With our endeavor to disseminate information upon the SEBI’s new Regulations, we have prepared a small presentation on Promulgation of SEBI (Share Based Employee Benefit) Regulations, 2014.

1. Promulgation of SEBI (Share Based Employee Benefit) Regulations, 2014

2. Background….
In2013:TheMarketRegulator,SEBI,noticedthatsomeListedEntitieswereframingtheirownEmployeeBenefitSchemeswhereinTrustshavebeensetuptodealintheirownsecuritiesinsecondarymarketwiththeobjectofmanipulatingthepriceofthesecuritiesbyengaginginfraudulent&unfairtradepractices.
17thJanuary,2013:SEBIrestrainedEmployeeWelfareTrustsfromSecondaryMarketAcquisitions.
13thMay,2013:SEBIallowedTruststoholdsecuritiesacquiredpriorto17thJanuary,2013,providedthatsuchsecuritiesareusedonlyinaccordancewithsuchalignedschemes.
29thNovember,2013:SEBIextendedthedeadlineforre-alignmentoftheSchemefrom31stDecember,2013to30thJune,2014.

3. Discussion Paper & Press Release…
SEBIissuedadiscussionpaperinDecember,2013,forpubliccommentswiththeprimaryobjectiveofframingacomprehensivesetofregulationsnotonlygoverningtheworkingofemployeewelfaretrustsdealinginsecondarymarketacquisitionsbutalsobringingalltypesofEmployeeWelfareTrustsundertheambitofsaidregulations.
SEBI,initsmeetingheldon19thJune,2014,approvedtheproposaltoreviewSEBI(ESOS&ESPS)Guidelines,1999andtoframeanewsetofRegulations.

4. New Regulations… Bringing the ongoing dilemma to an end…
•TheMarketRegulator,SEBIhasnowfloatednewRegulatoryframeworkgoverningtheregimeofEmployeeWelfareProgrammeswhereinthecompanysecuritiesareinvolved.ThesenewRegulationshavebeennamedSEBI(ShareBasedEmployeeBenefitSchemes)Regulations, 2014,notifiedon28thOctober,2014.
•ThismoveofSEBIisawelcomingstepthataimsatstreamliningtheregulatoryframeworkwiththedynamicbusinessenvironmenttherebyensuringtransparencyintheoperationsoftheEmployeeWelfareTrustsononehandandbringingallWelfareSchemesinvolvingSharesoftheListedEntitiesundertheregulatoryarena.

5. SEBI (Share Based Employee Benefit) Regulations, 2014

6. Applicability of SEBI (SBEB) Regulations, 2014…
Equity based schemes
Non-equity schemes
Employee Stock Option Scheme
Employee Stock Purchase Scheme
Stock Appreciation Rights
Stock Appreciation Rights
GEBS
RBS
Any scheme set up/funded/controlled by the Company or any company in its group.

7. Appreciation‘DifferencebetweenmarketpriceonthedateofexerciseofSARandtheSARPrice.’
AssociateCompany-AsdefinedunderCompaniesAct,2013.
Employee-Nowalsoincludestheemployeesofassociatecompany.
KeyManagerialPersonnel-AsdefinedunderCompaniesAct,2013.
Marketprice-LatestavailableclosingpriceonRecognisedStockExchange.
GeneralEmployeeBenefitSchemes(GEBS)
Few New Definitions Introduced

8. RetirementBenefitSchemes(RBS)
Relevant Date-In case of grant and exercise.
Secondary Acquisition-Acquisition of existing shares of company from recognised stock exchange.
Stock Appreciation Right Or SAR-Giving cash incentive in the form of appreciation to employees
Trust-Trust established under Indian Trusts Act, 1882.
Trustee-Trustee of the Trust.
Continued……..

9. ESOS/ESPS SCHEMES
Trust Route
Direct Route
No major change introduced.
New provisions have been incorporated.
Employee Stock Plans
GEBS
RBS
SARs

10. Employee Welfare Trusts-Elaborative Approach…
ThenewESOPRegulationsaimatstreamliningtheregulatoryframeworkwithregardtoEmployeeWelfareTrustsunderESOP/ESPSSchemes,whichisoutlinedbelow:
•Trustroute:-Tobedecidedupfrontatthetimeoftakingshareholderapprovalforthescheme;
•Trustroutemandatory:-IftheSchemeinvolvessecondarymarketacquisitionorgiftorboth;
•SeveralSchemescanbeimplementedthroughasingleTrust;
•Trusteesshallnothavethepowertovote/receivedividendonthesharesheldbytheTrust;
•SecondarymarketacquisitionsbyEmployeeWelfareTrusts:-Allowedsubjecttospecialresolution.

