The NASPP Blog

Last week I blogged about yet another SEC enforcement action in the area of insider trading. For those looking for ways to further prevent insider trading by company employees, Rule 10b5-1 trading plans continue to be an attractive avenue toward this ambition.

A few months ago, in the November 11, 2016 edition of its newsletter Compensation & Benefits Digest, the Ayco Company examined and reported on Rule 10b5-1 best practices (“Update on Insider Trading and the Use of 10b5-1 Plans”). The firm is “seeing more companies tighten corporate compliance programs” in response to the SEC’s “significantly greater interest” in insider-trading enforcement (In my blog “White Collar (Stock) Crimes” of January 26, 2017, I suggested that insider trading is a low hanging enforcement fruit for the SEC, with advances in technology making it easier than ever before to identify suspect insider trades.) As part of this, Ayco has seen more companies develop policies on the use and design of 10b5-1 plans. Ayco also reported that of the 2,000 Section 16 insiders, including nearly 350 CEOs, for whom it provides financial-planning services, about 24% of the CEOs and 21% of other insiders (including directors) have had 10b5-1 plans in the past two years. The article also explains common and best practices for these plans in areas where there are no formal SEC rules, including:

• Waiting period before first trade: Most model plans suggest a 60-90 period.
• Time limits: Plans typically cover a period of three to six months and rarely longer than a year.
• Number of plans: Companies often require or request that executives have only one plan at a time.
• Transactions in and outside window period: Most companies permit trades under a plan even outside of a window period, although some companies may request the plans only be adopted during an open window.
• Trades outside of plan: During the plan term, other company stock transactions are restricted.
• Modification, termination, or suspension of plan: most companies take no position on whether a plan can be modified or cancelled, although some companies only allow this when the individual does not know material nonpublic information.

If your company policies and insiders haven’t fully embraced the concept of implementing Rule 10b5-1 plans, now may be a good time to reconsider.

-Jenn