Gibson Dunn’s review of the S&P 100 insider trading policies filed over the past year pursuant to the newish SEC rule revealed the following practice trends (based on express disclosure):
Policy scope
- 96% of policies apply to directors, officers, and all employees of companies and their subsidiaries and, in some cases, certain affiliates, and their family members.
- 80% apply to legal entities such as trusts whose securities transactions are controlled or influenced by company personnel and, in some cases, their family members.
- 72% apply to contractors and/or consultants.
Covered transactions
Company securities
- Of the 97% of policies that address gifts, 70% subject gifts to the same restrictions as open-market sales, while 27% provide exemptions if certain conditions are met.
- 81% of the 86% of policies that address stock option exercises exempt exercises of options when there is no associated sale on the market, with the majority of those exempting both cash exercises and net share settlement and the balance exempting only cash exercises.
- All of the 44% of policies that address the topic expressly exempt vesting and settlement of equity awards, such as RSUs and restricted stock.
- Of the 44% of policies that address vesting and settlement of equity awards, 98% exempt withholding of shares for tax purposes.
Other companies’ securities
- 97% specifically include some form of restriction on trading in the securities of another company when the person is aware of material nonpublic information (MNPI) about that company or its securities.
- Of those companies, 79% prohibit trading in the securities of another company when the person is aware of MNPI about such company that was learned in the course of or as a result of the covered person’s employment or relationship with the company or relates to specific companies, while 21% don’t limit the prohibition based on how the information was acquired.
Blackout periods
- 85% subject directors, executive officers, and a designated subset of employees to regular quarterly blackout periods.
- A plurality (35%) of the 78% of policies that so specify start the quarterly blackout periods two to three weeks before quarter-end, while 26% start four or more weeks prior to quarter-end.
- 70% of the policies end the quarterly blackout periods one trading day after the release of earnings, while 13% end the periods after two trading days.
Preclearance requirements
- Nearly all policies (98%) have preclearance requirements; of those, 100% cover, at a minimum, directors and executive officers.
- 69% of policies subject a subset of the persons covered by blackout periods to the preclearance procedures, while 20% subject the same people to both.
Most commonly prohibited or restricted (subject to certain conditions and/or individuals) conduct
- 95% restrict hedging transactions | 91% restrict short sales | 88% restrict pledging and margin accounts | 44% restrict standing or limit orders | 19% restrict short-term or frequent trading
Rule 10b5-1 plans
- 93% of policies address 10b5-1 plans.
- 76% don’t restrict who can enter into a Rule 10b5-1 plan so long as requirements are met.
- 17% of policies limit the use of 10b5-1 plans to directors and designated officers.
- 8% of policies require directors and designated officers to trade only pursuant to Rule 10b5-1 plans.