• Insider Trading

  • Prohibition against Trading on Material Nonpublic Information and Pre-Clearance of and Other Restrictions on Trading in Pepco Holdings Securities

    This document sets forth the Insider Trading Policy (the "Policy") of Pepco Holdings, Inc. ("Pepco Holdings").  This Policy establishes the policies, procedures and restrictions that govern trading by personnel of Pepco Holdings and each of its subsidiaries in Pepco Holdings securities, as well as the pre-clearance requirements applicable to transactions in company stock.  The Policy has been adopted by the Board of Directors of Pepco Holdings to fulfill Pepco Holdings' responsibilities as a public company under the federal securities laws. 

    Under the federal securities laws, it is unlawful for any person who has a duty of trust and confidence to a public company to trade in the securities of the public company on the basis of material nonpublic information (so-called "inside" information).  Generally, the purchase or sale of a security is considered to be on the basis of material nonpublic information if the person making the purchase or sale is aware of the material nonpublic information at the time of the trade. 

    In addition, the Board of Directors has determined that certain trading activities involving Pepco Holdings securities or instruments that derive their value from the price of Pepco Holdings securities ("Derivative Securities") are contrary to the best interests of Pepco Holdings and are also inconsistent with the share ownership guidelines applicable to the directors and officers of Pepco Holdings.  It is important that all personnel of Pepco Holdings and its subsidiaries review the Policy carefully.  Noncompliance with the Policy is grounds for immediate dismissal.  Trading on inside information also can result in a serious violation of the securities laws leading potentially to both civil and criminal penalties.

    Insider Trading Policy 

    Who is covered by the Policy?

    Any director, officer or employee (including any person whose employment relationship is formally that of an independent contractor or consultant) of Pepco Holdings or any of its subsidiaries. 

    What are the restrictions on trading while aware of material nonpublic information?

    1.     Trading in Pepco Holdings securities or other Derivative Securities. 

    2.     Advising others concerning the trading of Pepco Holdings securities. 

    3.     Disclosing the material information to any other person for the purpose of enabling such person to trade in Pepco Holdings securities or other Derivative Securities. 

    These restrictions remain in effect until the material information is fully disclosed to the public or until the information, although not disclosed, ceases to be material.  These restrictions also continue in effect notwithstanding the resignation or retirement of the director, officer or employee. 

    What transactions are covered?

    For the purposes of this Policy, trading includes purchases and sales of securities, Derivative Securities and debt securities (such as debentures, bonds and notes) of Pepco Holdings.  Trading also includes certain transactions under Pepco Holdings plans, as follows:

    • 401(k) Plan.  This Policy's trading restrictions do not apply to purchases of Pepco Holdings common stock in the Pepco Holdings Retirement Savings Plan (the PHI 401(k) Plan) resulting from your periodic contribution of money to the plan pursuant to your payroll deduction election.  The trading restrictions do apply, however, to elections you may make under the 401(k) plan to (a) increase or decrease the percentages of your periodic contributions that will be allocated to the Pepco Holdings common stock fund; (b) make an intra-plan transfer of an existing account balance into or out of the Pepco Holdings common stock fund; (c) borrow money against your 401(k) plan account if the loan will result in a liquidation of some or all of your Pepco Holdings common stock fund balance; and (d) pre-pay a plan loan if the pre-payment will result in allocation of loan proceeds to the Pepco Holdings common stock fund.

    • Non-Management Directors Compensation Plan.  This Policy’s trading restrictions apply when a director of Pepco Holdings elects to receive Pepco Holdings securities under the Non-Management Directors Compensation Plan, and to any sales or other dispositions by such director of securities received pursuant to the plan, except that irrevocable elections to acquire Pepco Holdings securities with some or all of a director’s cash retainer made (i) in advance of the receipt thereof and (ii) at a time when the director is not in possession of material non-public information will not be subject to the Policy’s trading restrictions.

    • Direct Stock Purchase and Dividend Reinvestment Plan.  This Policy's trading restrictions do not apply to purchases of Pepco Holdings common stock under the Direct Stock Purchase and Dividend Reinvestment Plan resulting solely from your reinvestment of dividends paid on Pepco Holdings common stock.  The Policy does apply, however, to voluntary purchases of Pepco Holdings common stock resulting from additional contributions you choose to make to the plan, and to your election to participate in the plan or increase your level of participation in the plan.  This Policy also applies to your sale of any Pepco Holdings common stock purchased pursuant to or through the plan.

