Two-Thirds of Boards Review Policies on Illegal Insider Trades


Most corporate boards review their company's insider trading policy but relatively few get deeply involved in plans regarding legal insider trading, according to a survey by the Society of Corporate Secretaries & Governance Professionals.

Exchange Act Rule 10b5-1 allows public corporations to set up trading plans that allow insiders to sell a predetermined number of shares they own in the company at a predetermined time without incurring insider trading liability.

The survey found that 67 percent of corporate boards review their company’s insider trading policy but only one percent of boards have the task of approving each insider’s 10b5-1 plan.

“Increasingly, 10b5-1 plans and issuers’ insider trading policies and practices are coming under greater scrutiny by investors,” said Darla Stuckey, President and CEO of the Society. “The Society undertook this survey to provide a deeper understanding of companies’ policies with a view towards developing benchmarks and best practices for boards and corporate secretaries.”

A significant majority of surveyed companies do not require employees to sell through 10b5-1 plans (83 percent). However, when plans are required for employees, it is typically for the C-Suite and/or Board of Directors. Thirty percent of companies have seen growth in the number of 10b5-1 plans at their company over the past two years, while 60 percent indicated the number of plans has remained static, and 10 percent indicated the number has shrunk.

In terms of plan length, only 37 percent of companies impose a minimum plan term, with 20 percent requiring at least six months and 15 percent requiring at least one year. Only two percent require less than six months. Thirty-nine percent of companies have a maximum plan term, with 17 percent requiring no more than two years, seven percent requiring between one and two years, 13 percent requiring no more than one year and two percent requiring another timeframe.

The Society conducted the survey through an online questionnaire circulated to its members. 

A total of 296 respondents from a variety of industries participated. Financial services firm Morgan Stanley, in partnership with the law firm of Shearman & Sterling LLP, designed the survey.

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