Executive Services, 10b5-1 and protecting against Insider Trading liability

“I would say the number one and most important thing we focus on is insider trading liability. C-suite executives are often privy to what’s called material non-public information (MNPI) so, they have a lot of rules surrounding that,” explains guest Ryan Shreero, Executive Director of Executive Services at JPMorgan on the latest episode of Own Up.

The role of Executive Service teams is becoming more important with increased regulation and public focus on pay and other benefits being offered to top executives.

Now more than ever companies want to be sure that they are looking after their C-Suite employees, while emerging trends and new regulations mean there are many complex and every-changing situations for executives to overcome. Ensuring you can provide that extra level of support is important for companies looking to stand out when it comes to attracting and retaining top talent.

Ryan Shreero, a seasoned professional with over 18 years’ experience guiding some of the world’s most high-profile executives and shareholders recently joined hosts Chris Dohrmann, Vice President of Strategic Partnerships and John Bagdonas Vice President of Business Development, both with Global Shares, a J.P. Morgan company, to discuss why it is Executive Services have become so integral. With valuable insights into how to structure trading plans and utilize important stock-trading considerations like cooling-off periods, real world success stories and hints on how to uncomplicate Rule 10b5-1 benefits you can listen to the full podcast here.

Topics discussed include:

• The biggest challenges faced by executives today
• Using 10b5-1 plans
• Financial education for informed populations
• Incorporating personal executive goals
• Changing circumstances and options for amending an existing plan

Protecting against insider trading activities

“It’s a defence against the allegations of insider trading,” explains Ryan Shreero regarding the use of a 10b5-1 Plan while discussing the complexity surrounding what executives have to go through when they’re trying to trade company equity.

“Under those rules you really only have a couple of open trading windows per year and those trading windows are around when the companies release their earnings and everything becomes public. At that point in time, executives have a window that will open and they can put a trading plan in place, at that time only and in good faith, without any material non-public information. We help guide them through that. There’s also a lot of other rules that go hand-in-hand, as far as reporting goes and filing with both the Exchange, and the SEC that we help guide them through as well.”

10b5-1 Plans

“Well over 50% of companies out there require their insiders or their executives to utilize a 10b5-1 Plan, as compared to ones that maybe strongly recommend it, but don’t necessarily require it. I would say another 48% of them strongly recommend it. This is something that really falls into the corporate governance space. 

Companies really need to have controls in place, every company that issues equity to employees and officers will have an insider trading policy. This will be part of that trading policy, either a strong recommendation or a mandatory 10b5-1 program.”

More than one 10b5-1 and using a Directed Broker or a Specific Broker?

“In an effort to make everyone’s lives easier, including those directors, and especially those folks at the company that are having to do all the reporting, most companies will require a 10b5-1 to be in one place only. Here at J.P. Morgan, and in coordination with Global Shares, we actively go after that sort of captive broker strategy. 

We really try to partner with our companies to capture all plans and make it a seamless experience for both those officers and the employees in the company that are administering the plan.”

Other benefits of a 10b5-1

“Really minimizing the negative media perception around selling as an insider,” says Ryan Shreero simply. “Anytime an officer of a company, makes a sale of stock, that becomes public information. So, both an intent to sell and an actual change of beneficial ownership form get filed with the Exchange and the SEC. It becomes public information and now investors and everyone that pays attention to the news is wondering ‘why is this person selling? Is there something wrong with the company?’ When you’re selling pursuant to a 10b5-1 trading plan it really minimizes the effect of that, because people can look, and they see in the disclosure, that it was done pursuant to a trading plan, that it’s more of a scheduled sale, and it’s more of a planned process.”

The discussion then moves on to cooling-off periods, blackout periods and non-public information with further emphasis on the importance of how this can help to protect against accusations of insider trading.

The importance of education

“It’s better to have an informed population. We like to host education events, whether it be over Zoom, or in person, where we really bring them up to speed on: what is executive services? What is rule 10b5-1? What is your own company’s insider trading policy? What are you allowed to do, what are you not allowed to do, and really help guide them through that process, because it is cumbersome. 

We’re in a situation where these trades become public information and so we want to minimize the media effect. We also want to protect the stock price at all costs to so we help advise them on what goes into a plan so not have large blocks of stock coming out at the market, which would have a negative impact on the share price. We try to really educate them both in a group setting and then down to the individual.”

Proper usage

“Very rarely will you see a plan that is just a pure function of trading. There’s a lot of thought that goes into this and I think the higher up you get into a company, and the amount of equity you’re getting from that company, the more planning that actually goes into it. We’ve been seeing firmwide blackouts at issuers a lot and folks that are only getting a little bit of stock each year having to put 10b5-1 plans in place. 

I would discourage that. I think it’s much more for the 144 filer population, meaning the officers, directors, the 10% shareholders, folks that really have that extra reporting responsibility, because a lot of planning work goes into them to maximize not just the experience of the participant, but managing for impact on the stock and media perception.”

Modifying an existing plan due to circumstances changing

“Things do happen, right? People have events happen, people have personal things that would require them to amend or terminate a plan.

Since the rule changes though each modification to a plan starts a new cooling-off period. So essentially, you’re putting a new plan in place.”

Speaking about the acquisition of Global Shares by JPM

“As we incorporate Executive Services with a stock plan administration offering, being Global Shares, it really just makes our executive services offering that much better. The idea behind it is to have more of a one-stop shop where participants that are trading company equity, have a participant portal to do that, but also have the full power of J.P. Morgan’s Private Bank to guide them.”

Ryan Shreero also goes on to speak about terminations of plans, the SEC rules around this and finishes by talking about success stories. You can list to the full podcast here.

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