Summary: SEBI provided informal guidance on its PIT Regulations, 2015 by Guideline No. SEBI/HO/ISD/ISD-PoD-2/P/OW/2025/4262/1 Dated 07th February 2025, to a listed entity concerning transactions by a promoter and designated person (DP), X. X acquired shares in November 2024 and intended to gift shares to daughter ‘A’ (promoter group) in December 2024, while daughter ‘B’ (immediate relative) planned to sell shares. SEBI clarified that gifting shares constitutes ‘trading’ and is subject to contra trade restrictions for X. Contra trade rules, requiring a six-month gap between buying and selling/gifting, apply collectively to a DP and immediate relatives; thus, B’s sale within six months of X’s acquisition would breach this unless exempted. While all promoters are DPs, other promoter group members are DPs only if they possess Unpublished Price Sensitive Information (UPSI). SEBI declined to opine on hypothetical scenarios regarding financial independence or standalone gift transactions within the promoter group. Key takeaways reinforce that promoters are DPs, other promoter group members are DPs based on UPSI access, a minimum six-month gap between buy/sell/gift is required for DPs and immediate relatives collectively, gifts are trading, pre-clearance for trades/gifts by DPs/immediate relatives is necessary, and compliance officers can grant relaxation under specific conditions.
Here’s a Analysis of the formal response from SEBI to a listed entity, addressing queries related to the SEBI (Prohibition of Insider Trading) (PIT) Regulations, 2015.
Background of the Transaction:
- X, promoter and designated person (DP), acquired shares on November, 2024. (First leg).
- X intends to gift some shares to daughter ‘A’ (also a promoter group member) on December, 2024. (Second leg).
- X’s other daughter ‘B'(immediate relative of X) intends to sell some shares in the open market. (Third leg).
Key Queries & SEBI’s Informal Guidance:
1.Does the gift by X to daughter ‘A’ constitute a contra trade? Does the acquisition of shares by way of gift by daughter ‘A’ constitute a contra trade?
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- Gifting of shares constitutes as dealing, and falls within the definition of trading under PIT Regulations.
- Contra trade restrictions apply to X.
- However, as per clause 10 of schedule B of PIT Regulations, compliance officer, if empowered by the Board of Directors, may grant relaxation, provided it doesn’t violate PIT Regulations.
2. Is daughter ‘B’s sale considered a contra trade due to earlier transactions?
- FAQ 42 of comprehensive FAQs clarifies that the contra trade restrictions are applicable to DP & Immediate relative collectively.
- Selling shares within 6 months of acquisition (even indirectly) would breach the contra trade rule unless exempted.
3. Are promoter group members not privy to UPSI considered Designated Persons?
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- All promoters are considered DPs.
- Other promoter group members are only DPs if they have access to UPSI.
4. Does financial independence of X’s daughter affect contra trade restrictions?
5. Is a standalone gift transaction within promoter group a contra trade?
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- No opinion given. SEBI declined to respond as it was based on hypothetical or insufficient facts.
Major Takeaways:-Contra Trade Compliance & Gift Transactions
1.Classification of Designated Persons (DP):
- All promoters are considered DP.
- Members of the promoter group are DP; only when privy to UPSI.
2. Contra Trade Monitoring:
- A minimum 6-month gap must be maintained between any buy and sell (or gift and buy/sell) of company securities by DPs and their immediate relatives. Contra trade rules apply collectively to a DP and their immediate relatives.
- Gifts are treated as trading under PIT Regulations.
3. Pre-Clearance Procedure:
- All trades (including gifts) by DPs or their immediate relatives must be pre-cleared by the Compliance Officer.
4. Relaxation Process:
- The compliance officer (if empowered by the board) can grant relaxation from contra trade restrictions, provided such relaxation does not violate PIT Regulations and the code of conduct mentions the same.
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