SEC, sec rules, audit, insider trading, financial reporting
Tax & AccountingDecember 15, 2021

SEC Proposes Amendments to Rule 10b5-1 Insider Trading Plans and Related Disclosures

By: CCH ARM Editorial

The SEC has issued for public comment a proposal, Rule 10b5-1 and Insider Trading. This proposal includes amendments to Rule 10b5-1 under the Securities Exchange Act of 1934 to enhance disclosure requirements and investor protections against insider trading. The proposal includes updates to Rule 10b5-1(c), which provides an affirmative defense to insider trading for parties that frequently have access to material nonpublic information, including corporate officers, directors and issuers.

The proposed amendments to Rule 10b5-1 would update the requirements for the affirmative defense, including:

  • Imposing a cooling off period before trading could commence under a plan;
  • Prohibiting overlapping trading plans; and
  • Limiting single-trade plans to one trading plan per twelve month period.

In addition, the proposal would require directors and officers to furnish written certifications that they are not aware of any material nonpublic information when they enter into the plans and expand the existing good faith requirement for trading under Rule 10b5-1 plans. This proposal aims to address critical gaps in the SEC’s insider trading regime and to help shareholders understand when and how insiders are trading in securities for which they may at times have material nonpublic information.

According to the SEC, the amendments would also elicit “more comprehensive disclosure about issuers’ policies and procedures related to insider trading and their practices around the timing of options grants and the release of material nonpublic information. A new table would report any options granted within 14 days of the release of material nonpublic information and the market price of the underlying securities the trading day before and the trading day after the disclosure of the material non-public information. Insiders that report on Forms 4 or 5 would have to indicate via a new checkbox whether the reported transactions were made pursuant to a Rule 10b5-1(c) or other trading plan. Finally, gifts of securities that were previously permitted to be reported on Form 5 would be required to be reported on Form 4.”

The comment period will remain open for 45 days after publication in the Federal Register.

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