What constitutes a significant insider sale?

To answer this, we take a look at insider trading data for 2018 from Sharadar.

Here are the steps I took to process the data:

1. Remove all non-derivative transactions (coded D, DA, DD).
2. Remove restatements (formtype contains “RESTATED”).
3. Aggregate rows to treat multiple transactions by the same person in the same company for the same security type on the same date as a single transaction. (This takes some doing.)
4. Filter out all aggregated transactions where transaction shares equal zero.
5. Check for consistency to verify: Initial shares + Transaction shares = Final shares. Filter out inconsistent records.

Measure the magnitude of each (aggregated) insider sale or acquisition (“acquisition” includes both awards and purchases of securities):

• Sales are measured as a percent of initial holdings, i.e. holdings before the transaction.
• Acquisitions are measured as a percent of final holdings, i.e. holdings after the transaction.

Measuring magnitudes of transactions in this manner means that all percentages will be between 0 and 100%. Insiders cannot sell more than 100% of their initial holdings or acquire more than 100% of their final holdings.

Insider Sales and Acquisitions Percentile Table, 2018

Here are some insights from the analysis:

• 10.3% of insider acquisitions are for 100% of final holdings
• 45% of insider acquisitions are 10% of final holdings or less
• 25% of insider sales are 1.58% of initial holdings or less
• 65% of insider sales are 9.78% of initial holdings or less
• 90% of insider sales are 52.5% of initial holdings or less
• 7.05% of insider sales are for 100% of initial holdings

This analysis suggests the following rules for flagging insider activity:

• Award a yellow flag if an insider sale represents 10% of initial holdings or more
• Award a red flag is if an insider sale represents 95% of initial holdings or more

Here is the histogram for insider sales.

Insider Sales Histogram, 2018

Here is the histogram for insider acquisitions.

Insider Awards and Purchases Histogram, 2018