Posts Tagged ‘10b5-1’

Five for Five

May 9th, 2013 | By

In the past five months, the NACD blog has received more than 15,000 views. Review the five most popular blog posts of the last five months to keep track of what directors find most important.

NACD Directorship 2020: Sustainability, Stakeholders, and Performance Metrics – Capitalism, and the role of the director, is changing–should the focus on “total shareholder return” shift to “total stakeholder return”?

Going Private? – In 2012, just 128 IPOs were made, a decrease from 154 IPOs in 2011. Last May, The Economist observed that this decline was part of a larger trend: the decline in popularity of the public company. Based on NACD surveys, see six key differences in the governance practices of public and private companies.

Discussion Topics for Compensation Committees in 2013 – Although numerous rules mandated by Dodd-Frank affecting the compensation committee have been implemented, directors still brace for those to come. As such, it is expected that compensation committees will maintain their focus on executive compensation in the coming year.

Alphabet Soup: A Director’s Guide to Financial Literacy and the ABCs of Accounting and Auditing – Can you keep track of accounting and auditing (A&A) acronyms? This handy guide provides tips for non-CPAs to achieve A&A literacy.

Investors Recommend Board Oversight of Trading Plans – New oversight responsibilities could be in store for directors. Although 10b5-1 trading plans have existed since 2000, a confluence of events has recently placed these plans in the regulatory spotlight.

Investors Recommend Board Oversight of Trading Plans

February 7th, 2013 | By

New oversight responsibilities could be in store for directors. Although 10b5-1 trading plans have existed since 2000, a confluence of events—including several Wall Street Journal articles and a letter from the Council of Institutional Investors (CII) to the Securities and Exchange Commission (SEC)—has recently placed these plans in the regulatory spotlight. As noted in NACD Directors Daily this week, the SEC and federal prosecutors have opened investigations into a number of insider transactions, many centered on 10b5-1 trading plans.

Rule 10b5-1 plans were created to deter corporate insiders from trading while in possession of material, non-public information. An executive must enter such a plan when not in possession of insider information, and he or she must specify the amount, price, and date for the securities transaction, and must not be able to alter or influence the terms of the plan. However, significant loopholes still exist; for example, executives maintain the ability to cancel a plan. The SEC said that because such a cancellation does not directly result in insider trading liability because the cancellation did not occur “in connection with the purchase or sale of a security” there was no insider trading. In a November 2012 investigation, the Wall Street Journal found that 46 percent of plan terminations occurred if plans called for a stock sale prior to the company releasing good news, and thus leaving money on the table, while only 11 percent of plan terminations occurred if the plan called for a stock sale prior to the company releasing negative news.

Following the Wall Street Journal investigation, in December CII submitted a comment letter to the SEC expressing concern over potential insider trading. In this letter, CII recommends that boards be responsible for the oversight of preset trading plans, stating “making boards explicitly responsible for the oversight of Rule 10b5-1 plans will make them more responsible to long-term shareholders and more vigilant in their oversight responsibilities.” This is the sole comment letter to the SEC on the topic.

In Mary Jo White’s nomination to head the SEC, President Obama highlighted her prosecutorial experience. Many have speculated on this, including the New York Times, which noted that with her appointment, “the president showed renewed resolve to hold Wall Street accountable for wrongdoing.”

With increased public scrutiny, federal investigations, and pressure on the SEC to implement stricter rules on 10b5-1 plans, directors may wish to increase how they monitor this area.