SEBI Clarifies Gift of Shares by Promoter May Trigger Contra Trade Rules

Informal Guidance No. SEBI/HO/ISD/ISD-PoD-2/P/OW/2025/4262/1, Dated: 07.02.2025

The Securities and Exchange Board of India (SEBI) has issued informal guidance clarifying the regulatory treatment of off-market inter-se gifts of shares between individuals forming part of the promoter group under the Prohibition of Insider Trading (PIT) Regulations, 2015.

1. Background – Gift of Shares Within Promoter Group

A query was raised regarding whether an off-market gift of shares by a promoter to his daughter—both being members of the promoter group—would amount to a contra trade under the SEBI (PIT) Regulations. The question arose in the context of compliance with Clause 10 of Schedule B of the Regulations.

2. SEBI’s Clarification – Gift Is a ‘Trade’ Under PIT Regulations

SEBI clarified that –

• Gifting of securities is considered a form of ‘trading’ under Regulation 2(1)(l) of the PIT Regulations, which includes an extensive definition encompassing gifts and other off-market transfers.
• Therefore, any gift transaction falls within the scope of insider trading regulations, and may trigger restrictions applicable to trading activity.

3. Contra Trade Restrictions and Role of Compliance Officer

Clause 10 of Schedule B under Regulation 9 prohibits contra trades—i.e., buying and selling (or vice versa) of securities within a six-month period—by designated persons, unless expressly permitted.

• While gifts are generally considered non-commercial transactions, they may still attract contra trade restrictions if a corresponding buy/sell transaction by the same person occurs within a six-month window.
• However, an exemption may be granted by the company’s Compliance Officer, if the transaction is deemed non-violative of the intent of the Regulations and the Code of Conduct adopted by the company.

4. Implications for Listed Entities and Promoters

• Listed companies must evaluate gift transactions within the promoter group in the context of contra trade restrictions.
• Promoters intending to gift shares must seek prior approval or exemption from the Compliance Officer, especially if any previous or future transaction may result in a potential contra trade scenario.

5. Conclusion

SEBI’s guidance reinforces the importance of pre-clearance and internal compliance mechanisms for promoter transactions, even when they are familial or seemingly non-commercial in nature. Companies are advised to ensure that their Code of Conduct under PIT Regulations clearly outlines the treatment and approval process for such transactions.

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