After the SEBI (Prohibition of Insider Trading) Regulations, 2015 (the “Regulations”) were issued that came into effect on May 15, 2015, SEBI received several requests from companies and their advisors on certain operational issues that came to the fore in the implementation of the Regulations. In order to address those, SEBI issued a Guidance Note earlier this week.One of the more prominent issues clarified in the Guidance Note relates to the treatment of employee stock options (ESOPs). SEBI has stated that the exercise of ESOPs by employees shall not be considered “trading” except for the purposes of disclosures. However, the other provisions of the Regulations shall apply to the sale of shares so acquired. The principal relaxation relates to the “contra trade” requirements which impeded the sale of shares by employees within six months of acquiring shares in the company upon exercise of stock options. Now, an employee can exercise ESOPs and acquire shares within six months of a previous sale of shares. Similarly, the employee can also exercise the ESOPs and sell the shares so acquired within a period of six months. This increases the flexibility to employees, as it allows them to enjoy liquidity without being restricted by holding (lock-in) requirements imposed by contra trade norms.The Guidance Note also clarifies questions relating to contra trades in derivatives and with respect to buyback of shares, open offers, rights issues, follow-on public offerings, etc. by listed companies. It also deals with issues relating to pledge and other miscellaneous matters.Employee Ownership: While on the issue of ESOPs, the current issue of the Economist has an interesting columnhighlighting the pros and cons of employees owning shares in their companies.