SEBI Clarifies Rules for Pledging Shares During Trading Window Closure

Guidelines on Pledging Shares

According to the Securities and Exchange Board of India (SEBI), promoters can pledge shares even after the trading window has been closed without facing any issues. This clarification was provided by SEBI, which stated that designated individuals may pledge shares for fundraising purposes during the trading window closure, provided it is done with good intentions and prior approval from the compliance officer. This information emerged from informal guidance issued to Avenue Supermarts.

When Can Shares Be Pledged?

The inquiry included reasons for pledging shares, such as utilizing employee stock options or raising funds for personal needs. SEBI reiterated that permission for such transactions can be granted if deemed to be in good faith and approved within the company's internal framework. The compliance officer must confirm the good intentions behind the transactions related to pledging or releasing shares before granting approval. The regulator noted that transactions involving pledged shares are exempt from trading window restrictions, provided they are conducted with good intentions, such as fundraising, and comply with insider trading regulations.

Defining Good Intentions

SEBI mentioned that there is no definitive definition of what constitutes 'good intentions,' and each case should be evaluated individually. Companies are required to categorize such transactions through their code of conduct, and compliance officers are responsible for assessing the nature of each transaction. SEBI clarified that trading window restrictions do not apply to designated individuals pledging shares, as long as it is done in good faith—such as for fundraising—and prior approval is obtained from the compliance officer, adhering to the relevant rules established by the board.

Guidance Provided to the Company

This guidance was issued following a request from the company, seeking clarification under the SEBI Scheme, 2025, regarding whether pledging or releasing shares during the trading window closure is permitted and how such transactions would be treated under insider trading regulations. Regarding 'contra trade' restrictions, SEBI stated that liquidating pledged shares alters their 'beneficial ownership' and could be considered a form of sale. If any other purchase or sale occurs within six months before or after the liquidation of shares, restrictions may apply to those transactions.