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Overview

Restricted securities are shares (or other securities, for example loan notes) that are subject to certain restrictions, such as a risk of forfeiture if performance conditions are not met. These restrictions reduce the market value of the securities. If and when those restrictions are removed, the value of the securities goes up and the holder makes a notional gain if they continue to hold the securities, or an actual gain if the securities are sold.

The rules on restricted securities apply to employment-related securities, where:

1. •

   those securities are subject to restrictions

2. •

   those restrictions are lifted or varied, or the securities are sold

What is a ‘restriction’?

Securities are within the definition of restricted securities if they have restrictions which depress the market value of those securities, and which fall within one of three broad categories:

1. •

   forfeiture ― the securities must be transferred or there will be an action taken which forfeits the employee’s rights over the securities in such a way that they will receive less than market