Disclosing and Cooling-Off: An Analysis of Insider Trading Rules

52 Pages Posted: 20 Oct 2022 Last revised: 10 Apr 2023

See all articles by Jun Deng

Jun Deng

University of International Business and Economics (UIBE) - School of Banking and Finance

Huifeng Pan

University of International Business and Economics (UIBE)

Hongjun Yan

DePaul University

Liyan Yang

University of Toronto - Rotman School of Management

Date Written: October 16, 2022

Abstract

We analyze two insider-trading regulations recently introduced by the U.S. Securities and Exchange Commission: advance disclosure and ''cooling-off period.'' The former requires an insider to disclose trading plans at adoption, while the latter mandates a delay period before execution. Disclosure increases price efficiency but has mixed welfare implications. If the insider has large liquidity needs, in contrast to the conventional wisdom from ''sunshine trading,'' disclosure can even reduce the welfare of all investors. A longer cooling-off period increases outside investors' welfare but decreases price efficiency. Its implication for the insider's welfare depends on whether the disclosure policy is already in place.

Keywords: Insider trading, Rule 10b5-1, Sunshine trading, Disclosure, Cooling-off period.

JEL Classification: G10

Suggested Citation

Deng, Jun and Pan, Huifeng and Yan, Hongjun and Yang, Liyan, Disclosing and Cooling-Off: An Analysis of Insider Trading Rules (October 16, 2022). Rotman School of Management Working Paper No. 4249189, Available at SSRN: https://ssrn.com/abstract=4249189 or http://dx.doi.org/10.2139/ssrn.4249189

Jun Deng

University of International Business and Economics (UIBE) - School of Banking and Finance ( email )

No.10, Huixindong Street
Chaoyang District
Beijing, 100029
China

Huifeng Pan

University of International Business and Economics (UIBE)

10, Huixin Dongjie
Changyang District
Beijing, Beijing 100029
China

Hongjun Yan

DePaul University ( email )

1 East Jackson Blvd.
Chicago, IL 60604
United States

HOME PAGE: http://sites.google.com/site/hongjunyanhomepage/

Liyan Yang (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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