(Prohibition of Insider Trading) Regulations, 2015 (the “Regulations”) were
issued that came into effect on May 15, 2015, SEBI received several requests
from companies and their advisors on certain operational issues that came to
the fore in the implementation of the Regulations. In order to address those,
SEBI issued a Guidance
Note earlier this week.
prominent issues clarified in the Guidance Note relates to the treatment of
employee stock options (ESOPs). SEBI has stated that the exercise of ESOPs by
employees shall not be considered “trading” except for the purposes of disclosures.
However, the other provisions of the Regulations shall apply to the sale of
shares so acquired. The principal relaxation relates to the “contra trade”
requirements which impeded the sale of shares by employees within six months of
acquiring shares in the company upon exercise of stock options. Now, an
employee can exercise ESOPs and acquire shares within six months of a previous sale
of shares. Similarly, the employee can also exercise the ESOPs and sell the
shares so acquired within a period of six months. This increases the
flexibility to employees, as it allows them to enjoy liquidity without being
restricted by holding (lock-in) requirements imposed by contra trade norms.
also clarifies questions relating to contra trades in derivatives and with
respect to buyback of shares, open offers, rights issues, follow-on public
offerings, etc. by listed companies. It also deals with issues relating to
pledge and other miscellaneous matters.
on the issue of ESOPs, the current issue of the Economist has an interesting column
highlighting the pros and cons of employees owning shares in their companies.