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.
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.
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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Oliver is a financial writer and analyst specialising in the US stock market, with years of personal experience in understanding micro/macroeconomic structures, market trends and fundamental analysis.