Warrant-to-Equity Conversion Not Deemed Corporate Action As It is Not Caused Due to Any Action Taken By Company | SEBI

Informal Guidance No. SEBI/HO/ISD-POD-2/P/OW/2023/0000042307/1, Dated 13.10.2023

A company engaged in business of stock broking came up with issuance of equity shares along with detachable warrants, via rights issue. The allotment of shares was completed on 24.03.2023. The company sought through informal guidance whether the act of conversion of warrants into equity shares forms part of corporate action.

Also, a query was raised that if the DP converts his warrants into equity shares prior to passing of six months from the date of allotment, will this transaction be considered as contra trade?

The SEBI directed that such conversion shall not be treated as corporate action since it is not caused due to the action taken by the company. Further, both the transactions, i.e., allotment of shares and exercising of warrant shall be treated as acquisition of securities (akin to buy trades).

Therefore, the exercise of warrants shall not be considered as contra-trade with respect to allotment of shares under rights issue as both the transactions are in nature of acquisitions without any corresponding transaction of sale.

Further, it was directed that act of conversion of warrants to equity shares will be in the nature of an acquisition (akin to buy trades). Therefore, any sale transaction prior to the passing of six months from the date of allotment of shares (pursuant to the conversion of warrants into equity shares) shall attract the restriction of contra-trade.

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