Series 14: 6.1.8.3.1. “On The Basis Of” = Aware Of (Absent A Pre-Existing Trading Plan)

6.1.8.3.1. “On the Basis of” = Aware of (Absent a Pre-Existing Trading Plan)

Rule 10b5-1(b) defines “on the basis of” material, nonpublic information to mean that the person making the purchase or sale of the security must simply have been “aware” of the information when she engaged in the transaction. To prove a violation of 10b-5, the SEC does not need to show that the person who made the transaction did so because of the material, nonpublic information. Clearly, as states of mind go, “awareness” is fairly easy to establish.

A company insider who wants to trade the company’s stock without the risk of being charged with insider trading can adopt a Rule 10b5-1 Trading Plan. Such a plan allows for scheduled trading by the company insider. The plan must be adopted at least 30 days (90 days if the insider is an officer or director) before it can take effect.

Rule 10b5-1 also provides that, even if the insider was “aware” of material, nonpublic information about a security at the time the insider b