General Counsel Update
Rule 10b5-1 Selling Plans: Time to Revisit Corporate Policies

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Insider selling plans under SEC Rule 10b5-1, once considered a virtual safe harbor, are increasingly coming under scrutiny. A December 2006 academic study looked at 117,000 plan transactions over the past five years and found that, on average, 10b5-1 trades outperformed the market by about 6 percent six months after the trades were executed, suggesting “that, on average, trading within [rule 10b5-1] does not solely reflect uninformed diversification.” Even though there are a number of benign reasons why such outperformance might occur, the study evoked memories of the statistical analyses that touched off the option backdating scandals.

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