Security and Exchange Board of India
If any promoter wants to pledge the shares even after closing the trading window of the stock market, then he will not face any problem. This information has been given by SEBI itself i.e. Security Exchange Board of India. SEBI has clarified that if a nominated person can pledge the shares even during the closure of the trading window to raise funds. But it will be permitted only if it is done with bona fide intentions and prior approval has been taken from the Compliance Officer. In fact, SEBI has issued informal guidance to Avenue Supermarts, from which this information has come to light.
When can you take a mortgage?
The inquiries also included purposes of pledging shares such as exercising employee stock options (ESOPs) or raising funds for personal needs. Sebi reiterated that such transactions can be permitted if they are considered bona fide and approved under the internal structure of the company. Sebi said that before giving approval, the compliance officer must confirm the bona fide intention of the transaction related to pledge or revocation of shares. The regulator said transactions involving pledge of shares are exempt from trading window restrictions provided they are undertaken in good faith, such as fund raising, and comply with insider trading rules and are pre-approved.
What is considered good intentions?
Sebi said that there is no absolute definition of what constitutes 'good faith' and its assessment needs to be done on a case-by-case basis. SEBI said that companies are required to categorize such transactions through their code of conduct, and it is the responsibility of compliance officers to evaluate the nature of each transaction. Sebi said the trading window restrictions, inter alia, do not apply to pledging of shares by designated persons (DPs), provided it is done in bona fide bonafide—such as raising funds—and is subject to prior approval from the Compliance Officer and relevant rules made by the Board.
Guidance was given to this company
This guidance comes following a request by the company, in which it had sought clarification under the Sebi (Informal Guidance) Scheme, 2025, whether pledging or freeing of shares would be permitted during the period when the trading window is closed, and how such transactions would be treated under insider trading rules. Regarding restrictions on 'contra trade', Sebi said that invocation of pledged shares changes their 'beneficial ownership', and can be treated as a sale. If there is any corresponding purchase or sale of shares six months before or after the redemption of shares, restrictions may apply to such transaction.
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