Requirements of a 10b5-1 Trading Plan

By Marisa Ruffles. During our recent thought leadership webinar, 10b5-1 Survey Results: What do They Tell Us?, Christine Cognetti McCasland, Executive Director within Morgan Stanley’s Corporate Equity Solutions unit, and Mike Andresino, Partner at Posternak Blankstein & Lund LLP, reviewed results from a joint survey conducted by Morgan Stanley and the NASPP.

The purpose of the study was to gain a deeper understanding of the use of 10b5-1 plans and practices. The survey was conducted online and provided analysis from a total of 325 qualified participants. Respondents were required to work for an issuer with publicly traded stock that permits 10b5-1 trading plans.

Checklist Paper And Pen.Rule 10b5-1 provides a defensible action plan for companies and executives from insider trading liability, which is critical when executives are often exposed to material non-public information.  During the presentation, McCasland and Andresino laid out key requirements of a 10b5-1 plan.

  • Insider must not be in possession of material non-public information at the time of adoption of the 10b5-1 plan
  • The plan must be entered into in good faith and not as a defrauding scheme
  • Once in place, the insider can’t exert any subsequent influence over how the plan is executed
  • The 10b5-1 Plan must:
    • Specify share amounts, prices and dates, or;
    • Provide a written formula or algorithm for determining amounts, prices and dates, or;
    • Grant trading discretion to the broker (not common).

The stakes are high as companies and individuals convicted of insider trading face fines and even prison. 10b5-1 plans reduce the risk that an executive at your company will face an insider trading violation and are critical to protecting your company and your executives.

To stay in the clear, be sure your 10b5-1 plan adheres to these key requirements, and watch this on-demand webinar for more details on the 10b5-1 survey from Morgan Stanley and the NASPP.