Planning for Executives - 6 Regulatory rules and restrictions governing a corporate executive’s publicly held stock Flashcards
What are short-swing profits?
The short-swing profit rule is a Securities and Exchange Commission (SEC) regulation that requires company insiders to return any profits made from the purchase and sale of company stock if both transactions occur within a six-month period.
What are some rules and regulations and consequences for insider information trading?
Insider trading is deemed illegal when the material information is still non-public and comes with harsh consequences, including potential fines and jail time. Material non-public information is defined as any information that could substantially impact that company’s stock price.
What is an exercise window?
The exercise window (or exercise period) is the period during which a person can buy shares at the strike price. Options are only exercisable for a fixed period of time, until they expire, typically seven to ten years as long as the person is working for the company.
What are the goals of section 16B?
Section 16 B- prevents personal gain from insider trading
What is section 16B
Section 16(b) defines a purchase and sale, or sale and purchase, within six months’ time as a short-swing transaction. Congress included the provision as part of the original Exchange Act in an effort to discourage insider trading.
What is Form 4 of Section 16(a)?
Anyone who is a Section 16 insider of a reporting company must file a Form 4 with the SEC under Section 16 of the Exchange Act to report any changes in the filer’s beneficial ownership of any class of the company’s equity securities after the filer executes a transaction. Form 4 was amended to require that the holdings column
include holdings following the reported transaction, rather than month-end holdings
What is the date that the SEC elimated paper filings?
June 30, 2002
What does Section 16(b)’s treatment of the
acquisition and exercise of options and other derivative securities entail?
Under the rules, the
granting of a stock option, warrant, or other convertible security is generally deemed to
be a purchase event for purposes of Section 16(b). The subsequent exercise of the
option, warrant, or conversion of the convertible security is not a purchase event for
purposes of Section 16(b)
What is rule 16b-3
Rule 16b-3 provides guidelines for certain employee benefit plans, including stock
option plans, where participation is not deemed to be subject to the abuse of inside
information. Rule 16b-3 also allows insiders to exercise an SAR, for cash, during a window period,
which is the third through the 121st working day following the release of quarterly
earnings.
Which transactions does Rule 16b-3 exempt in employer securities being
“matched” with nonexempt opposite-way transactions for purposes of determining
Section 16(b) liability?
1.All transactions within a tax-qualified employee benefit plan, an excess benefit
plan, or a Code Section 423 stock purchase plan, other than “discretionary
transactions,” are exempt.
2. Discretionary Transaction
3. Option grants or stock awards
4. Sales of stock to the company
