Morgan Stanley Executive Financial Services (EFS) are specialized professionals educated in regulatory and SEC rules that affect corporate executives and their stock holdings.
Our dedicated EFS team supports you and your Financial Advisor to help determine how your company stock can be used for liquidity, asset protection and wealth transfer, through a variety of approaches, including:
- Sales under Rule 144
- A 10b5-1 Preset Diversification Program® (“PDP” or 10b5-1 Trading Plan)
- Loans
- Gifting
- Corporate Repurchases by Executives
Working with you, your company’s corporate counsel and your Financial Advisor, Morgan Stanley can craft a diversification strategy to support your investment objectives and tie the program into a comprehensive wealth management strategy.
CHAPTER 2
The Morgan Stanley Executive Financial Services Team
Customization
The EFS team works closely with you and your Financial Advisor to structure, draft and execute customized strategies which are in sync with your risk management needs, investment and liquidity objectives.
Experience
A team of experienced professionals who aim to assist the Financial Advisor in delivering the firm’s wealth management services to corporate executives and holders of concentrated positions.
Support
Morgan Stanley was one of the first major Wall Street firms to invest in the establishment of a separate 10b5-1 PDP Trading Desk to preserve open lines of communication between the firm’s PDP clients and their Financial Advisors and strengthen and protect the affirmative defense.
Knowledgeable
EFS, partnering with Financial Advisors, offers premier service and guidance, while possessing the knowledge to help ensure compliance with SEC rules and regulations.
Market Leader
- Led the Rule 144 and 10b5-1 broker rankings for the fifth year in a row in 2013
- Ranked #1 in 10b5-1 market share for the period 2005 through 2013, as reported by The Washington Service*
Services
- SEC Rule 144 compliance
- 10b5-1 PDP administration/execution
- Loans and/or lines of credit secured by eligible securities
- Affiliated repurchases
- Hedging and liquidation strategies
* Source: The Washington Service from Form 144 filings in the period from 2 /1/2005 to 12 /31/2013.
CHAPTER 3
Control and Restricted Stock Opportunities
As a key employee in your company, you may have been awarded restricted or control stock. While such a reward is beneficial and offers opportunities, it can have certain limitations. Chances are these securities account for much of your wealth, and they need to be managed in the context of your bigger financial picture.
Control Securities
Control stock is owned by individuals or entities who directly or indirectly control the management of the issuer — typically, senior officers, directors and certain large shareholders — often referred to as “affiliates.” Keep in mind that it is the security holder’s ability to control the company, not how the stock was acquired, that determines whether the securities are control securities.
Restricted Securities
Restricted securities are acquired in an unregistered transaction, obtained from a company in a private transaction or received as compensation for services. If you have restricted stock, it will usually have a “legend” stamped on the stock certificate indicating that the stock is not registered for public sale.
CHAPTER 4
Best Practices
Navigating Rule 10b5-1 for Insiders and Key Employees
Company insiders who want to buy or sell company stock, face two major hurdles. One is a great deal of uncertainty as to what is permissible and what might trigger potential insider trading liability, under SEC Rule 10b5. The other is infrequent, brief trading windows established by companies to allow insider transactions. SEC Rule 10b5-1 gives directors, officers and others with access to material nonpublic information, also called insider information, about their company a way to buy and sell company stock in a pre-established written trading plan. At Morgan Stanley, a 10b5-1 Preset Diversification Program® (PDP) — most commonly known as a 10b5-1 Trading Plan — can help you to achieve your portfolio objectives while providing an affirmative defense against allegations of insider trading.
Key Benefits:
- Affirmative defense against potential claims of insider trading
- Access to public markets without regard to corporate blackout periods
- Reduce the risk associated with a concentrated equity position through diversification
- Discipline during volatile market fluctuations to help achieve personal monetization needs
CHAPTER 5
Best Practices
144 10b5-1 Broker Rankings 02/01/2005–12/31/2014
Morgan Stanley has consistently led the market. From 2005 through 2014, we ranked first for market value of proceeds by executing over 21,500 10b5-1 plans.1
1 The Washington Service tracks insider trade information filed with the Securities & Exchange Commission. The above data is compiled by The Washington Service from Form 144 filings in the period from 2/1/2005 to 12/31/2014. Data from the period 2/1/2005 to 5/31/2009 reflects the formerly separate PDP businesses of the Global Wealth Management Group of Morgan Stanley & Co. LLC and the Smith Barney division of Citigroup Global Markets Inc. that now form Morgan Stanley Smith Barney LLC. The above data also includes transactions from Morgan Stanley & Co. LLC. Information contained herein was obtained from sources believed reliable but the accuracy and completeness thereof cannot be guaranteed. Information contained herein is subject to change
CHAPTER 6
Liquidity Strategies
Many clients with control or restricted stock may not want — or be allowed — to readily sell their securities. But that doesn’t mean these assets need to stay idle.
