The new insider trading rules came into effect from 01st of April this year and has some important recommendations pertaining to the trading of shares by insiders during the cooling period around the declaration of results.

What the new insider trading rules say?

Currently when a company announces its quarterly results, the insiders in the company including the promoters and the directors of the company are barred from trading in these shares 2 days prior to the results and up to 2 days after the results declaration. Effective, the current practice is that such insider trades will be banned for a period of 4-5 days. The new insider trading rules make this cooling period applicable from the close of the quarter itself and will continue up to 2 days after the announcement of the results. For example, if the quarter ends on June 30th and the results are declared on July 26th then the insider trades will remain shut from June 30th to July 28th, which is a period of 28 days during which insiders cannot trade in that stock. This will be applicable to each quarterly result and also to any other corporate actions like mergers, dividends announcements, amalgamations, stock splits, bonus issues etc.

But how does that impact pledging of shares by promoters?

That is the big catch in the new insider trading regulations. In the old system, pledging of shares was not included as part of insider trades; but in the new system, any pledging of shares by the promoters will attract the stipulations of the Insider Trading Rules. That means; even in case of pledging of shares by promoters, there will be a bar on pledging of shares from the end of the previous quarter till two days after the actual results declaration. Considering that the average time taken is approximately 20-25 days to declare results, You have 1 month of pledging shutdown every quarter leading to 4-5 months of pledging shutdown for any company. That is what mid cap and small cap companies are most worried about. A final clarification from the MCA is still expected.