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SEBI introduces an additional framework for Offer for Sale (OFS) of Shares to Employees through Stock Exchange Mechanism

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Offer for sale

SEBI vide Master Circular dated October 16, 2023 had provided a comprehensive framework for promoters to sell shares through stock exchange mechanism by way of an OFS. Presently, the OFS facility has been made available on the BSEIndia (BSE), NSE India (NSE), and Metropolitan Stock Exchange of India Ltd.. The OFS facility is available to promoters and non-promoter entities alike to tender their shares on the exchange platform at a pre-determined price. Companies with a market capitalization of INR 1,000 Crores and above are eligible, to come out with an OFS. Further, an OFS is also permitted to be utilized as a method for promoters to meet the Minimum Public Shareholding criteria.

Under the present OFS framework, companies were eligible to offer shares to employees from outside the stock exchange platform based on the price discovered or at a discounted price. Based on the feedback received from stakeholders, SEBI observed that this procedure was time consuming, involving additional costs and multiple activities. Taking the feedback into consideration, SEBI has issued the present additional framework by way of a circular allowing promoters to also offer the shares to employees in OFS through the Stock Exchange Mechanism.

The procedure for OFS to employees through stock exchanges involves conducting the OFS on T+1 day along with the retail category under a new “Employee” category. During trading hours on T+1 day, employees can bid for shares, with a specified number reserved for them, as indicated in the OFS notice provided by the promoters. The floor price of the retail category is disclosed to participants under the “Employee” category, and employees place bids at the cut-off price of T+1 day. The allotment price is determined based on the cut-off of the retail category, considering any applicable discounts. The maximum bid amount is capped at INR 5 Lacs, and each employee is eligible for allotment of equity shares up to INR 2 Lacs. In the event of under-subscription, the unsubscribed portion may be allotted proportionately to employees exceeding the INR 2 Lacs bid limit. Employees are required to pay upfront the margin equivalent to 100% of the order value in cash or cash equivalents. Bids under the “Employee” category are not displayed on the stock exchange website, and the bid book is segregated for allotment purposes.

Stock exchanges and clearing corporations have been directed by SEBI to establish the necessary systems and make amendments to relevant bye-laws, rules, and regulations as required. The Circular is scheduled to come into effect from the 30th day of issuance.

A copy of the SEBI Circular is enclosed herewith and available on the SEBI website.

Readers are welcome to share their views with Regstreet Law Advisors on info@regstreetlaw.com

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