Introduction
An insider trading policy is the document that turns the law's prohibition into a program people can follow. It sets who is covered, when they can trade, what they must clear first, and what happens when they do not. These answers cover the questions that recur when a policy is written or reviewed. For the full treatment, read "Building an insider trading policy that holds up".
Is a company required to have an insider trading policy?
Federal securities laws prohibit insider trading directly, but a written policy is now effectively expected of listed issuers. Exchange listing standards and disclosure rules assume one exists, and issuers must disclose whether they have adopted insider trading policies and procedures, filing the policy as an exhibit. The policy is company-made rather than a statutory form, but the absence of one is now a visible gap.
Who should the policy cover?
At minimum, directors, officers and employees with access to MNPI, plus the entities and family members whose trades are attributed to them. Many policies apply the general prohibition to all employees and layer stricter controls, such as pre-clearance and blackouts, on a defined covered group. The coverage decision is the company's, but it should be explicit about who is in each tier and why.
What is pre-clearance and who needs it?
Pre-clearance requires designated people to get approval before trading in company securities. It is a company control, not a legal formula, so the covered population and the process are yours to set. Its value is that it catches a problem trade at the only moment it can be stopped, before execution. For the design, read "Designing pre-clearance workflows".
What are blackout periods?
Blackout periods are windows during which covered people may not trade, typically around quarter-end and earnings, when MNPI is most likely to be held. They are a prophylactic company rule layered on top of the always-on legal prohibition. Some policies also impose event-driven blackouts tied to specific transactions or developments. For the operational detail, read "Blackout and trading-window calendars".
What securities does the policy cover?
Usually the company's stock and any security whose value derives from it, meaning options, restricted stock units, convertible instruments, and often derivatives and hedging positions. Many policies prohibit hedging and pledging outright for directors and officers. The point is that a covered person cannot escape the policy by trading a linked instrument instead of the common stock. The policy should name the linked securities explicitly.
Does the policy override the law?
No, and it should say so. A policy sets the company's rules. It does not define the boundary of legality. A trade that complies with every internal rule can still be unlawful if it was made on MNPI, and a trade the policy would have blocked is not made lawful by having slipped through. The policy is the process. The law is the line.
What does the policy say about 10b5-1 plans?
A good policy sets the conditions under which covered people may adopt Rule 10b5-1 plans, covering when they can be adopted, the required cooling-off consistent with the 2022 amendments, whether overlapping plans are permitted, and the pre-clearance the company requires for a plan. The plan and the policy work together. The plan carries the federal defense. The policy governs how the company lets people use it.
Do we need to cover departing employees and post-employment trading?
Yes. Access to MNPI does not end cleanly on a last day, and Section 16 exposure can trail a departure by months. The policy should state that people who leave while holding MNPI remain bound until the information is public, and set out how blackouts and clearance apply through a transition. Offboarding is a step the policy should describe, not leave to assumption.
How often should the policy be reviewed?
At least annually, and whenever the law moves. The 2022 10b5-1 amendments, the Item 408 disclosure requirements and the policy-exhibit filing are all recent examples of changes a policy had to absorb. Each review should produce a dated, version-controlled record of what changed and when, because the policy is now a public exhibit and its history is discoverable.
Why does version control matter now?
Because the policy is filed as an exhibit and its adoption and amendment are disclosed, the version in force at any date is a fact a regulator or plaintiff can check against conduct. Being able to show which version applied to a given trade, and when covered people acknowledged it, is part of the record. A policy you can produce with its history is a defense. One whose version at a past date is uncertain is a gap.
Should the policy address trading in other companies' securities?
It is worth considering. After SEC v. Panuwat, where the SEC pursued a theory that an insider traded a peer company's securities using MNPI about his own employer, some issuers extended their policies to address trading in the securities of business partners, peers or counterparties where an insider holds MNPI relevant to them. The Panuwat appeal is pending, so this is a policy-design judgment rather than a settled requirement. Read "SEC v. Panuwat, shadow trading and your policy" before deciding how far to reach.
InsiderList holds the policy, its versions and the covered population together, records who acknowledged which version and when, and links the policy's rules to the pre-clearance and blackout controls that enforce them. The drafting and legal review stay with your counsel.
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InsiderList is insider trading compliance software used by companies in the UK, Europe, the USA and the UAE. This article is for general information and does not constitute legal advice. For advice on your situation, consult qualified US securities counsel.
