Rule 10b5-1 Trading Plans

Executives who may be aware of material nonpublic information, and are subject to insider-trading restrictions, understand how difficult it can be to trade their company stock due to limited open-window periods which may limit when a trade may be placed.  Merrill Lynch has the knowledge and experience to assist Executives in managing their company stock holdings.  One strategy is a Rule 10b5-1 Trading Plan , which enables executives to trade shares of their company stock during periods when they are usually prohibited from trading.

Rule 10b5-1 Trading Plan Features

Rule 10b5-1 of the Securities and Exchange Commission (SEC) creates opportunities for Executives to trade their securities at regular intervals throughout the duration of the plan, by providing an affirmative defense to claims of insider-trading.

Rule 10b5-1 Trading Plans help corporations alleviate these restrictions by allowing Executives to:

  • Trade the company’s stock during corporate blackout periods.
  • Diversify their holdings through a predetermined program.
  • Purchase or sell company stock under the Rule when they:
    • Commit in advance to a trading plan
    • Are unaware of material, nonpublic information when they make the commitment
    • Do not influence when, how or if transactions occur under the trading plan
    • Enter into the plan in good faith and not as part of a scheme to evade the insider trading prohibitions of the federal securities laws

Contact your company’s legal department to determine your company’s policy.

Frequently Asked Questions about 10b5-1 Trading Plans

What is the advantage of these plans?
These plans may provide an affirmative defense to insider trading with respect to trades placed under such a plan. These plans can also be used to help diversify an Executive’s holdings in an orderly manner.

How can Merrill Lynch help me create a Rule 10b5-1 Trading Plan?
Merrill Lynch will work with you and your legal counsel to develop a customized trading plan.  Your plan will include an agreement between you and Merrill Lynch that is intended to comply with Rule 10b5-1. If you are exercising stock options, you must provide stock option exercise forms and a schedule of options to be exercised under the plan.  If you hold physical securities, you will need to provide the stock certificates and legal transfer documentation. If you are a control person or affiliate, you must comply with Rule 144, and a timely Form 144 filing will be required.

What details should I include in my plan?
You must specify an amount, a price and a date for all transactions executed in your plan.  The amount can be either a number of shares or a specific dollar value of securities. The price can be the market price on a particular date or a limit price. The date can be either a specific day of the year on which a market order is to be executed or a day or days of the year on which a limit order is in effect.

What else do I need to consider  when setting up a plan?
Rule 10b5-1 is not the only rule you need to take into consideration. You should consult your attorney or your company’s counsel about the application of Rule 144, Section 16, and Rule 10b-18 (Issuer purchases). If you are subject to the reporting requirements of Section 16, you are encouraged to enroll in Merrill Lynch’s Officer & Director Equity Service to facilitate the transmission of transaction information required to complete the Form 4. You also should consult your tax advisor about the tax implications of your plan.

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