Holders of restricted and concentrated stock can access strategies to offset concentrated stock positions, navigate regulations and address liquidity events.
If you’re an executive, stock options and restricted stock and performance awards can make up a major portion of both your compensation and total wealth. Managing these positions can be challenging — whether due to regulatory restrictions, potential tax liabilities or an unwillingness to appear disloyal.
Our suite of Executive Services can help you maximize the value of your equity compensation, satisfy complex legal requirements and/or reporting obligations and make the process of managing your concentrated position easier.
Concentrated Stock Strategies
When a significant portion of your investment portfolio is made up of a single stock or a few stocks, it is considered concentrated. This concentration can present risks since the value of these stocks can fluctuate more dramatically compared to a diversified portfolio with many different types of investments. You can draw on a range of solutions designed to work with a concentrated position and help you:
- Manage the risk that concentration can impart on the long-term performance of your portfolio
- Diversify your holdings which may offer better risk-adjusted returns over the long-term1
- Fund your lifestyle and help ensure you have access to liquidity, when you need it
Rule 10b5-1 Trading Plans
Rule 10b5-1 trading plans2 are becoming increasing more popular with senior executives who may have access to material nonpublic information and are subject to the issuer's trading windows and blackout periods. Rule 10b5-1 trading plans may help you comply with, and safely navigate, insider trading rules while helping you make the most of your equity compensation.
These written contracts allow you to plan in advance the amount, price and dates on which you trade. Structured properly, the plans offer a way for insiders to monetize equity compensation and shares owned and may be a good planning-based solution for key executives with liquidity or diversification needs. Plans can be established as a systematic way to help liquidate stock due to restrictive trading windows or access to material, nonpublic information.
Officer & Director Equity Services
Merrill’s Officer & Director Equity Services (ODES) helps to streamline the reporting of Form 4’s by providing timely notification of trade details to those designated by the officer or director. This complimentary service provides you with pre-trade clearance and post-trade e-mail confirmation for open market purchase and sale transactions done through Merrill.
Block Trading Services
You may be able to potentially achieve better results with special handling for block orders, maximize execution quality by minimizing market impact and access multiple sources of liquidity for your order with our block trading service position of 20,000 shares or greater, with goal of minimizing market impact and maximizing execution performance.
For concentrated U.S. equity positions of 20,000 shares or greater, the Equity Block Trading Desk can strategically work orders in the marketplace with the goal of:
- Minimizing market impact
- Maximizing execution performance
- Sourcing multiple liquidity venues and respond dynamically to changes in the marketplace
The team can also handle special equity transactions such as restricted and control security trading under Rule 144 and security trading by executives and other insiders within Rule 10b5-1 trading plans.
Connect with a Merrill Private Wealth Advisor.
Frequently asked questions
As defined by the Securities and Exchange Commission (SEC), a Form 4 filing is a required disclosure that must be submitted when an insider, at a publicly traded company, executes a transaction. The form is designed to inform the public of the details of any transaction by a company insider, including the amount purchased or sold and the price per share — for all company stock, derivative or convertible securities. A Form 4 filing complements the SEC Form 3 filing that publicly discloses when a person becomes an insider and their ownership stake in the company.
A block trade is the purchase or sale of a publicly traded security that, given its size or value, may have a direct impact on the price of the security (sometimes called “moving the market”). Block trades are common among owners and insiders who have concentrated positions in a given security. In general, such trades are most effectively handled by professional trading teams who can offer access to sophisticated trading techniques and dark pools that may limit, or at least mitigate, the price impact of the block trade.
Rule 10b5-1 trading plans are named for the rule of the same name included in the Securities Exchange Act of 1934. These plans are generally used by owners and executives, who must carefully follow U.S. regulations as well as the company’s insider trading policies. Rule 10b5-1 trading plans help insiders make the most of their equity holdings while safely navigating regulatory challenges with written contracts that plan in advance the amount, price and dates on which they trade securities. Structured properly, the plans offer a way for executives to monetize equity compensation while providing an affirmative defense against charges of trading based on material, nonpublic information about the issuer and its securities.
When a significant portion of your investment portfolio is made up of a single stock or a few stocks, it is considered concentrated. While there is no set number of shares or value of a position that defines a concentrated position, significant holdings of a single security can pose concentration risks. In general, single stocks can fluctuate more dramatically compared to a diversified portfolio with many different types of investments.
Related Solutions
1 Diversification does not guarantee against loss in declining markets.
2 Implementing a Rule 10b5-1 trading plan does not prohibit or prevent legal or regulatory action related to the trades. Trading plans are intended to demonstrate that the purchase or sale of a security of any issuer was not on the basis of material, nonpublic information about that security or issuer and therefore, not in violation of section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.