Regulatory update: SEBI – Review of adjustment of corporate actions for stock options

SEBI vide circular no. CIR/MRD/DoP-1/p/00108/2018 dated 5 July 2018 has reviewed the framework which was earlier in place for the adjustment of corporate actions for stock option contracts. In this regard the same was examined and placed before the Secondary Market Advisory Committee (SMAC) for discussion. Based on the recommendations of SMAC, it has been decided to review the mechanism of dividend adjustment for stock options.

The adjustment in strike price shall be carried out in the following cases of declaration of dividends;

  • Dividends which are declared at and above 5 (five) percent of the market value of the underlying stock; or
  • All cases of dividends, where the listed entity has sought exemption from the timeline prescribed under the provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulation, 2015
  • All other conditions stated in Circular No. SMDRP/DC/CIR-8/01 dated June21, 2001 and Circular No. SMDRP/DC/CIR-15/02 dated December18, 2002 shall remain unchanged.

Further the stock exchanges are advised to:

  • Take necessary steps which put in place the necessary system for the implementation of the same.
  • Make the amendments in the relevant bye-laws, rules and regulations for the implementation of the above decision.
  • The provisions of the circular should be brought to the notice of the member brokers of the stock exchange and the same should also be disseminated on the website.