Sebi clarifies ESOPs trading

Says there is no six-month cap on sale of or buying shares through this facility

 “Restriction in Clause 4.2 is intended for transactions in the secondary market and hence it is not applicable for the exercise of ESOPs and sale of these shares,” Sebi said.
Sebi clarified that the employee can subscribe to the employee stock option plans (ESOPs) even if he has sold shares during the previous six months. Clause 4.2 reads: “All directors/ officers/ designated employees who buy or sell any number of shares of the company shall not enter into an opposite transaction, that is, sell or buy any number of shares during the next six months following the prior transaction.

“All directors/ officers/ designated employees shall also not take positions in derivative transactions in the shares of the company at any time.

Code of conduct

“In the case of subscription in the primary market (initial public offers), the above mentioned entities shall hold their investments for a minimum period of 30 days. The holding period would commence when the securities are actually allotted”.

However, Sebi said, “...it may be noted that once shares acquired through ESOPs are sold in the market, the restriction on buying would become applicable for the next six months.” Also, while exercising ESOPs, the code of conduct framed by the company and the fundamental principles for prohibition of insider trading as specified in the Regulations must be complied with, In the event of multiple purchases of shares on different dates before entering the sale transaction/s, the restriction of six months on the sale of shares would apply from the date of the last purchase and not the first purchase. “The same is true in case of sale of shares on two different dates i.e. the restriction of six months on purchase of shares would apply from the date of the last sale,” it said.

These and some other clarifications were made in the wake of queries from companies seeking clarification on the interpretation of amendments made in Clause 4.2 of Sebi (Prohibition of Insider Trading) Regulations on November 19, 2008.