The contra-trade rule under Clause 10, Schedule B of the Model Code of Conduct under the SEBI (PIT) Regulations, 2015, prohibits a person from entering into an opposite transaction in securities within six months of having sold/bought securities. Given the broad definition of trading under the PIT Regulations, 2015 and the absence of any exemption pertaining to ESOPs, the contra-trade was being made applicable even to exercise of ESOPs. However, SEBI released a Guidance Note dated 24 August, 2015, clarifying that the contra-trade rule is not applicable to exercise of ESOPs and the sale of shares so acquired. The position is similar to that under the earlier regime, where exercise of ESOPs and the sale of those shares were exempted transactions in relation to the contra trade rule. SEBI has clarified that exercise of ESOPs does not amount to “trading” for the purposes of the PIT Regulations, 2015. Accordingly, a designated person may now carry on contra trades in their ESOP shares within a period of six months, without being hit by the contra-trade rule under the PIT Regulations, 2015. However, the disclosure related provisions under Chapter III of the PIT Regulations will still have to be complied with.

The Guidance Note makes a few other clarifications, such as, a derivative contract that is cash settled on expiry shall be considered as a contra-trade. However, the contra-trade restriction shall not be applicable in situations such as buy back offers, open offers, rights issues, FPOs, bonus etc. of a listed company. Moreover, it has been clarified that the contra trade rule will be applicable not only to designated persons of a listed company, but also to designated employees of market intermediaries and other persons who have to handle UPSI during business operations.

This clarification from SEBI has removed the uncertainties and difficulties faced by industry participants in interpreting and enforcing the contra-trade rule with respect to ESOPs. Listed companies, especially, non cash-rich ones where ESOPs form a significant aspect of employee compensation, can heave a sigh of relief as designated persons can exercise ESOPs freely, without being hindered by the contra-trade rule.

Public money and listing for start-ups [25]
After a prolonged debate as to how best to facilitate start-up funding through the public markets, SEBI has finally released new listing norms for start-ups with an intention to provide a viable domestic avenue for such companies to raise capital. To this end, SEBI has issued the Fourth Amendment to ICD