    • Long-Term Incentive Plans.  The restrictions in this Policy do not apply to the receipt or vesting of any award under the PHI 2012 Long-Term Incentive Plan, or any successor plan, including exercise of a stock option or stock appreciation right and the receipt of common stock pursuant to dividend equivalents granted there under.  The Policy does apply, however, to the subsequent transfer or other disposition of shares of PHI common stock received in connection with such an award.

    • Gifts/Contributions.  Dispositions of PHI stock by gift or charitable contributions the form of PHI stock constitute transactions subject to the Policy’s trading restrictions.


    What information is "material"? 

    "Material" information is any information that a reasonable investor would consider important in deciding whether to buy, sell or hold Pepco Holdings securities.  Although what is "material" will depend on the specific facts, common examples of information frequently regarded as material are: 

    • Quarterly and annual earnings or losses, and other financial information.
    • Dividend changes.
    • Proposed acquisitions, mergers or divestitures.
    • News of major new services or projects.
    • Information about a major joint venture, or the acquisition or loss of a significant contract.
    • News of significant changes in senior management. 

    Either positive or adverse information may be material.  The broadest interpretation should be given to what is "material."  Any director, officer or employee who has questions concerning the materiality of any nonpublic information, should contact the Office of the Corporate Secretary (202-872-3487) for guidance. When in doubt as to the materiality of any nonpublic information, personnel of Pepco Holdings and its subsidiaries should refrain from trading.  

    What is the required procedure for pre-clearing transactions in PHI stock?

    Directors, officers and other executives of Pepco Holdings and its subsidiaries, together with their family members, may not engage in any transaction covered by this Policy without first obtaining pre-clearance of the transaction.  Officers include individuals designated as executives of the Company.  A request for pre-clearance should be submitted to the Corporate Secretary in writing or via email at least two days in advance of the proposed transaction.  You may not proceed with the transaction until written approval is obtained.  Any such approval will be valid for only two business days after it is communicated, after which time a new request for pre-clearance must be submitted.  Please check with the Office of Corporate Secretary if you have a question regarding whether you are included in this group.

    What are the penalties for violating the insider trading rules?

    There are strict criminal and civil penalties for violating the insider trading rules.  

    • A criminal prosecution can result in a fine of up to $5 million and imprisonment for up to 20 years for each act.
    • In a civil action brought by the Securities and Exchange Commission (the "SEC"), a person who has been found to have engaged in insider trading, or of having communicated material nonpublic information to another person who engages in insider trading, can be held liable for a penalty up to three times the profit gained, or the loss avoided, by the person who traded.
    • The SEC has the authority to obtain a court order barring a director or officer who has engaged in insider trading from serving, either permanently or for a period of time, as a director or officer of any public company. 

    There are no limits on the size of the transaction that can trigger insider trading liability.  Relatively small trades have in the past occasioned investigations by the SEC and lawsuits.

    What information is "nonpublic"?  When may individuals trade in Pepco Holdings securities?

    Information is considered to be "nonpublic" if it has not received adequate public disclosure.  Adequate public disclosure requires that the information be widely disclosed (such as to the wire services through a press release) and that a sufficient period of time has elapsed for the information to be effectively disseminated to shareholders. Until there has been adequate public disclosure of material information, any director, officer or employee of Pepco Holdings or its subsidiaries with knowledge of the information must refrain from trading Pepco Holdings securities. Equally important, such person may not authorize or direct any members of such person's immediate family or anyone acting on such person's behalf to trade in Pepco Holdings securities.  As a general rule, directors, officers and employees of Pepco Holdings and its subsidiaries with inside information should wait until the third business day after a public disclosure of such information in a quarterly or annual earnings release or other form of public disclosure before trading in Pepco Holdings securities. 

    Furthermore, subject to certain limited exceptions, directors, officers and executives of Pepco Holdings and its subsidiaries are generally prohibited from trading in Company securities during certain prescribed periods each quarter, which are referred to as “black-out periods.”  A black-out period commences on the business day occurring two weeks prior to the end of each calendar quarter and ends on the second business day following the release of the Company’s year-end or quarterly financial information to the public.  An email is sent to all officers by the Office of the Corporate Secretary indicating the black-out has been lifted following the release of quarterly or year-end financial information.  All transactions covered by the Policy are prohibited during a black-out period.

    Any person with questions regarding the black-out period should contact the Office of the Corporate Secretary.

    Is there a prohibition on disclosing material nonpublic information to others?

    Yes.  It is also vital that directors, officers and employees of Pepco Holdings and its subsidiaries not disclose material nonpublic information to others (except where necessary in the proper conduct of Pepco Holdings' business).  If the recipient of the information then trades on the basis of the information, the disclosure (referred to as tipping) also is a violation of the federal securities laws and the result can be liability imposed on both the tipper and the recipient of the information. 

