Stock brokers may fund payment of exercise price in ESOP and/or RSUs

Stock brokers may fund payment of exercise price in ESOP and/or RSUs which shall be adjusted against the sale proceeds

The applicant was a registered Stock Broker. It sought clarification from SEBI under the Informal Guidance Scheme on the interpretation of Regulation 9(2) of SEBI (Share Based Employee Benefits) Regulations, 2014 (SBEB Regulations).

A Listed company had approached the applicant, as a registered Stock Broker for Cashless funding of RSUs being offered to their employees as a part of Employee compensation plan.

The current Market price per share was around Rs. 650/- and face value per share was Rs. 5/-. The Restricted Stock Units (RSUs) were being issued at face value to the eligible employees and as per the approved scheme the employee was required to pay the issue price plus the applicable Perquisite Tax for the eligible exercise quantity of RSU (Funding Amount).

The applicant had sought guidance from SEBI by way of an interpretive letter on the following:

1. Whether the applicant, as a registered stock Broker under SEBJ Stock Broker Regulations, 1992 was permitted to fund the securities to be issued under the Securities Exchange Board of India (Share Based Employee Benefits) Regulations 2014 (viz. Employee Stock Option and/or Restricted Stock Units) by a Listed Company, to its Employees who propose to avail Cashless option.

2. In case such funding is permitted, then the maximum amount per unit/security that can be funded

SEBI informed that Regulation 9(2) of the SBEB Regulations provide that no person other than the employee to whom the option, SAR or other benefit is granted is entitled to the benefit arising out of such option, SAR, benefit etc. Provided that in case of ESOS or SAR, under cashless exercise, the company may itself fund or permit the empanelled stock brokers to fund the payment of exercise price which shall be adjusted against the sale proceeds of some or all the shares, subject to the provisions of the applicable law or regulations.

Accordingly, SEBI opined that the company may permit the empaneled stock brokers to fund the payment of exercise price which shall be adjusted against the sale proceeds of some or all the shares, subject to the provisions of the applicable law or regulations. Thus, if the company permits, the applicant may fund the payment of exercise price which shall be adjusted against the sale proceeds of some or all the shares, subject to the provisions of the applicable law or regulations.

Also, the extant SBEB Regulations do not prescribe for any maximum limit on amount per unit/security that can be funded.

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