On December 15, 2021, the U.S. Securities and Exchange Commission (SEC) unanimously approved rule proposals intended to “help close potential gaps in [the SEC’s] insider trading regime” according to SEC Chair Gary Gensler.1 The proposed rules significantly alter the Exchange Act Rule 10b5-1 framework and also provide substantial new disclosure requirements.
The proposed rules contain four primary features:
- adding new conditions to the availability of the affirmative defense provided by Rule 10b5-1(c)(1) including, most notably, subjecting a Rule 10b5-1 plan adopted by a director or officer to a 120-day cooling-off period before any trades under the plan may be executed
- imposing new disclosure requirements on public companies regarding the adoption, termination and modification of Rule 10b5-1 plans by companies or their insiders, and first-ever disclosure requirements regarding issuers’ insider trading policies
- requiring disclosure about the timing of stock awards made to executives and directors in close proximity to an issuer’s release of material nonpublic information
- amending Forms 4 and 5 to require insiders subject to Section 16 reporting requirements to identify transactions made pursuant to Rule 10b5-1 plans and to disclose stock gifts on Form 4 within two business days (as opposed to delayed reporting on Form 5, as is currently permitted).
While voting in favor of the proposed amendments, SEC Commissioners Hester Peirce and Elad Roisman expressed concerns about various aspects, including the 30-day cooling off period for issuers, the proposed certification requirement, potential unintended consequences of the “operated” in good faith condition and the proposed disclosure requirements related to insider trading policies and spring-loaded or bullet-dodging options.2
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