    Are there restrictions on the trading in the securities of other public companies?

    A director, officer or employee also could be liable under the federal securities laws for trading in the securities of any other public company based on material nonpublic information that they learn in the course of their employment with or service to Pepco Holdings.  This includes information about companies that are co-venturers, subcontractors, suppliers or customers.  Trading in securities of another public company on the basis of material nonpublic information is a violation of this Policy.

    What must I do in connection with any transaction I effect involving Pepco Holdings securities?

    If you are a director or member of the ELT or another officer subject to Section 16 reporting requirements and you effect any transaction in Pepco Holdings securities, including pursuant to a Rule 10b5-1 trading plan, you (or, in the case of a Rule 10b5-1 plan transaction, the broker administering the plan) must immediately report the transaction to the Office of the Corporate Secretary.  This requirement is to ensure compliance with the accelerated reporting requirements under Section 16 of the Exchange Act and the requirement to deliver to the Securities and Exchange Commission a Form 144 in connection with certain sales of Pepco Holdings’’ common stock and this Policy.

    Are there any exceptions to the general prohibition on trading while in possession of material nonpublic information? 

    Under SEC Rule 10b5-1, a purchase or sale of a security will not be deemed to have been made on the basis of material nonpublic information if the person making the trade demonstrates that the trade was made pursuant to a binding agreement or written plan entered into or adopted at a time that the person was not aware of any material nonpublic information.  Such a binding agreement or written plan must: 

    • state (i) the amount of securities to be purchased or sold (either a specific number of shares or a dollar amount), (ii) the price at which the securities are to be purchased or sold (either by specifying the transaction occur at the prevailing market price or at not more or less than a designated price (a "limit order")), and (iii) the date on which the securities are to be purchased or sold (either a specific date or a number of days during which the limit order is in force);

     

    • establish a written formula for determining the amounts, prices and dates of purchases and sales; or

     

    • confer discretionary authority on another person to make purchases or sales for the account of the instructing person without the exercise by the instructing person of any subsequent influence over how, when or whether the transactions are affected.

     

    After entering into the agreement or plan, the person cannot, while in possession of material nonpublic information, (i) alter or deviate from the agreement or plan or (ii) enter into or alter any corresponding or hedging transaction or position to offset or reduce the risk associated with the agreement or plan. 

    A transaction in accordance with an agreement or plan that meets the requirements of Rule 10b5-1 is permitted under this Policy, and purchases or sales pursuant to such an agreement or plan will not violate this Policy, if the following conditions are satisfied: 

    1.  Any person subject to the pre-clearance requirements of this Policy who wishes to implement a trading plan, or amend an existing pre-cleared plan, under SEC Rule 10b5-1 must also obtain pre-clearance of the plan.  A copy of the 10b5-1 plan or any amendment thereof must be provided to the Office of the Corporate Secretary for review and approval.  As required by Rule 10b5-1, you may enter into a trading plan only when you are not in possession of material nonpublic information.  In addition, you may not enter into a trading plan during a black-out period:  for example, the period of time commencing on the business day occurring two weeks prior to the end of each quarter until two business days after earnings information has been released.  Transactions effected pursuant to a pre-cleared trading plan will not require further pre-clearance at the time of the transaction if the plan specifies the dates, prices and amounts of the contemplated trades, or establishes a formula for determining the dates, prices and amounts.; and 

    2.  The person promptly reports to the Office of the Corporate Secretary (i) all transactions made pursuant to the pre-cleared trading plan and (ii) the completion or termination thereof.


    Other Trading Restrictions 

    What other transactions are covered by this Policy?

    Even in circumstances where a director, officer or employee is not aware of any material nonpublic information concerning Pepco Holdings or any of its subsidiaries, the Board of Directors has determined that certain types of transactions involving Pepco Holdings securities or a Derivative Security are prohibited.  This prohibition is based on the Board's desire to ensure that all directors, officers and employees (i) are focused on the long-term goals and prospects of Pepco Holdings and are not distracted by speculative trading in Pepco Holdings securities and Derivative Securities and (ii) do not enter into transactions with the purpose of limiting the investment risk of owning Pepco Holdings securities. 

