The Securities and Exchange Board of India (Sebi) has allowed pricing of employee stock options (ESOPs) on the Black-Scholes model or a Binomial model. This model uses an option-racing model that takes into account, as of the grant date, the exercise price and expected life of the option.
Sebi on Monday released detailed amended guidelines for issuing ESOPs and Employee Stock Purchase Scheme (ESPS), in which it defined the fair value of stock options to be issued by listed corporates and host of other minute details pertaining to ESOPs. The guidelines, to be known as Sebi (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999, barring few clauses, will come into force with immediate effect.
Earlier, Sebi had notified its guidelines on this subject on June 19, 1999, but since then various developments have taken place in the market and it received various representations/clarifications from companies.Following this, Sebi set up a committee under the chairmanship of Prof JR Varma to review these guidelines, which were approved by Sebi recently after considering the Varma panel’s recommendations and comments received on them. As per these guidelines, the fair value of a stock option is the price that shall be calculated for that option in an arm’s length transaction between a willing buyer and a willing seller.
The fair value shall be estimated using an option-pricing model that takes into account, as of the grant date, the exercise price and expected life of the option, the current price in the market of the underlying stock and its expected volatility, expected dividends on the stock, and the risk-free interest rate for the expected term of the option. Sebi said the fair value of an option estimated at the grant date will not be subsequently adjusted for changes in the price of underlying stock or its volatility, the life of the option, dividends on the stock, or the risk-free interest rate.
Note: Guideline Issued by SEBI is as follows:-
Sub.: Amendments to SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999
1.The matters relating to issue of capital and the manner of disclosure of such and other matters incidental thereto have been provided in the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (hereinafter referred to as “the ICDR Regulations”). The ICDR Regulations have been notified on August 26, 2009.
2. There are certain provisions in the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 (hereinafter referred to as “the Guidelines”) which are required to be complied with by an unlisted issuer at the time of making an initial public offer. Since these provisions pertain to matters relating to issue of capital, the same have now been incorporated in the ICDR Regulations and consequently, it has been decided to amend the Guidelines to remove these provisions as well as the redundant provisions pertaining to application to Central Listing Authority. The full text of amendments is given in Annexure I.
3.This circular is being issued in exercise of the powers conferred under sub-section (1) of section 11 of the Securities and Exchange Board of India Act, 1992. This circular and the entire text of the updated Guidelines are available on SEBI website at www.sebi.gov.in under the categories “Legal Framework” and “Issues and Listing”.
Yours faithfully,
Neelam Bhardwaj
Encl.: As above.
ANNEXURE I
Amendments to SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999
1 Clause 15 shall be omitted.
2. Clause 15.1 shall be omitted.
3. Clause 15.2 shall be omitted.
4. Clause 15.3 shall be omitted.
5.In clause 22.2, for the words and figures “clause 15.3”, occurring after the words “subject to compliance with” and before the words “and, where applicable”, the words “SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009” shall be inserted.
6. In clause 22.3, the words “make application to the Central Listing Authority as per SEBI (Central Listing Authority) Regulations, 2003 and” shall be omitted.
7. Clause 22.4 shall be omitted.
8. Clause 22.5 shall be omitted.
i was working in a company where I was availing ESOS facility. Have exercised a part of ESOS when I was associated in this company & balance tranches are available in my ESOS.
thereafter I joined another company. can I avail the balance tranches of ESOS of my earlier company
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