performensation insider trading pyramid
TRANSCRIPT
P R I V A T E C O M P A N Y C O M P E N S A T I O N
THE INSIDER TRADING PYRAMID
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©2012 Performensation
This insider pyramid provides a summary of basic restric5ons placed on the trading of an employer's stock. Each area in the pyramid is subject to all restric5ons to its right and those below it.
Possession of material, nonpublic informa3on regarding the Issuer by any officer, director or employee prohibits the individual from par3cipa3ng in the purchase or sale of stock, including most types of stock op3on exercises.
General Popula,on: This applies to anyone, inside or outside of the company, who may wish to place a trade in the company's stock. The SEC has declared it illegal to place a trade with any company's stock if you have informa3on about that company that would cause you to buy or sell stock that has NOT BEEN FORMALLY RELEASED TO THE PUBLIC. A formal release to the public would include a press release or statement by an authorized company official. Generally companies allow transac3ons following a period of 1 or 2 business days aIer the informa3on has been released to the public.
Company Designated Insiders: These are people who are not subject to any formal SEC guidelines (other than those men3oned above), that the company considers to have regular access to material inside knowledge. These individuals are subject to company imposed Trading Windows and Blackout Periods to ensure that they do not trade during the especially delicate 3mes immediately preceding the release of informa3on. These individuals may also be required to have every trade pre-‐cleared by a compliance officer.
Sec,on 16 Repor,ng Officers: These are individuals that the SEC considers to have ready access to material inside informa3on. The level of individual varies from company to company and the repor3ng officers are designated by the company, with scru3ny by the SEC. These individuals must fill out a Form 3 when they become a Sec3on 16 reporter, a Form 4 within 2 business days of reportable ac3vity and, a Form 5 at the end of every year. The SEC must be aware of all trades transacted by this group and will inves3gate any trade(s) that looks suspicious. Fines or prosecu3on will follow any illegal ac3vity by this group. The company must also publish in their year-‐end proxy statement any individuals who have filed incorrectly or late. The company may allow, or require, these individuals to arrange automated “10b5-‐1 Trading Plans” with authorized brokers. These plans can be set-‐up during periods when the individual does not hold inside informa3on and control future transac3ons without individual interac3on.
144 Affiliates: The SEC not only considers these individuals to have access to material inside informa3on, but these individuals are also considered to have the ability, through their posi3on or holdings, to impact that informa3on. 144 Affiliates are designated because of their posi3on of perceived control in the company, or because of the the amount of company stock they hold. 144 paperwork must be filed for every trade, on the date of the trade. If the 144 Affiliate is an employee, they are also subject to Sec3on 16 repor3ng rules. In addi3on, they may be subject to selling and buying restric3ons, including certain mandatory holding periods.