In fact, a loan secured your eligible securities may put these assets to work for you — by financing a particular purchase, generating cash flow for taxes and other obligations, or raising capital to pursue investment opportunities. Whatever your needs are, your Morgan Stanley Financial Advisor can discuss potential strategies that focus on getting more of your wealth working for you. There are risks associated with using your assets as collateral for a securities based credit facility, including possible margin calls on short-term notice.
Loans Secured by Eligible Restricted & Control Stock
Express Credit Line (ECL) Loans
A flexible line of credit using eligible securities in your brokerage account as collateral. Offered by Morgan Stanley Smith Barney LLC.
Margin Loans
A traditional brokerage loan enabling the purchase of additional securities to diversify your investment portfolio — an effective strategy to potentially expedite ownership requirements. Offered by Morgan Stanley Smith Barney LLC.
Portfolio Loan Account (PLA)
A securities based loan offered by Morgan Stanley Bank, N.A. A PLA loan/line of credit may be a cost-effective financing alternative for qualified applicants.
Tailored Lending
Uses different assets and asset classes as collateral based on your unique needs. Offered by Morgan Stanley Private Bank, National Association.
Unlock the Value in Your Portfolio Through a Strategic Approach that Addresses Both Sides of Your Balance Sheet
Assets
- Bonds / Stocks
- Short-Term Investments
- Cash or Cash Equivalents
- Concentrated / Restricted Positions
- Business Ownership
- Real Estate
Liquidity Needs
- Business Expansion and / or Working Capital
- Commercial Real Estate Investment
- Tax Obligations
- Short-Term / Long-Term Obligations
- Unplanned Expenses
Potential Solutions
- Loans Secured by Eligible Securities
- Commercial Lending
Your Financial Advisor can work with a Morgan Stanley Private Banker* to help address your cash f low needs while navigating the regulatory requirements and risk associated with maintaining restricted stock positions.
Unlock the value of your restricted portfolio and gain quick access to funds which may enable you to:
- Explore small business opportunities
- A margin loan may be used to purchase additional eligible securities for diversification
- Achieve ownership requirements
- Purchase luxury items
- Pay tax obligations
- Fund higher education
- Finance a bridge loan
- Meet general liquidity needs
- Launch entrepreneurial opportunities
* Private Bankers are employees of Morgan Stanley Private Bank, National Association, member FDIC.
CHAPTER 7
Wealth Transfer
Donating restricted stock can bring many benefits — both to you and to the charity — and can help you and your family have an enduring impact on communities and future generations. For instance, you can make contributions without tapping cash reserves or liquidating other assets.
As a result, you may be able to make a significantly larger contribution to a favored cause than you would otherwise have been able to make if the gift was in cash. Gifts to qualified charities are exempt from gift tax and remove these assets from your estate. In addition, they may qualify for current charitable income tax deductions. Morgan Stanley’s high-touch support can provide guidance with various aspects of your philanthropic giving strategies for restricted or controlled stock. However, you should consult your company’s counsel to ensure adherence with varied regulatory rules.
CHAPTER 8
Safe Harbor for Repurchases
SEC Rule 10b-18 provides a “safe harbor” for affiliated purchasers when these executives repurchase shares of their company’s stock.
By working with the EFS team and your Financial Advisor, you can utilize this rule to:
- Take advantage of bullish sentiments on your company stock
- Meet affiliated retention requirements
- Increase ownership in company stock
- Protect yourself against market manipulation charges Coupled with a 10b5-1 preset diversification strategy you are also afforded an affirmative defense against insider trading liabilities.
Start Now
Our goal is to provide you with guidance, know-how and experience so you can manage your equity compensation while meeting your overall portfolio objectives.
For more information about Morgan Stanley’s Executive Financial Services, please contact your Financial Advisor or the EFS team at (732) 974-5006.
