Capital market regulator Sebi has barred employee welfare schemes and trusts of listed entities from purchasing their own shares from the secondary market, fearing stock manipulation.

Besides, Sebi will also ask listed companies to disclose all their existing employee benefit schemes involving stock purchase and align them in accordance with its ESOS and ESPS guidelines within a given time frame.

Sebi's ESOS (Employee Stock Option Scheme) and ESPS (Employee Stock Purchase Scheme) guidelines allow listed companies to reward their employees through stock option schemes and stock purchase schemes.

Sebi's crackdown against unregulated staff welfare schemes and trusts has comes amid concerns that some companies may be funding these schemes to deal in their own securities with an aim to manipulate the share price by engaging into fraudulent and unfair trade practices.

The regulations prohibit the companies from buying their own shares, unless it is consequent to reduction of capital and for certain regulatory requirements.

The companies are also not allowed to give any loan, guarantee or other financial assistance for purchase of any shares in the company or in its holding company.

However, these restrictions does not apply, if the company provides funds to a Trust set up for the benefit of the employees and the Trust utilise such funds for purchase or subscription of shares in the company or its holding company.

Sebi has come across instances of companies putting in place certain employee benefit schemes, pursuant to which they are setting up Trusts either by themselves or through third party service providers to deal in shares of the company.

Some of the companies have also asked Sebi whether these schemes, which may involve purchase from secondary market by the Trust or by third parties for the benefit of employees, would fall under its ESOS and ESPS guidelines.

As per Sebi guidelines, ESOS/ESPS Trusts can only distribute options/shares to its employees issued by the
company. Even under ESPS, the shares has to be issued by the company through a public issue or related methods. 

The guidelines are, however, silent on acquisition of shares from secondary market, although schemes involving purchase of shares from secondary market do not fall within the ambit of SEBI (ESOS and ESPS) Guidelines. 

Employees not eligible for ESOP/ESPS include promoters, directors and those directly or through relatives or corporate bodies having over 10 per cent stake in the company. 

However, these restrictions do not apply if the staff welfare schemes do not come under Sebi's ESOS or ESPS guidelines. As a result, Sebi fears, the promoters by virtue of their direct or indirect control over such Trusts can get to control additional voting power. (NDTV)