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AMC CEO Unloads Shares; But That’s Not Always a Bearish Signal — Rule 10b5-1

Trade AMC Stock Your Capital Is At Risk
Updated: 14 Jan 2022

Key points:

  • AMC CEO Adam Aron sells 312,000 shares, amongst other executive selling
  • Investors shouldn't necessarily worry as the stock sale was a part of Rule 10b5-1
  • The rule facilitates a predetermined time and sale amount, hence shouldn't be treated as a bearish signal

 

Yesterday, stock in AMC (NYSE: AMC) closed with a pullback of 9%; following news that the company CEO, Adam Aron, sold a large number of his personal shares – a total of 312,500 at a price of $22.85. In the past, and throughout publicly traded companies, insider selling is generally seen as a bearish signal.

However, many investors fail to scrutinize the relevant details of insider selling; in particular, Rule 10b5-1 – a trading plan that facilitates certain selling with pre-arranged circumstances; not relevant to company performance or non-public information. 

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Yesterday’s SEC filing sparked a wider sell-off than necessary, and it appears bears are still active, with AMC stock down a further 1.5% in Friday’s premarket trading. The company’s CEO isn’t the first insider to start selling, in fact, numerous executives have made similar sales previously following AMC’s rising valuation over the last 52 weeks. 

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So what is the rule? Exchange Act Rule 10b5-1 was passed in 2000 by the SEC to reduce accusations of insider trading, and it provides CEOs or other executives at public companies a pre-approved method of selling stock they own – without the sale illustrating some sort of shortcoming within the company. The rule sets up a predetermined amount of shares at an arranged time – meaning there can be no tangible link to changes or news within the company. 

AMC saw a dramatic rise as retail traders pushed the stock up despite hedgefund sentiment arguing the opposite. The use of Rule 10b5-1 should restore some faith in the market, with Adam Aron specifically tweeting the use of the rule to reassure investors that the sale was prearranged, and not a bearish move. 

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