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> Or set up a pre-defined share sale plan in one of these windows, covering the future, and don't touch it. The insider trading training I did at one company s

> Or set up a pre-defined share sale plan in one of these windows, covering the future, and don't touch it. The insider trading training I did at one company specifically mentioned this is against SEC rules and is insider trading. I am unsure if that is actually true, but that is what the company expected us to operate as.

tempsy 5y ago
i follow the market pretty closely and executives and board members often have pre-defined sales plans that will sell shares right before earnings. not sure if it’s open to employees. personally don’t think it’s fair but it seems to be legal as is.
toast0 5y ago
Setting up a 10b5-1 plan with your broker when you don't have material, non-public information, and your broker follows the plan is the way to trade in employer stock with a solid footing if you regularly have material non-public information. (Such as, in this case, a major change in business metrics). Your company may not permit regular employees to setup a 10b5-1 plan, I think they need signof by corporate legal; and in that case, any trading that happens in your account could be considered insider trading based on your knowledge when the trade executes (or possibly when it's entered/while it's open... details are sort of fuzzy), regardless of if you or your agent made the trade, or even if the trade was automatic due to margin or something.
- ethbr0 5y ago
  IANAL, but a 10b5-1 plan (thanks for reminding me of the naming!) is an affirmative defense, that removes insider trading liability if a trade satisfies all of its conditions. Effectively, (1) the plan is created when one does not have material nonpublic information, (2) that it... "- Specified the amount of securities to be purchased or sold, price, and date; - Provided a written formula or algorithm, or computer program, for determining amounts, prices, and dates; or - Did not permit the person to exercise any subsequent influence over how, when, or whether to effect purchases or sales; provided, in addition, that any other person who exercised such influence was not aware of the material nonpublic information when doing so." [0] ... and (3) that the trade as executed did not attempt to subvert (2). So it's not really something you need to have your corporate legal agree to for it to be valid (although legal may require or encourage you to do so, to limit exposure of company officers botching it). You simply have to set up a plan that satisfies the test with your broker, then claim it as your defense if the SEC comes after you. A note on a napkin saying "Sell 5,000 shares 3 days before every earnings call, as long as the RSI is >50" would seem to suffice, provided you didn't subsequently meddle. [0] https://www.federalregister.gov/documents/2022/02/15/2022-01140/rule-10b5-1-and-insider-trading https://www.federalregister.gov/documents/2022/02/15/2022-01...
  - sidewndr46 5y ago
    The training I went through explicitly laid out this scenario and explicitly classified it as insider trading if material nonpublic information is found that would make those trades desirable to execute. I've never heard of the SEC prosecuting someone for losing money due to insider trading. Again, this probably isn't the case legally. But it was enough for an extremely powerful corporation to deem it as such.
    - ethbr0 5y ago
      You'd have to look up recent case law, as with all SEC rules, which may be what your company is referring to. But that's the explicit design of 10b5-1: that it provides coverage if all its requirements are satisfied. The SEC can charge you for making favorable trades according to a predefined plan, but they're going to have an uphill battle convicting you, if you kept your broker at arms length and didn't alter your plan beyond what was initially communicated.
- joshuamorton 5y ago
  I think the issue may be that a 10b5-1 is the only way to do this without avoiding liability. Just having your broker make trades for you, even if they're "scheduled", isn't enough.
  - erik_seaberg 5y ago
    It’s pretty important that you can’t schedule a bunch of trades and then cancel the ones that end up looking bad with nonpublic info.

tempsy 5y ago

i follow the market pretty closely and executives and board members often have pre-defined sales plans that will sell shares right before earnings. not sure if it’s open to employees. personally don’t think it’s fair but it seems to be legal as is.

toast0 5y ago

Setting up a 10b5-1 plan with your broker when you don't have material, non-public information, and your broker follows the plan is the way to trade in employer stock with a solid footing if you regularly have material non-public information. (Such as, in this case, a major change in business metrics). Your company may not permit regular employees to setup a 10b5-1 plan, I think they need signof by corporate legal; and in that case, any trading that happens in your account could be considered insider trading based on your knowledge when the trade executes (or possibly when it's entered/while it's open... details are sort of fuzzy), regardless of if you or your agent made the trade, or even if the trade was automatic due to margin or something.

ethbr0 5y ago
IANAL, but a 10b5-1 plan (thanks for reminding me of the naming!) is an affirmative defense, that removes insider trading liability if a trade satisfies all of its conditions. Effectively, (1) the plan is created when one does not have material nonpublic information, (2) that it... "- Specified the amount of securities to be purchased or sold, price, and date; - Provided a written formula or algorithm, or computer program, for determining amounts, prices, and dates; or - Did not permit the person to exercise any subsequent influence over how, when, or whether to effect purchases or sales; provided, in addition, that any other person who exercised such influence was not aware of the material nonpublic information when doing so." [0] ... and (3) that the trade as executed did not attempt to subvert (2). So it's not really something you need to have your corporate legal agree to for it to be valid (although legal may require or encourage you to do so, to limit exposure of company officers botching it). You simply have to set up a plan that satisfies the test with your broker, then claim it as your defense if the SEC comes after you. A note on a napkin saying "Sell 5,000 shares 3 days before every earnings call, as long as the RSI is >50" would seem to suffice, provided you didn't subsequently meddle. [0] https://www.federalregister.gov/documents/2022/02/15/2022-01140/rule-10b5-1-and-insider-trading https://www.federalregister.gov/documents/2022/02/15/2022-01...
- sidewndr46 5y ago
  The training I went through explicitly laid out this scenario and explicitly classified it as insider trading if material nonpublic information is found that would make those trades desirable to execute. I've never heard of the SEC prosecuting someone for losing money due to insider trading. Again, this probably isn't the case legally. But it was enough for an extremely powerful corporation to deem it as such.
  - ethbr0 5y ago
    You'd have to look up recent case law, as with all SEC rules, which may be what your company is referring to. But that's the explicit design of 10b5-1: that it provides coverage if all its requirements are satisfied. The SEC can charge you for making favorable trades according to a predefined plan, but they're going to have an uphill battle convicting you, if you kept your broker at arms length and didn't alter your plan beyond what was initially communicated.
joshuamorton 5y ago
I think the issue may be that a 10b5-1 is the only way to do this without avoiding liability. Just having your broker make trades for you, even if they're "scheduled", isn't enough.
- erik_seaberg 5y ago
  It’s pretty important that you can’t schedule a bunch of trades and then cancel the ones that end up looking bad with nonpublic info.