5 Challenging Judgment Calls for Insider Trading Preclearance

Preclearance of trades is one of those “bread n’ butter” topics if you’re an in-house securities lawyer. It involves a number of practices that are at the heart of the “soft” stuff. Having good judgment really counts here.

Who is subject to pre-clearance? All directors and Section 16 officers. This helps you with complying with Section 16’s reporting requirements and monitoring any potential short-swing problems. It helps you to draft the proxy and monitor compliance with your stock ownership guidelines.

Then there are those employees that require pre-clearance because they regularly come into possession of material nonpublic information – employees in accounting, finance, legal.

Finally, there will be employees working on a project – working on a potential merger, about to land a major contract, things like that – for a discrete period of time that requires them to join the ‘blackout period’ club on a temporary basis.

Here are five important judgment calls you might make when clearing trades:

• Ask the right questions
• Don’t spill the beans
• Do your own diligence
• Document or not
• Try not to be jaded