SEBI, in its recent no-action letter issued to KPIT Technologies Limited, considered the applicability of the trading restrictions under the SEBI (Prohibition of Insider Trading) Regulations, 2015, to trusts created to facilitate stock option schemes. In the case at hand, for meeting the needs of exercised stock options, the trust either applies to the company for issuance of shares or acquires shares through secondary market purchases.
Trading restrictions under the PIT Regulations, 2015 are not applicable to an employee either at the time of exercise of stock options or at the time of sale of the shares so acquired. However, as the trust is deemed to be an insider and is to be treated similarly to a promoter, trading restrictions are ordinarily applicable when the trust acquires shares. SEBI, in the no-action letter, has observed that the trust is not undertaking the trades in its own capacity but is acting solely on behalf of the employees to give effect to the exercise of stock options. Therefore, it is now clarified that acquisition of shares by the trust to give effect to exercise of stock options are not subject to the trading restrictions under the PIT Regulations.
As the clarification is in the form of a no-action letter, the same is not binding on SEBI and its decisions in the future. However, it provides an insight into SEBI’s outlook on the treatment of stock option trusts and is another step in the right direction in making stock options a viable means of aligning employee interests with those of the company.