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When insiders own company stock, diversifying their shares requires diligence and care. A 10b5-1 trading plan is a vehicle for executives to manage concentrated stock positions. Today, these plans are on the rise. With increased scrutiny of Insider trading, firms are adding oversight and providing clearer guidance in how plans are structured.
The Morgan Stanley/NASPP 10b5-1 Survey of 325 companies, conducted in Spring 2015, found that the use of 10b5-1 trading plans is growing. A majority of firms both review and approve each plan. Oversight is common practice. Firms want to continue to offer 10b5-1 plans as long as they remain within the boundaries of the company’s insider trading policies.
Here is a brief summary of the survey findings. Click here for the full report: MorganStanley 10b5-1 Survey Results Oct2015.
- 87% of the companies surveyed report they review and approve 10b5-1 plans in accordance with their insider trading policies.
- As of December 31, 2014, 25% of all public companies and 54% of the S&P 500 companies have 10b5-1 plans.
- Although the majority of the survey firms say that more than 20 employees are eligible to establish 10b5-1 plans, 49% have fewer than 5 plans in place.
- Only 19% of the firms surveyed require officers to sell through 10b5-1 plans, and only 14% require directors.
- 68% require a cooling-off period (i.e. a mandatory waiting time between when the plan is signed and the date of the first trade) and of these 46% require a wait of 1-2 months.
- The median range of plan length is a minimum of 6-8 months and a maximum of 13-18 months.
- Although directors and officers may be subject to different standards, 53% of firms allow employees to sell shares outside of their plan during an open window.
For an additional perspective on 10b5-1 plans see the article by Richard Friedman of the Ayco Company entitled: Insider Trading the and Use of 10b5-1 Plans.