Insider Trading : A Guide to Compliance with RSUs

As a tech employee, you may be subject to trading blackout periods, during which you are prohibited from trading your restricted stock units (RSUs). This is because you may have access to non-public information about your company, which could give you an unfair advantage in the market.

You have the opportunity to trade your RSUs during an open window, when you are allowed to buy or sell shares or you could use a 10b5-1 plan to pre-plan your trades, if you want to trade during blackout periods as well.

It's important for you to understand the concept of insider trading and the rules that govern it, so that you can make informed decisions about your investments. In this article, we will explain what insider trading is, why it's prohibited, and how you can use 10b5-1 plans to trade your RSUs.

What is Insider Trading?

Insider trading refers to the buying or selling of a security by someone who has access to non-public information about the company. This non-public information, also known as inside information, can include financial results, product launches, mergers and acquisitions, and other confidential information that could affect the stock price.

Insider trading is considered unethical and illegal because it gives the insider an unfair advantage over other investors who don't have access to the same information. This can lead to a loss of trust in the market and can harm the overall integrity of the financial system.

Examples of Insider Trading

• An executive at XYZ company learns that the company is about to release a new product that will be a huge success and decides to buy shares in the company before the news is released.
• An employee of ABC company learns that the company is about to be acquired by another company and decides to buy shares in ABC company before the news is released.

These are examples of insider trading, as the individual had access to non-public information and used it to gain an unfair advantage in the market.

Why is Insider Trading Prohibited?

Insider trading is prohibited for several reasons:

• It undermines the integrity of the financial markets: It creates an uneven playing field for investors, where some have access to non-public information and others do not. This can lead to a lack of trust in the market, which can harm the overall economy.
• It harms individual investors: Insider trading can also harm individual investors who may be misled by the insider's actions. For example, an insider might sell a stock based on information that the company is about to release bad news, causing other investors to also sell their shares and incur losses.
• It's prohibited by the Securities and Exchange Commission (SEC): The SEC is the regulatory body responsible for enforcing securities laws in the United States, has the authority to investigate and prosecute individuals and companies that engage in insider trading.

10b5-1 Plans

As a tech employee, you may be subject to trading blackout periods, during which you are prohibited from trading your RSUs. How and when you're allowed to trade is decided by your leadership team - however, most commonly, trading windows follow your earnings call.

Some companies may also decide not to have trading windows for regular employees- this is, for instance, the case with Microsoft.

You may also use a 10b5-1 plan to trade your RSUs without violating insider trading laws, if your issuer allows it. A 10b5-1 plan is a written plan that allows you to trade your shares at predetermined times or based on predetermined conditions. This can include a schedule of specific dates on which you will buy or sell shares, or a set of conditions that must be met before you can buy or sell shares.

For example, you can set a plan to sell a certain number of shares on the first trading day of every month, or when the stock price reaches a certain level. By doing so, you can trade your shares without the risk of violating insider trading laws, because the trading is based on a pre-arranged plan, not on any non-public information that you might have access to.

A third party has to administer the plan on your behalf, where you have no discretion over individual trades. Additionally, you should not enter into a plan at a time you hold secret information or at a time you're not normally allowed to trade.

Conclusion

In conclusion, as a tech employee, it's important for you to understand the concept of insider trading and the rules that govern it. Insider trading is prohibited because it undermines the integrity of the financial markets and gives an unfair advantage to those who have access to non-public information.

Additionally, you may be subject to trading blackout periods, during which you are prohibited from trading your RSUs. However, you can use a 10b5-1 plan as a safe and legal way to trade your shares. 10b5-1 plans are a written plan that allows you to trade your shares at predetermined times or based on predetermined conditions. Always consult with your company's legal or compliance department and with a financial advisor or attorney before implementing a 10b5-1 plan and follow the terms of your company's insider trading policy strictly. Remember to always act ethically and in compliance with the law to ensure the integrity of the financial markets.