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Flexible strategy for concentrated stock compensation

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Corporate executives and company insiders -- directors, officers and employees who hold more than 10 percent of company equity -- have historically experienced difficulty in trading in company stocks due to the blackout periods established by their companies. Company blackout periods and insider trading restrictions can make it even more difficult for corporate executives to manage their liquidity and find an opportunity to increase or decrease a single-stock exposure.

However, with Rule 10b5-1, a flexible solution was created to expand the window during which insiders could safely purchase and sell company shares and diversify their holdings: insiders can sell shares during a blackout period as long as the parameters of the sale are established and disclosed during a nonblackout period. These trading plans provide an opportune tactic for executives to manage their concentrated stock position and also help shield them from shareholder claims that they possessed material information that would constitute insider trading.

To take advantage of this expanded window, or "safe harbor," executives can establish a 10b5-1 trading plan to allow for stock trades according to predetermined parameters. For example, a plan will generally specify the number of shares to be traded on specific days in the future and may also include details such as floor or ceiling prices that determine whether the shares will change hands.

Northern Trust, through its affiliate, Northern Trust Securities Inc., has developed a customized 10b5-1 trading program that provides flexible trading strategies for diversifying your portfolio and greater liquidity. To determine whether a 10b5-1 plan is appropriate for your situation, you should consult your corporate, legal and tax advisers. To discuss how Northern Trust Securities Inc. can help you design and implement a personal 10b5-1 trading plan, contact Gary Recker at (858) 824-1200.


Submitted by Gary Recker, Northern Trust senior portfolio manager and senior vice president for San Diego

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