Sebi provides clarity on ESOP exercise

Allaying concerns of corporates, Sebi has said sale and purchase of shares under ESOP would not be considered as 'trading' while disclosure requirements need to be complied with under the new insider trading regulations.
Sebi's clarification, which was discussed at its board meeting on Monday, would provide relief to market participants who have been seeking guidance on interpretation of some provisions related to insider trading norms.
"Exercise of ESOPs shall not be considered to be 'trading' except for the purposes of Chapter III of the regulations. However, other provisions of the regulations shall apply to the sale of shares so acquired," Sebi said in a three-page guidance note.

Chapter III of the insider trading norms pertain to disclosure requirements.
After the board meeting on Monday, Sebi had said the decision on ESOP (Employee Stock Options Programme) would remove the difficulties of the designated persons with regard to exercise of ESOPs and the sale of shares so acquired.
"Where a designated person acquires shares under an ESOP and subsequently sells/pledges those shares, such sale shall not be considered as contra-trade, with respect to exercise of ESOPs," the note said.

In case a designated person has sold or purchased shares, that individual can subscribe and exercise ESOPs at any time after such a transaction, without attracting contra-trade restrictions.

According to the regulator, any derivative contract that is cash-settled on expiry would be considered to be a contra-trade while trading in index futures or such other derivatives where the scrip is part of such derivatives, need not be reported.
On whether contra-trade is allowed within the duration of the trading plan, Sebi said that any trading opted by a person under trading plan can be done only to the extent and in the manner disclosed in it. There would be exception in the case of pledging of securities.
For the purpose of calculation of threshold for disclosures relating to pledge under Chapter III, Sebi said the "market value on the date of pledge/revoke transaction should be considered".

The Securities and Exchange Board of India (Sebi) also said that a company's board of directors would be the approving authority for cases where trades are done by the compliance officer or his immediate relatives, who are insiders.