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10b5 Plan
Insider trading prohibitions restrict executives and other insiders of public companies from trading in securities while in possession of material, nonpublic information. Insiders who seek liquidity, portfolio diversification or otherwise desire to trade in securities for legitimate purposes may rely upon Rule 10b5-1 for an affirmative defense against insider trading allegations for trades executed pursuant to a pre-established arrangement or plan. Carefully constructed Rule 10b5-1 trading plans permit insiders to legally accomplish their trading goals while at the same time reducing the risk that sales by insiders will negatively impact a company’s stock price and market perception. This white paper addresses some of the frequently asked questions regarding 10b-501 trading plans. What is a "trading plan?" A written program for trading securities designed to gain the protections of Rule 10b5-1's affirmative defenses against insider trading. A trading plan is the most commonly used mechanism for seeking the protections of Rule 10b5-1's affirmative defenses. Basically, the plan sets forth the parameters for purchases and/or sales of the company's securities. The plan may be crafted in a variety of ways as long as the person does not retain discretion over the plan's future transactions. A trading plan can be simple ("buy x shares on x date") - or complex ("sell y shares whenever the company's stock falls first below $ z price and the Dow Jones Index remains above 9500 points for 7 straight business days"). Source: SEC Release No. 34-43154 entitled "Selective Disclosure and Insider Trading" at III.A.2. Footnote 116 of the Release makes clear that the person who creates a trading plan must not retain any future discretion over the purchases or sales to preserve the protections of the Rule's affirmative defenses. SEC Manual of Publicly Available Telephone Interpretations, (fourth supplement), telephone interpretation no. 17 makes clear that unlike a binding contract or instruction, a trading plan must be in writing to gain the affirmative defense protections of the Rule. What is the difference between a "trading plan" and a "trading window?" A trading plan involves a prescribed set of criteria for engaging in purchases or sales established by the trader - while a trading window is established by an issuer and permits discretionary trading in its securities during a prescribed period of time. Some companies have voluntarily adopted insider trading policies to protect themselves from controlling person liability under Section 10(b) and Rule 10b-5. These insider trading policies often include pre-clearance procedures for key executives as well as trading windows for various levels of employees/stockholders. Typically, the timeframe for a trading window begins a couple of days after a company announces its quarterly or year-end financial results and often continues for one or two weeks. During this window period, employees/stockholders are generally permitted to trade in the company's securities because the presumption is that no one should be in possession of material nonpublic information. During all other times, commonly referred to as [continued...] Want to know more? Download the White Paper "10b5 Plan" for just $9.95. People who ordered this paper also ordered: |
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