During the past week, corporate insiders traded a number of financial sector stocks, including First Horizon Corp. (FHN) and Progressive Corp. Ohio (PGR). All of these were regular trades in the open market, and none of them were automatic trades made under SEC Rule 10b5-1. It is generally believed that regular insider share purchases and sales in the open market carry more predictive value as they are made voluntarily by the insiders. Conversely, trades made under SEC Rule 10b5-1-- known as “Automatic Buys” and “Automatic Sells”-- are part of a pre-determined plan or contract, and it is assumed that the plan was created before the insider had any privileged non-public information.
While insiders are prohibited from trading based on nonpublic information, most believe that such trading does occur around the edges. The thinking goes that corporate insiders, because of their access, have the most up-to-date information on the health of their companies and the industries they operate in. Investors, as a result, can benefit from the timely knowledge of insider transactions. In fact, one University of Michigan study found that when executives bought shares in their own companies, the stocks tended to outperform the total market by 8.9% over the next 12 months. Conversely, when they sold shares, the stock underperformed by 5.4%.
Furthermore, even automated trades made under 10b5-1 have some predictive value due to loopholes in the rule that, for example, allow the insider to cancel the trading plan without any penalty or legal liability. So, the insider could set up a 10b5-1 trading plan before they have inside information (for example, from a quarterly report and guidance) while retaining the option to later cancel the plan based on the inside information. So, in effect, the execution of an automated trade also carries some predictive value as insiders retain the option under the existing rules to cancel their trades without penalty or legal liability.
Insider trading as defined here (and by the SEC) includes not just corporate insiders such as company executives and key employees, but also directors and large shareholders that have access to non-public information. Large shareholders are defined by the SEC for this purpose as those having beneficial ownership of ten percent of more of the firm’s equity securities (including institutional investors). Furthermore, like in the 13-D and 13-G filings for Institutions, the SEC Forms 3 and 4 on insider filings are extremely timely, and hence of greater significance, as they must be reported within two business days of the trade.
The following is our summary of the most recent major insider filings in the financial sector during the last week:
First Horizon National Corp. (FHN): FHN is a holding company for First Tennessee Bank that operates via 184 financial centers in TN, GA and MS. Insiders currently hold 2.0% of company shares, and during the last week, CEO Bryan Jordan bought 10,000 shares in the open market for $0.7 million, or 0.16% of the total number of shares held (directly and indirectly) by insiders. During the past year, four FHN insiders have bought a total 42,000 shares or 0.7% of the total number of shares held by insiders; eight insiders sold FHN stock in the last year, selling 70,002 shares.
Progressive Corp. Ohio (PGR): PGR offers private passenger automobile insurance policies in all 50 states and D.C. Insiders currently hold 7.2% of company shares. During the last week, Chief Information Officer Raymond Voelker sold 6,100 shares in the open market, or 0.01% of the total number of shares held (directly and indirectly) by insiders. During the past year, eleven PGR insiders have sold a total 0.25 million shares or 0.46% of the total number of shares held by insiders; no insider bought PGR stock during the last year.
Western Alliance Bancorp. (WAL): WAL is a holding company for the Bank of Nevada and two other banks, operating via 39 branches in NV, AZ and CA. Insiders currently hold 6.1% of company shares, and during the last week, SVP and Chief Accounting Officer Ardrey Kelly sold 5,516 shares in the open market, or 0.05% of the total number of shares held (directly and indirectly) by insiders. During the past year, four insiders sold WAL shares, selling 40,564 shares. However, ten insiders sold 225,500 shares of 1.83% of the total number of shares held by insiders.
Bank of the Ozarks Inc. (OZRK): OZRK is a holding company for the Bank of the Ozarks that provides a range of retail and commercial banking services, operating via 90 offices in AR, TX, GA, FL, NC, SC and AL. Insiders currently hold 8.5% of company shares, and during the last week, President Rex Kyle exercised options and sold the resulting 3,400 shares, or 0.03% of the total number of shares held (directly and indirectly) by insiders. During the past year, 61 insiders sold OZRK shares, selling 1.3 million shares or 10.9% of the total number of shares held by insiders; three insiders bought 1,700 OZRK shares during the last year.
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