Share-based benefit rules don't apply to notional issues: Sebi

Under the regulations, the scheme should involve dealing in or purchasing securities of the company directly or indirectly

Market regulator Sebi has said the notional stock appreciation right (SAR) unit issued by companies to its promoters or employees does not qualify for share-based employee benefit regulations.

Under the regulations, the scheme should actually involve "dealing in or subscribing to or purchasing securities of the company directly or indirectly".

The Securities and Exchange Board of India (Sebi) has conveyed its views in response to an 'informal guidance' sought by Mindtree on an employee benefit scheme, Phantom Stock Scheme, introduced by the company.

In August 2013, the stock appreciation rights scheme was introduced by Mindtree pursuant to which SAR units (Phantom Stock) were granted to six employees, who are also promoters of the company. The scheme was later renamed as Phantom Stock Program.

The company has issued notional SAR units at a pre- -determined grant price and the promoters are entitled to get cash payment for appreciation in the share price over the grant price for the awarded units, based on realisation of the specified revenue targets.

In its response, Sebi said share-based employee benefit regulations 'may not apply to the instant Phantom Stock Scheme' as it does not involve any actual purchase or sale of the equity shares of Mindtree.

In a separate case, the market watchdog said the managing director (MD) benefits scheme introduced by Saregama India does not qualify for the 'share-based employee benefit regulation' as it does not involve any actual purchase or sale of shares of the company.