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 permitting 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.
Esops for founders after IPO
Sebi allowed startup founders to retain employee stock ownership plans (Esops) after their companies go public—a shift from current norms that classify founders as ‘promoters’ upon IPO filing, thereby disqualifying them from Esop eligibility.
This move recognizes the role of founders who often trade salaries for equity, and ensures continued alignment with shareholders. These Esops not only align founders’ interests with those of other shareholders, but also offer them a continuing incentive to drive long-term growth.
To avoid misuse, Sebi mandated a one-year cooling-off period between Esop grants and IPO filing. The concern was that issuing Esops shortly before an IPO could be exploited to enrich insiders ahead of a public listing.
Voluntary delisting of PSUs
In a move aligned with the government’s strategic disinvestment agenda, Sebi approved a framework for voluntary delisting of PSUs. The new mechanism, subject to shareholder approval and safeguards, marks a significant shift from a traditionally restrictive regime that made PSU delistings rare and difficult.
The government, which owns majority stakes in several PSUs, has been pursuing strategic exits as part of its broader economic agenda. The new framework could expedite government exits and improve the efficiency of the disinvestment process.
Greater flexibility for AIF co-investments
Sebi cleared new rules to enable AIFs to offer co-investment opportunities via a co-investment vehicle (CIV), giving large investors enhanced access to high-quality deals.
The co-investment route gives select AIF investors an opportunity to make additional investments in the same unlisted companies where the AIF has invested. This is done through a separate co-investment vehicle, which is structured as an independent scheme under an AIF.
In a related move, AIF managers can now offer advisory services across investor categories, regardless of whether their fund holds positions in those listed securities. This aims to boost operational flexibility and professional advisory capabilities.
Foreign investment in sovereign debt
Sebi approved a simplified framework for foreign portfolio investors (FPIs) investing exclusively in Indian government bonds (IGBs). Given the lower-risk nature of sovereign debt, registration and compliance norms will now be eased, making India more attractive to long-term global capital.
This reform is part of Sebi’s broader strategy to make Indian markets more accessible to low-risk global investors.
NSEL broker settlement
The board reviewed a potential settlement scheme for commodity brokers involved in the National Spot Exchange Limited (NSEL) case. With over 300 show-cause notices issued and recommendations from the Securities Appellate Tribunal (SAT), Sebi is considering resolution under its consent regulations framework.
