Corporate insiders at publicly traded companies are privy to information that can have a major impact on the share price, such as a Federal Drug Administration (FDA) approval or rejection of a new drug. As a result, corporate trading policies restrict the number of days corporate insiders can buy or sell shares. Often, these policies limit the number of open trading windows to less than 60 days per year.
Overall, insider trading restrictions include blackout periods and exposure to material, non-public information (MNPI).
These trading constraints hamper corporate executives’ ability to manage their holdings, posing a stock concentration risk within their overall investment portfolios.
There is a solution to this problem: Rule 10b5-1
Rule 10b5-1, established by the Securities and Exchange Commission (SEC) in 2000, enables insiders of publicly traded corporations to create trading plans for buying or selling stocks. It’s a clarification of Rule 10b-51 (sometimes written as Rule 10b5),... ...
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