    The following transactions are prohibited by this Policy: 

    • Short Sales. A short sale is generally a sale of a security that the seller does not own, with the plan to repurchase the security at a later time when the price is lower.  Thus, a short seller of Pepco Holdings securities can profit from the transaction only if the price of Pepco Holdings securities decreases and will suffer a loss if the price of the relevant Pepco Holdings security increases.  Under Section 16(c) of the Securities Exchange Act of 1934, it is unlawful for any of Pepco Holdings' directors and executive officers to engage in short sales of Pepco Holdings securities.  The Board of Directors has determined that as a matter of policy this prohibition should extend to all officers and employees.

     

    • Call Options and Put Options. A call option is a Derivative Security that entitles the holder to purchase a security at a specified price at any time before a future date.  A put option is a Derivative Security that entitles the holder to sell a security at a specified price at any time before a future date.  Call options and put options allow the purchaser and the seller, in effect, to speculate in the underlying security on a leveraged basis.  For this reason the Board of Directors has determined that no director, officer or employee of Pepco Holdings is permitted to buy or sell call options or put options on Pepco Holdings securities.  This prohibition includes transactions involving combinations of call options and put options sometimes described as "spreads" and "collars."

     

    • Hedging Transactions. A hedging transaction with respect to a security is a transaction entered into for the purpose of reducing or eliminating the market price risk associated with the ownership of that security.  If a person owns a particular security, a hedging transaction can involve the purchase of a put option or the sale of a call option with respect to that security.  It also can involve any of the following transactions:

     

    • A current sale of the security for delivery in the future, either at a fixed price (generally referred to a "forward contract") or at a price that can fluctuate (generally referred to as a "variable forward contract").

     

    • An agreement by the holder to exchange the future investment results (i.e. market price changes and dividends) with respect to the security owned for another fixed or variable investment return, which is sometimes referred to as an "equity swap.

     

    • The deposit of securities owned in a so-called "exchange fund," which also owns the securities deposited by a number of other participants, in exchange for an ownership interest in the fund, thereby diversifying the risk of the ownership of the securities.

     

    Because hedging transactions can result in the misalignment of the ownership interests of Pepco Holdings' directors, officers and employees and those of the company's shareholders, the Board of Directors has determined that no director, officer or employee may engage in any of the transactions described above or in any other transaction of a similar nature that has the effect of reducing or eliminating the investment risks associated with any Pepco Holdings securities owned by such person.  This prohibition applies whether the stock has been acquired from Pepco Holdings, as for example pursuant to an employee benefit plan, or has been purchased by the holder in the market. 

    • Pledging and Margining.  A pledge of Pepco Holdings securities would involve the offering of such securities to a lender as collateral for a loan.  A margin of Pepco Holdings securities would involve the use of Pepco Holdings Securities in a margin account (which typically permits the purchase of securities through the use of cash and loans) as collateral for investments in other securities.  Pledging and margining of PHI stock puts the shares of PHI stock at risk of sale if the loan cannot otherwise be repaid or if the value of securities in a margin account decrease in value.  For this reason, no director, officer or management employee of Pepco Holdings is permitted to pledge Pepco Holdings securities as collateral for a loan, use Pepco Holdings securities as collateral in a margin account, or engage in any other transaction of a similar nature that has the effect of using Pepco Holdings securities as collateral.  This prohibition applies whether the stock has been acquired from Pepco Holdings, as for example pursuant to an employee benefit plan, or has been purchased by the holder in the market.  Because shares held in brokerage accounts are generally marginable, directors, officers and employees holding shares in such accounts should instruct their brokers that PHI securities should not be subject to margin in these accounts. 

     

    Any director, officer or employee who has questions concerning the application of these prohibitions should contact the Office of the Corporate Secretary (202-872-3487) for guidance. 

    Summary of Insider Trading Rules 

    1.     The rules against "insider trading" are applicable to all directors, officers and employees of Pepco Holdings and its subsidiaries. 

    2.     Legal constraints and Company policy prohibit all directors, officers and employees of Pepco Holdings and its subsidiaries from trading in Pepco Holdings securities at any time when they are aware of material nonpublic information. 

            Officers, directors and other supervisory personnel should take steps to limit the disclosure of confidential and material information to those employees with a "need to know," and when disclosure is necessary, all recipients should be counseled to comply with the laws and Company policy. 

    3.     All directors, officers and employees are prohibited from (i) engaging in short sales of Pepco Holdings securities, (ii) purchasing and selling call options and put options on Pepco Holdings securities and other Derivative Securities,(iii) engaging in hedging transactions to reduce or eliminate the risks of ownership of Pepco Holdings securities and (iv) pledging or margining Pepco Holdings securities. 

    4.     The restrictions imposed by this Policy on Pepco Holdings’ directors, officers and employees also extend to members of such person's immediate family or to anyone acting on such person's behalf.