Sebi bars companies' trusts from buying own shares

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 timeframe.

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.