Framework for Offer for Sale (OFS) of Shares to Employees through Stock Exchange Mechanism

SEBI has introduced a framework allowing promoters to offer shares to employees through the Stock Exchange Mechanism, aiming to enhance efficiency and reduce costs. This replaces the existing procedure of OFS to employees outside the exchange mechanism. Promoters can sell shares to employees within two weeks from the OFS transaction, either at the OFS price or at a discount. Effective from 30 days after issuance.

Following are some highlights: –

1. Current OFS to employees occurs outside stock exchange, found time-consuming and costly.
2. SEBI’s decision: Allow promoters to offer shares to employees in OFS through Stock Exchange Mechanism.
3. New procedure:
   1. OFS on T+1 day alongside retail category under “Employee” category.
   1. Employees bid at T+1 day cut-off price, maximum bid INR 5,00,000.
   1. Each employee eligible for up to INR 2,00,000 allotment; under-subscription allocated proportionally.
4. Payment upfront: 100% of order value in cash or cash equivalents.
5. “Employee” category bids not displayed on stock exchange website; segregated for allotment.
6. Allotment based on PAN details shared by company on T-1 day; mis-matched bids rejected.
7. Circular effective 30 days from issuance; Stock exchanges and clearing corporations instructed to implement, amend regulations, and disseminate information to market participants.
8. Stock exchange responsibility
   1. Take necessary steps and implement systems.
   1. Amend relevant bye-laws, rules, and regulations

Circular issued under Section 11(1) of SEBI Act 1992 read with regulation 51 of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 to safeguard investor interests and regulate securities market. [1]

[1] https://www.sebi.gov.in/legal/circulars/jan-2024/framework-for-offer-for-sale-ofs-of-shares-to-employees-through-stock-exchange-mechanism_80842.html