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Authored by Aishwarya Lakshmi VM.

Applicant: Way to Wealth Brokers Pvt. Ltd. Date of the guidance: 20.07.2020

Factual Background

(i) The Applicant is a stockbroker registered with SEBI. They have received a proposal from a listed company to fund the RSU (Restricted Stock Unit) issued by the listed company to its employees, to enable the employees to exercise the RSUs without paying for the same upfront.

(ii) The amount that will be funded by the Applicant is the face value of the share plus the additional perquisite tax @ 36% of the fair value.

(iii) Within two days of receipt of credit of the shares in the DP A/c of the employee, the Applicant will sell the RSUs to the extent of cashless funding plus transaction charges and cover the amount spent by them.

Guidance sought

In the light of the contemplated transaction, the Applicant sought informal guidance as to whether as a SEBI registered broker they are eligible to fund RSUs and if yes, to what maximum extent.

Provisions Involved

Regulations 9(2) of SEBI (Share Based Employee Benefit) Regulations, 2014.[i]

Informal Guidance by SEBI

(i) Interpreting Regulation 9(2) which allows cashless funding of ESOS or SAR and corresponding adjustment with sale proceeds, SEBI in the informal guidance stated that if the listed company permits, the Applicant may fund the cashless transaction at the exercise price, and adjust the same against the sale proceeds of some or all of the shares.

(ii) Also, SEBI went on to state that the SBEB Regulations do not have any maximum limit on amount per unit/security that may be funded.

The letter of SEBI can be read at:

As per the Informal Guidance [Scheme] 2003 of SEBI, the guidance provided is applicable only to the Applicant, and is should not be construed as a conclusive decision or determination of any question of law or fact by SEBI, and is also not an Order u/S 15T of SEBI Act, 1992.

[i] Regulation 9(2), SBEB: No person other than the employee to whom the option, SAR or other benefit is granted shall be 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 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.


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