SEBI Tightens Rules On Pledged Shares, Lock-In Period Now Bars Sale & Transfer During Restriction

Mumbai: Market regulator SEBI has issued a new circular to strengthen investor protection in the stock market. The rule focuses on pledged shares and how lock-in periods are applied to them.

Under the new mechanism, if shares are under a lock-in period, they cannot be sold or transferred during that time, even if they are pledged. This removes confusion that existed earlier around such shares.

What has changed for pledged shares?

SEBI had earlier amended ICDR (Issue of Capital and Disclosure Requirements) regulations on March 21, 2026. This new circular provides the system to implement those changes.

If lock-in cannot be directly applied to pledged shares, they will now be marked as “non-transferable”. This means they cannot be moved or sold until the lock-in period ends.

Why this rule is important?

The main aim of this move is to protect investors and improve transparency in the market.

In many cases, promoters pledge their shares to raise loans. If they fail to repay, lenders may sell these shares, which can sharply impact stock prices. This creates risks for retail investors.

The new rule reduces such risks by ensuring clarity and restricting misuse during the lock-in period.

What companies need to do?

Companies will have to update their Articles of Association (AOA) to include these changes.

They must also inform lenders and pledge holders about the restrictions. In addition, all details must be clearly disclosed in offer documents so that investors are aware of the shareholding structure.

Role of exchanges and depositories

Depositories have already updated their systems to support this new rule.

Stock exchanges, depositories, merchant bankers, and companies will work together to ensure that the mechanism is properly implemented and followed across the market.

Impact on investors and markets

For investors, this rule brings greater safety and clarity. It will reduce sudden shocks in stock prices caused by forced selling of pledged shares.

Overall, the move is expected to boost confidence in the market and help investors better understand company risks.

Part of ease of doing business push

SEBI has said the change is also part of its effort to improve ease of doing business. By making rules clearer and more transparent, the regulator aims to create a smoother and more reliable market environment.