Morgan Stanley Smith Barney LLC, member SIPC (“MSSB”) is a registered Broker/Dealer, not a bank. Where appropriate, MSSB has entered into arrangements with banks and other third parties to assist in offering certain banking-related products and services. Banking and credit products and services are provided by Morgan Stanley Private Bank, National Association or Morgan Stanley Bank, N.A. (the “Banks”). The Banks and MSSB are affiliates. Investment products and services are offered through MSSB. Unless specifically disclosed in writing, investments and services offered through MSSB are not insured by the FDIC, are not deposits or other obligations of, or guaranteed by, the Banks and involve investment risks, including possible loss of principal amount invested. Securities-based Lending Risks: Borrowing against securities may not be suitable for ever yone. You should be aware that securities-based loans involve a high degree of risk and that market conditions can magnify any potential for loss. Most importantly, you need to understand that: (1) Sufficient collateral must be maintained to suppor t your loan(s) and to take future advances; (2) You may have to deposit additional cash or eligible securities on shor t notice; (3) Some or all of your securities may be sold without prior notice in order to maintain account equity at required collateral maintenance levels. You will not be entitled to choose the securities that will be sold. These actions may interrupt your long-term investment strategy and may result in adverse tax consequences or in additional fees being assessed; (4) Morgan Stanley Bank, N.A., Morgan Stanley Private Bank, National Association, or MSSB (collectively referred to as “Morgan Stanley” ) reser ves the right not to fund any advance request due to insufficient collateral or for any other reason except for any por tion of a securities-based loan that is identified as a committed facility; (5) Morgan Stanley reserves the right to increase your collateral maintenance requirements at any time without notice; and (6) Morgan Stanley reserves the right to call your securities-based loan at any time and for any reason.
Tailored Lending is a loan/line of credit product provided by Morgan Stanley Private Bank, National Association, an affiliate of MSSB. A Tailored Lending credit facility may be a demand or committed loan/line of credit. All Tailored Lending loans/lines of credit are subject to the under writing standards and independent approval of Morgan Stanley Private Bank, National Association. Tailored Lending loans/lines of credit may not be available in all locations. Rates, terms, and programs are subject to change without notice. The ongoing availability of a secured Tailored Lending loan/line of credit is contingent, among other things, on the client maintaining sufficient eligible collateral. Other restrictions may apply. The proceeds of a Tailored Lending loan/line of credit (including draws and other advances) may not be used to purchase, trade, or carry margin stock; repay margin debt that was used to purchase, trade or carry margin stock; and cannot be deposited into a MSSB or other brokerage account.
Portfolio Loan Account (“PLA”) is a securities based loan/line of credit product offered by Morgan Stanley Bank, N.A., an affiliate of MSSB. A PLA credit facility is a demand loan/line of credit. All PLA loans/lines of credit are subject to the underwriting standards and independent approval of Morgan Stanley Bank, N.A. PLA loans/lines of credit may not be available in all locations. Rates, terms, and conditions are subject to change without notice. This document should not be construed as a commitment to lend. To be eligible for a PLA loan/line of credit, you must have a brokerage account at MSSB, which shall serve as collateral for the PLA. The ongoing availability of the PLA is contingent, among other things, on you maintaining sufficient eligible collateral. Other restrictions may apply. The proceeds from a PLA loan/line of credit (including draws and other advances) may not be used to purchase, trade, or carry margin stock; repay margin debt that was used to purchase, trade or carry margin stock; and cannot be deposited into an MSSB or other brokerage account. Morgan Stanley Bank, N.A. and Morgan Stanley Private Bank, National Association are members FDIC that are primarily regulated by the Office of the Comptroller of the Currency.
Express Credit Line is offered through MSSB. All credit facilities are subject to the underwriting standards and independent approval of MSSB. Funds that are drawn cannot be used to purchase, carry or trade in securities, including, without limitation, to repay margin debt, and cannot be deposited into a MSSB or other brokerage account.
Margin Loans are investment products offered through MSSB. The Express Credit Line account and Margin Loan are securities-based loans, which can be risky and are not suitable for all investors.
The contents of this document should not be construed as a commitment to lend. Please contact your Financial Advisor for more details. The outcome described within this brochure may not be attainable for all applicants. Issues relating to an applicant’s financial resources, creditworthiness, financial condition, or collateral value may affect the loan process, as well as an applicant’s eligibility for a loan/line of credit. A diversification strategy does not assure a profit or protect against loss. MSSB, its affiliates, employees and Financial Advisors and Private Wealth Managers are not in the business of providing tax or legal advice, and these materials and any statements contained herein should not be construed as tax or legal advice. This material was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer under U.S. federal tax laws. Individuals should consult their personal tax advisor or attorney for matters involving taxation and tax planning and their attorney for matters involving personal trusts and estate planning.
Preset Diversification Program is a registered Trademark of MSSB, protected in the United States and other countries.
CRC1142298 04/15