cut-off of the T day, subject to discount, if any.” This change aims to simplify the bidding process and align it more closely with the timing and pricing mechanisms applicable to other participants in the OFS, thus enhancing transparency and efficiency.

This amendment underscores SEBI’s commitment to continuously improving regulatory frameworks based on stakeholder feedback and evolving market dynamics. By allowing employees to place bids at the T day cut-off price, SEBI aims to ensure that employees receive a fair opportunity to participate in the OFS alongside other investors, while also simplifying the procedural aspects for issuers and intermediaries. Furthermore, the circular stipulates that all other provisions of the previous circulars remain unchanged, maintaining the overall structure and intent of the OFS framework. SEBI has mandated that the provisions of this circular will come into effect 30 days from the issuance date, providing sufficient time for market participants to adapt to the new requirements.

To ensure seamless implementation, SEBI has instructed all Market Infrastructure Institutions (MIIs) to take necessary steps and put in place the required systems. This includes making necessary amendments to relevant bye-laws, rules, and regulations, and disseminating the circular’s provisions to market participants, including investors, through their websites. The aim is to foster an environment of transparency and awareness among all stakeholders. The regulatory changes reflect SEBI’s proactive approach to fostering a fair and efficient securities market. By updating the OFS mechanism, SEBI seeks to protect investors’ interests and promote the development and regulation of the securities market. This ongoing regulatory evolution ensures that the market infrastructure remains robust, adaptable, and in tune with the needs of all participants.

Conclusion:

In conclusion, SEBI’s modification to the OFS framework for employee participation via the stock exchange mechanism highlights the regulator’s responsiveness to market feedback and its dedication to continuous improvement. The adjustment to the bidding process is expected to streamline operations, enhance fairness, and provide a more straightforward pathway for employees to benefit from share offerings. As the new provisions come into effect, it will be essential for all stakeholders to align their practices with the updated guidelines, thereby contributing to the overall efficiency and integrity of the securities market.