Shareholders want Britain's Tesco Plc to tighten rules on when its executives can trade shares, after a senior manager sold stock eight days before the company issued a profit warning that hammered its share price.

Investors said the rules needed revising to put greater distance between the timing of share deals by executives and significant company announcements.

Companies need to be very careful about when they allow people to sell shares ahead of announcements, said Paul Mumford, a fund manager at Cavendish Asset Management. I think it reflects quite badly on them (Tesco).

Tesco, the world's third-biggest retailer, said on Friday UK Chief Operating Officer Noel Robbins did not know about the imminent profit warning when he sold around 202,000 pounds of shares and neither he nor the company had broken any rules.

Under British listing rules, executives are barred from trading in shares during so-called close periods between the end of a financial period and the reporting of results.

In the case of Tesco, which was reporting on its performance for just a seven-week trading period, that ran from January 7 to January 12.

Rivals like J Sainsbury and Marks & Spencer both imposed close periods of around four weeks ahead of their key Christmas trading figures -- although they were also reporting full quarterly figures.

One top-20 investor in Tesco said the group's chief executive, Phil Clarke, should forego his annual bonus to atone for an error in judgment in approving the sale and that he could not afford to put another foot wrong as he seeks to restore Tesco's fortunes.

ROCKY POSITION

He is in a bit of a rocky position at the moment and he is going to have to do something fairly rapidly to convince people that he has control of this company, the shareholder said on condition of anonymity.

It would be a nice gesture to pass on the bonus, he said, calling for a full and frank account of events that led up to the share sale.

I think Robbins was unwise to sell when he did and, in my view, he shouldn't have been allowed to deal, said another shareholder at a major fund manager, also speaking on condition of anonymity.

Clarke will have to do a lot more than cut his bonus ... The problems at Tesco are much more deep seated, he added.

Tesco declined to comment on whether it would review its rules on close periods, or whether Clarke would forego a bonus.

Several Tesco executives have sold a significant number of shares over the past year, including Finance Director Laurie McIlwee, head of retail services Andrew Higginson, U.S. chief Tim Mason and Internet head Ken Towle.

The top-20 investor said Clarke should consider bold strategic moves to rebuild confidence.

One of the things I think is very interesting is that the property that they own is worth more than the current share price ... and if they decide they do not need that to underpin a UK growth plan, maybe they could look to dispose some of that land bank, he said.

Cavendish's Mumford was wary of selling off stores, saying proceeds in the short-term could be offset by rental payments over the longer term.

He said he was a buyer of Tesco's shares around current levels due to the company's dividend yield, its diversification, its international growth opportunities and his belief the profit warning would galvanise its experienced management team.

It's a bit like tying a firework to the tail of a dog. The dog will start running when you light the fuse, he said.

Tesco shares closed down 1.4 percent at 312.35 pence, having dropped as low as 311 pence -- their lowest since March 2009. The stock yields around 4.6 percent on the basis of its payout for fiscal 2011.

(Reporting by Sinead Cruise and Mark Potter; Editing by David Holmes and Steve Orlofsky)