Issue link: https://digital.shearman.com/i/1512772
Shearman & Sterling LLP 43 | Getting Camera Ready: Refreshing Insider Trading Policies Ahead of Mandatory Public Disclosure Companies will want to consider the SEC's court- affirmed stance on shadow trading when updating their own insider trading policies. Many companies' policies already spell out that information about third parties, such as collaboration partners or M&A targets, gained in the course of work for the company cannot be used to trade securities of such third parties. This can be expanded to proscribe using any information gained in the course of an insider's role at the company to trade the securities of any company. Companies should be mindful, however, that so sharpening their policies may have consequences for their insiders. For example, in certain circumstances, an institutional investor with a board seat at a company with such a policy may have to consider whether to restrict trading in securities of certain other companies where that investor has no board seat or other access to MNPI. Mutual Funds and ETFs The prevalence of mutual, exchange-traded and other funds as vehicles for wealth creation and retirement planning raises an important question: should insiders be permitted to purchase or sell shares in funds that invest in the company's securities at times when insiders would not be permitted to trade the company's own securities? Many insider trading policies currently stay silent on this point, although some explicitly exempt trading in mutual funds from the scope of the policy. As a legal matter, the answer to the question depends on whether MNPI about the company is also MNPI about the fund. While it seems unlikely that company MNPI would be material for a typical broad-based fund, there could be situations where the analysis may be less clear. Those could involve more narrow- focused funds, companies that make up a fairly large portion of the fund, and information that is of particular significance. Maintaining lists of "approved" or "prohibited" funds, however, is not practical for most company legal departments, and subjecting trading in any funds to all of the same blackouts that apply to trading in the company's own securities would be too expansive. Absent special circumstances, it may make sense for most companies to continue not to subject trading in broad-based funds to company trading blackouts, but to use their policies and related trainings to remind insiders that they are responsible for their own compliance with insider trading laws, drawing their attention to the fact that trading in funds while in possession of company MNPI may, in some circumstances, constitute insider trading. Companies may also want to discourage insiders from trading in funds in circumstances that could imply that the trading was in fact based on company MNPI. Pruning Policies for Non-Insider Trading Content Companies often use their insider trading policies to deal with issues that go beyond compliance with insider trading laws, addressing matters like margin loans and hedging or confidential treatment of sensitive company information. The new public filing requirement for insider trading policies, however, covers only policies "reasonably designed to promote compliance with insider trading laws." Some companies may want to streamline their insider trading policies by focusing them on insider trading law compliance and addressing other matters in separate policies that do not need to be publicly filed. Others may feel comfortable or even prefer publicizing their stance on these other matters. Special Considerations for Dual-Listed Companies Companies that, in addition to their U.S. listing, maintain a listing in another country, face special considerations when it comes to designing policies against insider trading. The insider trading laws of different jurisdictions vary, such that an activity that may be considered insider trading in the United States might not be insider trading elsewhere, or vice versa. As a notable example, unlike U.S. law, the European Union's Market Abuse Regulation (MAR) defines as "insider dealing" not just purchasing or selling, but also cancelling an order to purchase or sell a security on the basis of "inside information." There are also nuanced differences between the U.S. concept of MNPI and its MAR counterpart of "inside information."