The Securities and Exchange Commission (SEC) adopted new disclosure requirements to enhance investor protections against insider trading.
The amendments include updates that aim to strengthen investor protections concerning insider trading and help shareholders understand when and how insiders are trading in securities for which they may sometimes have material nonpublic information.
“About 20 years ago, the SEC established Exchange Act Rule 10b5-1. This rule provided affirmative defenses for corporate insiders and companies to buy and sell company stock as long as they adopted their trading plans in good faith — before becoming aware of material nonpublic information,” SEC Chair Gary Gensler said. “Over the past two decades, though, we’ve heard from courts, commenters, and members of Congress that insiders have sought to benefit from the rule’s liability protections while trading securities opportunistically on the basis of material nonpublic information. I believe today’s amendments will help fill those potential gaps.”
Specifically, the amendments adopt cooling-off periods for persons other than issuers before trading can commence and add a condition that all persons entering into a Rule 10b5-1 plan must act in good faith. Further, the amendments say that directors and officers must include representations in their plans certifying that they are not aware of any material nonpublic information about the issuer or its securities and are adopting the plan in good faith.
U.S. Rep. Maxine Waters (D-CA), chair of the House Committee on Financial Services, applauded the changes, which incorporate the recommendations from her bill, the Promoting Transparent Standards for Corporate Insiders Act (H.R.1528), which passed in the House.
“These plans permit certain employees of publicly traded corporations to sell their shares without violating insider trading prohibitions, but several high-profile examples have suggested that current rules are too lax. Like my bill, the action by the SEC—under the leadership of Chair Gary Gensler—would limit the abuses and misuses of 10b5-1 plans. I look forward to continue working with the SEC to further build on the Committee’s efforts to promote transparency and competition, strengthen market integrity and protect investors, as today’s other market structure proposals would,” Waters said.
The final rules will become effective 60 days following the publication of the adoption release in the Federal Register.