The 10b5-1 plan, and averaging up

Half of what the tape shows this week has no private-company analogue at all. A Rule 10b5-1 plan exists to create an affirmative defence against insider-trading liability for a person who trades in a continuously quoted market; the Canadian cousin, the automatic securities disposition plan, is a public-issuer instrument. Nothing in the Ullal, Şahin or Tenev items scales down to a company whose shares do not trade.

Trøim’s averaging-up does not travel either, and for a more interesting reason. It needs a continuously quoted price and an anonymous counterparty willing to sell. In a private company there is no market to buy from: increasing your stake means negotiating with one identified shareholder, and as Edition 030 set out, whether that is structured as a share purchase between individuals or a redemption by the company decides the tax bill — a subsection 84(3) deemed dividend on a redemption is often materially worse for the person leaving, and can cost them their capital gains exemption on those shares. The arithmetic of “my percentage went up” carries over. The economics do not.