Monday, March 12, 2007

The SEC Is Eyeing Insider Stock Sales

The SEC Is Eyeing Insider Stock Sales:
"The SEC's goal in creating automatic trading plans was to allow executives to sell shares without triggering insider trading charges. To gain that legal 'safe harbor,' however, executives must meet certain conditions. They must set up a trading plan when they don't know of any significant nonpublic information, lay out the dates or prices at which trades will be made in advance, and give up control of the trades to a broker.

Those limited rules allow executives more maneuvering room to time sales than is generally understood. According to the study by Alan D. Jagolinzer, an assistant professor at the Stanford University Graduate School of Business, executives selling shares through 10b5-1 plans do substantially better than would be expected if trading were truly automatic. In a study of roughly 117,000 trades made by 3,426 executives at 1,241 companies, trades made inside plans beat the market by 6% over six months, while those at the same firms who traded outside of plans only topped it by 1.9%.

More often than not, sales made through plans by insiders occur ahead of a stock drop. The rules also allow executives to end plans before they've been fully executed, set up multiple short-term plans, and begin selling immediately after adopting a plan"

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