Easier Startup Esops, Quicker PSU Delisting

Set of Sebi measures to improve efficiency, aid startup participation

- Neha Joshi

The Securities and Exchange Board of India (Sebi) on Wednesday cleared a series of regulatory reforms aimed at improving market efficiency, investor access, and startup participation. Key among them were easing restrictions on employee stock options (Esops) for startup founders after listing and authorizing voluntary delisting of public sector undertakings (PSUs).

The board, led by Tuhin Kanta Pandey in his second meeting as Sebi chairperson, also approved changes to allow greater flexibility for alternative investment funds (AIFs), and eased compliance for foreign investors in sovereign debt.

Sebi allowed founders to retain Esops after their companies go public, changing rules that classify founders as 'promoters' upon IPO filing and disqualifies them from Esop eligibility.

The proposals may also help companies intending to list in India after shifting their domicile here, and relax certain requirements relating to share-based benefits granted to founders before the company goes for IPO.

The move recognizes the role of founders who often trade salaries for equity, and ensures continued alignment with shareholders. Esops align founders' interests with those of other shareholders, and offer them a continuing incentive to drive long-term growth.

Sebi mandated a one-year cooling-off period between Esop grants and IPO filing, so that insiders do not enrich themselves with Esops before IPO.