Why Oracle founder Larry Ellison changed his mind on a $7.5 billion stock sale in a day

​Larry Ellison has decided to cancel a trading plan a day after disclosing it. This plan would have allowed the Oracle co-founder to sell up to 50 million shares of the software company.

Oracle has now confirmed that Ellison has sold no shares under the arrangement, which was due to remain in place until October 24. The timing has drawn attention because European market-abuse rules would not have allowed an executive to trade during the 30 days before financial results.In a press release, the company wrote, “Larry Ellison, Executive Chair of the Board and Chief Technology Officer, has cancelled his 10b5-1 Plan to sell Oracle stock. No Oracle stock was sold under that plan, and he has no other plans to sell any of his Oracle stock.”​The shares covered by the plan were worth about $8.75 billion when it was adopted on June 22 and are worth about $7.5 billion at the current price, after Oracle's stock fell roughly 16%. This trading plan also drew attention because Oracle had just reported shrinking gross margins, while the company was also increasing the expected cost of its job cuts to $2.8 billion.

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Why Larry Ellison cancelled the Oracle stock sale plan

​The plan to scrap highlights differences between US and European rules for companies. In the US, executives can set up Rule 10b5-1 plans beforehand. Meanwhile, in Europe, the trading window typically closes before financial results, rather than offering a similar safe harbour as offered in America.​Oracle has taken on significant debt as it expands its infrastructure business, while its shares have fallen roughly 20% this year.

In its latest earnings, the company reported a 121% year-over-year increase in cloud infrastructure revenue and exceeded estimates, but also posted shrinking gross margins and raised the expected cost of its job cuts to $2.8 billion. Its shares fell 1.7% after the results.​Ellison controls about 40% of Oracle and is its executive chair and chief technology officer. Selling all 50 million shares under the proposed plan would still have left him with about 1.1 billion shares.

The sale was unusual given that, according to FactSet, he has not sold more than 25,000 Oracle shares at a time since the start of the century.​

What is a Rule 10b5-1 trading plan in the US

​A Rule 10b5-1 Plan is the American way of enabling executives and other insiders to prearrange stock sales. This means an executive may develop the plan when he does not have insider information; the trades are then made according to the set instructions.The plan allows the executive to dispose of shares at times when the decision would raise questions about whether he had access to material, non-public information.

The rule was developed in 2000, and the SEC strengthened disclosure requirements in 2022.In Ellison's case, the plan has been publicly disclosed because American regulations require it. However, because no shares were sold before cancelling the plan, no transaction occurred.​

Why Europe takes a different approach

​European market-abuse rules do not have an equivalent to the US 10b5-1 safe harbour. Under the European Union's Market Abuse Regulation, people discharging managerial responsibilities generally cannot trade in their company's shares during the 30 calendar days before an interim or year-end financial report.​So the European approach closes the trading window instead of letting executives implement a pre-arranged plan that can continue during the restricted period.The disclosure rules are also different. In Europe, regulators focus more on reporting closed transactions than on the intent to set up a trading plan. Company managers must report transactions within three working days of reaching the annual threshold of €5,000.​So a plan that was set out but never executed would not have resulted in the same disclosure in Europe.​