11. Thresholdofacquisition:-2%ofpaid-upcapitalinafinancialyear;
Trustscannotsellthesesharesagaininthesecondarymarketexceptincertaincircumstancessuchascashlessexercise,vesting/exerciseofSARsorcertaincircumstancesemergencysituations,subjecttoconditions;
Aminimumholdingperiodof6monthsforthesharesboughtfromthemarket;
TrustshallcomplywithSEBI(ProhibitionofInsiderTrading)Regulations,1992.
Trusttomaintainproperbooksofaccounts,recordsanddocuments;
NodealingsinderivativesbyTrusts;
TrustcannotbearevocableTrust;
Un-appropriatedinventorytobeappropriateduptoendofsubsequentFinancialYear;
TrusttobeshownasNon-public-non-promotercategoryintheShareholdingPattern;
Continued……..

12. •Director;
•Promoter;
•Key managerial personnel;
•Relative of above mentioned persons;
OR
•Person who beneficially holds 10% or more of paid-up shares capital of the company;
Who cannot be a Trustee?
Appointment of Individual or ‘One Person Company’ as a Trustee - Mininum2 Trustees to be appointed
In case of corporate trustee –Single entity is allowed

13. Stock Appreciation Rights
SAR scheme to contain the details of manner in which the
scheme will be implemented;
SARs can be equity settled or cash settled;
Minimum vesting period of one year;
No voting right or right to receive dividend to Employee for the SARs granted ;

14. Any scheme dealing in shares of Company/ Listed Holding Company, shall be in accordance with these Regulations.
Employee Welfare
Health Benefit
Accident Benefit
Scholarship Benefit
The shares of the Company or its listed holding company shall not exceed 10% of the book value or market value or fair value of total assets of the scheme, whichever is lower.
General Employee Benefit Schemes

15. Retirement benefits to Employees
The shares of the Company or its listed holding company shall not exceed 10% of the book value or market value or fair value of total assets of the scheme, whichever is lower.
Retirement Benefit Schemes
Any scheme dealing in shares of Company/ Listed Holding Company, shall be in accordance with these Regulations.

16. Trust deed and any modifications thereto;
Shareholding of Trust to be shown as ‘non-promoter & non-public’;
Incaseofgranttoadirectorasnominee:-Copyofcontractoragreementtobefiled;
BoardofDirectorstodisclosedetailsofthescheme(s);
Newsharesissuedtobelistedimmediately;
TrusttomakedisclosuresregardingSEBI(ProhibitionofInsiderTrading) Regulations,1992;
DetailsofthecurrentUn-appropriatedinventory,ifitdoesnotgetappropriatedwithinoneyearfromthedateofthesenewRegulations;
Mandatory Disclosures & Filings with STOCK EXCHANGES

17. TheBoardmaysuomotooronanapplicationmadebyacompany,grantrelaxationfromstrictcomplianceoftheseregulations;
Acompanymakingapplicationforrelaxation,alongwiththerequisitefee;
Exemption Powers to SEBI…

18. Prohibitiononsecondarymarketacquisition:-continuetilltheschemesarealignedwiththeseregulations;
Alllistedcompanieshavingexistingschemes,whicharenotaligned,shallalignthesamewithin1year;
Trustsholdingsharesbeyondpermissiblelimits:-5yearstobringdownitsholding;
TrustsholdingsharesforGEBS/RBS,exceeding10%:-5yearstobringdownitsholding;
Forthepurposesoftherequirementofmaintainingadequatepublicshareholding, thosetrustsholdingsharesofthecompanywhichareshowneitheras‗promoter‘ or‗public‘shareholding,shallbepermittedtocontinuetobeshownthemassuchforafurtherperiodofonly5years;
CurrentUn-appropriatedinventoryheldbytheTrust,canbesoldonRSEwithin5yearsfromtheendofthe1yearofthenewRegulations;
Timeline to comply with New Regulations…

19. Conclusion…
AnycompanyhavinganyEmployeeBenefitScheme,dealinginCompany’s/itsListedHoldingCompany’sshares,willhavetocomplywiththeseRegulations;
AnycompanyhavinganEmployeeBenefitScheme,proposingtocomeoutwithanIPO,shallpriortotheIPO,complywiththeseRegulations;
CompaniesfollowingtheDirectRouteModel,cancontinuetofollowthesame,withoutmuchamendmentsintheschemes/ModusOperandi;
AllcompanieshavinganyEmployeeBenefitSchemes,whichisnotincompliancewiththeseRegulations,shallalignthesamewithinoneyearfromthedateoftheseRegulations;

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