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Insiders and executives for public companies are required to disclose in advance their intention to make stock transactions.

Upon the expiration of the waiting period are they required to execute the trade?

For example, the CEO of XYZ Company discloses intent to sell 100,000 shares. This results in negative price action so, at the end of the cooling period, he no longer wishes to sell. Must he sell regardless?

  • 2
    Great question. – John Shedletsky Jan 26 '15 at 20:57
  • Sounds like the finance equivalent of Tom Brady being "probable" with a shoulder for years on end. – Steve Jessop Oct 31 '15 at 12:56
4
+50

No. And furthermore, canceling based on insider information is not considered insider trading.

SEC Interpretation from October of 2000:

(a) Does the act of terminating a plan while aware of material nonpublic information result in liability under Section 10(b) and Rule 10b-5?

No. Section 10(b) and Rule 10b-5 apply "in connection with the purchase or sale of any security." Thus, a purchase or sale of a security must be present for liability to attach. See Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975). [link mine]

A 10b5-2 is a rule in the SEC's section in federal law that governs trading on "material nonpublic information."


Fried (2002) even concluded that:

The SEC's safe harbour permitting insiders to buy or sell shares pursuant to prearranged trading plans while in possession of material nonpublic information and to cancel the plans while aware of material nonpublic information enables insiders to profit from their access to such information. The SEC could easily eliminate insider's advantages over public shareholders by not allowing insiders to cancel their plans after becoming aware of material nonpublic information.

-1

They are not required to fulfill the trade that they have intended to execute. They are able to cancel or modify the trade at any point.

Example: This is how insiders are able to manipulate the price of shares through there buying and selling intentions. A CEO would be able to disclose a buy order for a month from now, or whatever time period is required. This would most likely increase the price of the stock as investors would see this as a good sign of company performance. Up until the point when the buy order is scheduled to execute the CEO can then cancel the order and create a new sell order. Since the stock is high in price, his new order is likely to make him money based on the manipulation from his trading intentions.

I am not an expert on the subject and only know as much as I do through personal research.

Here is an interesting article about this kind of insider trading and manipulation:http://dealbook.nytimes.com/2012/12/10/the-fine-line-between-legal-and-illegal-insider-trading/?_r=0

  • I have not heard anything that suggests an insider could change their intention so drastically (from buying to selling!) and the linked article doesn't seem to suggest it either. However, planning to trade and then not certainly would seem to be a loophole, at least on the buy side, which arguable could help them avoid losing money but not help so much with making it. – Michael Jan 16 '15 at 1:31
  • I changed my answer. I think you are correct in suggesting that they are not able to completely change the order intentions. There are ways in which they could probably get around this. I am not completely sure how the whole system works out, but I guess they could create two orders which could benefit them in many ways. – mrplow911 Jan 16 '15 at 2:25

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