Corporate Policies Restricting Trading by Insiders
Firm blackout policies concentrate when insiders may trade, making calendar timing and governance part of the explanation for apparently routine activity.
Bettis, Coles, and Lemmon provide systematic evidence on company policies that regulate employees’ trading in their own firm’s stock. In their sample, more than 92 percent of firms had an insider-trading policy and 78 percent used explicit blackout periods. The policies suppress both purchases and sales during prohibited windows and concentrate activity in allowed periods, often shortly after earnings announcements.
This changes how a transaction calendar should be read. Repeated trades in the same month may reflect a company’s permitted window rather than repeated discoveries of private information. Conversely, a trade inside a nominal blackout window may have received approval or may raise a different governance question. The study also connects restrictions to market liquidity: blackout periods were associated with modestly narrower bid–ask spreads, consistent with less adverse-selection risk when insiders were less likely to trade.
The paper does not establish that every trade in an allowed window is routine or that blackouts eliminate informed activity. Jagolinzer, Larcker, and Taylor later show why general-counsel approval matters separately. Insider Atlas cannot reconstruct every issuer’s historical policy from Form 4 XML, so its “routine” label is explicitly a code-based proxy for grants, exercises, tax withholding, and similar transactions. The label is not a full replication of corporate calendar rules. This paper explains why that limitation belongs in view and why clustered compensation events remain separated from headline open-market clusters.
Abstract excerpt
“This paper examines policies and procedures put in place by corporations to regulate trading in the stock by the firm’s own insiders.”
Connections in Insider Atlas
The LOW routine-only cluster and LOW company history show the site’s code-based treatment of mechanical activity, which is narrower than a firm-policy classifier.