Sebi clarifies trading window norms for pledged share transactions

Sebi said designated persons may pledge shares during trading window closure for bona fide purposes such as raising funds, subject to prior approval and compliance checks

The Securities and Exchange Board of India (Sebi) has clarified that pledging of shares by designated persons for raising funds may be permitted during trading window closure if undertaken for bona fide purposes and subject to pre-clearance by the compliance officer, according to an informal guidance issued to Avenue Supermarts. 

The query also covered pledging of shares for purposes such as exercising employee stock options (ESOPs) or raising funds for personal requirements. Sebi reiterated that such transactions may be permitted where classified as bona fide and cleared under the company’s internal framework. 

Sebi said the compliance officer must ascertain the bona fides of transactions involving creation or revocation of pledge before granting approval. 

 

The regulator said transactions involving pledge of shares are exempt from trading window restrictions where they are undertaken for bona fide purposes such as raising funds, provided they comply with insider trading regulations and receive prior approval. 

Sebi noted that the determination of what constitutes a bona fide purpose is not exhaustively defined and must be assessed on a case-by-case basis. It said companies are required to classify such transactions through their code of conduct, with compliance officers responsible for evaluating the nature of each transaction. 

“Trading window restrictions inter alia do not apply to pledge of shares by DPs if done for bona fide purpose such as for raising funds and subject to pre-clearance by the compliance officer and compliance with the respective regulations made by the Board,” said Sebi. 

The guidance follows a request from the company seeking clarity under the Sebi (Informal Guidance) Scheme, 2025, on whether creation and revocation of pledge during trading window closure periods would be permissible and how such transactions would be treated under insider trading norms. 

On contra trade restrictions, Sebi said invocation of pledged shares results in a change in beneficial ownership and may be treated akin to a sale. Such transactions could attract restrictions if there are corresponding acquisitions or sales within a six-month period before or after invocation.