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PRIVATE COMPANY COMPENSATION                                                                                              ...
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Performensation Insider Trading Pyramid

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This pyramid shows the four categories that every employee and executive fall into at publicly traded companies in the United States. This document is great for those companies planing an Initial Public Offering, or for those looking to better communicate these rules.

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Transcript of "Performensation Insider Trading Pyramid"

  1. 1. PRIVATE COMPANY COMPENSATION THE INSIDER TRADING PYRAMID This  insider  pyramid  provides  a  summary  of  basic  restric5ons   placed  on  the  trading  of  an  employers  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  companys  stock.  The  SEC   has  declared  it  illegal  to  place  a  trade  with  any  companys  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.     514 Precita Ave, Suite 100 | San Francisco, CA 94110 | Toll Free 877.803.9255 x700 | P. +1 415.625.3406 email: info@performensation.com | web: www.performensation.com ©2012 Performensation

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