Directors /Officers as defined under section 2(30) of the Companies Act, 1956 /Designated employees as mentioned in the code of conduct of the respective companies not to enter into an opposite transaction for a period of six months since the last transaction

The Securities and Exchange Board of India (SEBI) had amended the SEBI (Prohibition of Insider Trading) Regulations, 1992 (Regulations) vide Notification No. LAD-NRO/GN/2008/29/44801 dated 19 November 2008 (Amendment Regulations). SEBI has now by way of questions and answers issued a clarification on Clause 4.2 of Part A, Schedule I of the Regulations (Clause 4.2) dated 24 July 2009.

The amended Clause 4.2 states that all directors, officers and designated employees who buy or sell any sharers shall not enter into an opposite transaction during the next six months. In the case of subscription in the primary market, they are required to hold their investments for a minimum period of 30 days, which would begin when the securities are actually allotted.

SEBI has now clarified the following:

Ø      The restriction in Clause 4.2 is intended for secondary market transactions. The restriction in Clause 4.2 is not applicable in case of exercise of employee stock option schemes (ESOPS) and sale of shares acquired through ESOPS.       An employee could subscribe to ESOPS even if he has sold shares during the previous six months; however, if he sells the shares acquired through ESOPS, the restriction on buying would apply for the next six months;

Ø      The restriction of six months on sale of shares would apply from the date of the last purchase and not the first purchase, in case of consecutive purchase of shares, and vice versa for purchase of shares;

Ø      Shares which were acquired before the Amendment Regulations came into effect may by sold within the period of 6 months, if permitted under the code of conduct of the company;

Ø      The minimum holding period of 30 days specified in Clause 4.2 is applicable for initial public offers; in the case of bonus issues, ESOPS and rights issues, the company may decided the holding period as per its code of conduct;

Ø      The waiver clause in Clause 4.3 of Part A, Schedule I of the Regulations applies to the entire Clause 4.2; therefore, in case of personal emergencies, the Compliance Officer may extend the waiver to the restrictions for purchase of shares as well, provided the reasons are recorded in writing and there is no element of insider trading; Company Secretary is the compliance officer of the Company and is accordingly empowered to waive the restrictions in case of personal emergencies.    

Ø      A designated employee is not restricted from dealing in NIFTY / SENSEX index futures, provided the designated employee complies with the code of conduct of the company;

Ø      If a designated employee is holding derivative positions before the Amendment Regulations were notified, the company may take a view about liquidating the derivative position before maturity or holding it until maturity.

All Companies need to bring this clarification of SEBI to the knowledge of the Directors, Officers as defined under section 2 (30) of the Companies Act, 1956 and the designated employees. Mere disclosure of transactions would not comply with the requirements of Insider Trading Regulations and from now on,  one has to hold on to  the purchases for a period of six months before getting the opportunity to dispose off the shares of the Company.