Mumbai: The Securities and Exchange Board of India (Sebi) on Friday clarified its earlier amendments for prohibition of insider trading and said that employees of a company who buy derivatives of the company’s shares would be allowed to buy or sell index futures of Nifty or the Sensex.
In order to prevent insider trading, Sebi had in November 2008 said that any employee buying of selling shares of his or her company would not be allowed to enter into an opposite transaction for the next six months. If the employee subscribes to the company’s shares through a primary market issuance such as an initial public offer (IPO) s/he would be required to hold the shares for a minimum of 30 days.
The regulator had also said that employees would not be allowed to take positions in derivative transactions in the company’s shares.
In its Friday note, however, Sebi said the restrictions on derivative transactions were imposed only for the company’s shares, and not for index futures or options.
Sebi said that the employees can deal in derivatives with underlying as an index, but that these transactions would be subject to the company’s code of conduct.
The market regulator also clarified that these restrictions are not applicable for the exercise of shares acquired by an employee through employee stock options, or ESOPs. An employee can accept ESOPs even if s/he has sold shares during the previous six months. But if the ESOP shares are sold, the six-month restriction on buying would become applicable, Sebi said, adding that the holding period could be relaxed in case of a personal emergency.
Sebi also clarified that if the shares were bought before the November amendments, the employee could be allowed to sell them subject to the company code of conduct.
During the January-March 2009 period, the total derivatives turnover stood at Rs25 trillion. Futures constituted 57.1% of the total number of contracts traded in the Futures & Options (F&O) segment. Stock future and index future accounted for 27.5% and 29.6% respectively, while options constituted 42.9% of total volumes.
During this period, Reliance, ICICI Bank Ltd, State Bank of India, Infosys Technologies Ltd and DLF Limited were the most actively traded stocks in the derivatives segment. Together they comprised 29.95% of the derivatives turnover in individual stocks.