The Stock Market regulator, Securities Exchange Board of India (“SEBI”) has, vide its circular no.  CIR/MRD/DP/ 05/2012 dated February 01, 2012 come out with a guideline - “offer for sale of shares by promoters through the stock exchange mechanism” (the “Guidelines”). 

The Guidelines are applicable for sale of shares by the promoters of a listed company only subject to eligibility as given below: 

1. Only promoters eligible to trade and required to increase minimum level of public shareholding in terms of Rule 19(2)(b) and Rule 19A of the of Securities Contracts (Regulation) Rules, 1957 read with Clause 40A (ii)(c) of the Listing Agreement.

Further, Rule 19(2)(b) prescribes requirements for listing of shares on any recognized stock exchange and Rule 19A requires every listed company to have minimum public shareholding of 25%.

2. Promoter/ promoter group entities of top 100 companies based on average capitilisation of the last completed quarter.  With this circular, SEBI has provided a welcome route to the promoters of listed companies to ensure minimum 25% of public shareholding. Further, with a dedicated separate window exclusively for sale of shares by the promoters/promoter group entities, the process can also be conducted faster. Promoters will save on cost and hassles by avoiding public offerings. 

Therefore, The Guidelines have prohibited sale of shares between the promoter/ promoter group entities, which is obvious considering the reason behind issuing this circular.