Companies fear new insider trading rules leave little time for employees to exercise ESOPs
The existing model code of conduct under Clause 3.2-6 of the Prohibition of Insider Trading Regulations, 1992, allows exercise of options during trading window closure period.
Less than 48 hours before the new insider trading rules kick in, compliance chiefs and CFOs of corporate India are at their wits end on how to navigate the minefield of regulations that deals a body blow to the most attractive remuneration strategy adopted by employers: ESOPs.
The dos and don'ts, they fear, would leave very little time for employees to exercise their stock options and make it virtually impossible for senior management members who are in possession of price-sensitive information to collect their shares that they are entitled to under ESOPs.
Rattled by the ironclad language of the regulations and the sensitivity, penalty and stigma attached to charges of insider trading, more than 50 compliance heads met on Tuesday evening to discuss the hurdles that companies could run into.
According to the new rules, employees cannot exercise the shares — which means simply applying to the company and collecting the shares once the options are vested and not 'trading' — if they are in possession of unpublished price-sensitive information; they can neither exercise ESOPs during the 45 days when the trading window is shut — which is typically the period stretching from the end of a quarter till 48 hours after the announcement of the quarterly results — nor can they procure ESOP shares from the company if they had sold the stock six months prior to that date. Also, once received, employees are barred from selling shares for six months.
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