The Securities and Exchange Commission (SEC) has finalised amendments in the existing regulation on Employee Share Option Schemes (ESOS) and is likely to introduce them next month, SEC sources said.
"There’re gaps in the existing rules for ESOS and these don't reflect international best practices and, in a bid to rectify these gaps in publicly listed firms, the SEC called for comments on a consultation paper on new rules for ESOS sometime in July, Now some amendments to the rules have been made and we’ll be putting them out by next month,” a SEC source told the Business Times.
He said that the total number of ESOS to be issued by a listed entity should not ideally be more than 5% of the total number of shares issued by the listed firm, in keeping with international best practices.
"We have included the 5% threshold in the new regulation,” he said, adding that currently there isn’t any ceiling.
The new rules also contain that any single director/employee is only entitled for no more than 1% of the total number of shares issued though the ESOS.
A capital market expert noted that now, through ESOS, some major shareholders of listed firms manipulate control. "The new rules will give adequate protection to the investors,” he said.
The new regulation also provide for an implementation and monitoring by a committee/board when an ESOS is decided by a firm, with members who don't have a conflict of interest.
These rules have also covered some existing ESOS, which are not regulated under the present rules. "These schemes were incorporated before 2000, when the existing rules were established," the SEC source said.
He said that firms with such ESOS (currently) can purchase their own shares from the market and then allocate these shares to the employers.
Now with the new rules they must issue new shares,” he added.
Some firms where ESOS are held in share trusts are recommended to allocate them to the staff or dispose them (in the stock market). "This particular rule stops anyone from manipulating a listed firm’s control through an ESOS,” the capital market expert said.