Biotech Values

[mouton29]

There is a fair amount of academic research supporting your contentions about trading plans. Here is a link to a recent one. http://works.bepress.com/cgi/viewcontent.cgi?article=1000&context=alexander_robbins. This mainly stems from the fact that the SEC staff has publicly taken the position that an insider can freely cancel an "irrevocable" sale under trading plan even if based on insider information, the theory being that failing to sell based on insider information is not actionable. But obviously the net result of this is to give insiders a free option to sell when news is bad and refrain from selling when news is good.


This article examines the effect on the market (decreasing liquidity) of the adoption of plans, following from the fact that the market is reluctant to trade with insiders possessing superior knowledge. It also confirms the confirms the conclusions in the Jagolinzer study, which was reported in the WSJ article you linked to and which concludes that insiders trading under plans do in fact outperform the market (available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=541502)

The results discussed above suggest the following general conclusions: (1) that
the trading public attaches primary significance to the announcement of a 10b5-1 plan
rather than the specified start date of that plan; (2) that insiders make above-market
profits using 10b5-1 plans, but do not arbitrarily or continually create such plans; (3)
that 10b5-1 plans have a significant negative effect on the liquidity of a firm’s shares,
and therefore the firm’s cost of capital; (4) that insiders do not increase the volatility of
their own firms’ shares in order to profit by trading on the basis of material nonpublic
information under the protection of the 10b5-1 safe harbor.