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This is an archive article published on July 23, 2004

Sebi tightens Esop, ESPS guidelines

The Securities and Exchange Board of India (Sebi) in a notification on Thursday said it has amended its guidelines on employee stock option ...

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The Securities and Exchange Board of India (Sebi) in a notification on Thursday said it has amended its guidelines on employee stock option and purchase schemes (ESOP and ESPS) by making disclosures, appointment of merchant bankers and pricing mandatory.

The market regulator said: ‘‘The board after considering the recommendations of the J.R. Verma Panel on Esop and the public comments approved certain modifications to the guidelines’’.

Under the amended norms, the market price would mean the latest available closing price prior to the date of the board of directors in which options are granted or shares are issued, on the stock exchanges. In case of the shares being listed on more than one stock exchange, the price prevailing on the stock exchange having highest trading volume on the said date should be considered.

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The company should appoint a registered merchant banker for the implementation of ESOS and ESPS till the stage of framing the ESOS/ESPS and obtaining in-principal approval from the stock exchanges.

In case these schemes were administered through a trust, the accounts of the company should be prepared, the Sebi notification added.

The market watchdog further added that the accounting value of shares issued under ESPS should be equal to the aggregate of price discount over all shares issued under scheme during any accounting period.

The price discount would mean difference between the issue price and the market price of the shares.

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