The following is not meant to be legal advice.
To better protect against securities lawsuits, companies might consider having 10b5-1 plans administered by a broker who is not the insider’s broker for the insider’s other securities. Some companies go further in requiring insiders to go through one particular broker for all trades relating to these companies’ securities.
By isolating the broker, the insider will have fewer reasons to communicate with the plan broker in order to perhaps manipulate the timing of trades. With less need for information exchange, it is less likely that the insider will be able to convey material information that might help the plan broker improve the returns from the 10b5-1 plan.
Insiders that have 10b5-1 trading plans should only trade company stock pursuant to those plans. This means that if the insider did not put all his/her company stock into the plan, the insider should not trade the stock outside the plan when he/she has the trading plan in place. Trades made outside of the plan do not benefit from the protection afforded by 10b5-1 plan, but when made, trades of stock outside the plan may call into question the claim that the 10b5-1 plan is truly a part of a pre-planned diversification strategy, and cause the insider to lose the protection of the plan for the trades of stock insider the plan.
10b5-1 plans fall under Rule 10b5-1 promulgated by the SEC.
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