Thursday, December 23. 2021
The proposed amendments would modify the rule by:
- creating new disclosure requirements for executive and director compensation regarding the timing of certain equity compensation awards
- adding new conditions to the availability of the affirmative defense under Exchange Act Rule 10b5-1(c)(1)
- creating new disclosure requirements regarding issuers’ insider trading policies and regarding the adopting and termination (including revision) of Rule 10b5-1 and certain other trading arrangements by directors, officers, and issuers
- updating Forms 4 and 5 to require corporate insiders subject to the reporting requirements of Exchange Act Section 16 to identify transactions made pursuant to a Rule 10b5-1(c)(1) trading arrangement and to disclose all gifts of securities on Form 4
The proposed rule amendments are in response to decades-long concerns about critical gaps in the SEC’s regulation of insider trading. The SEC expects the proposals will help fill those gaps and therefore:
- boost investor confidence in the markets both by helping investors decide where to place their money
- facilitate capital formation by lowering the cost of capital for businesses seeking to raise capital, grow, and innovate
The proposed revisions would introduce the following new conditions to the accessibility of the Rule 10b5- 1(c)(1) affirmative defense to insider trading liability:
- 10b5-1 trading arrangements to execute a single trade are limited to one plan per 12 month period
- 10b5-1 trading arrangements must be entered into and operated in good faith
- 10b5-1 trading arrangements entered into by corporate officers or directors must include a 120-day cooling-off period before any trading may begin again under the trading arrangement after its adoption (including adoption of a modified trading arrangement)
- 10b5-1 trading arrangements entered into by issuers must include a 30-day cooling-off period before any trading may begin again under the trading arrangement after its adoption (including adoption of a modified trading arrangement)
- officers and directors are required to certify that they are not aware of material nonpublic information about the issuer or the security when adopting a new or modified trading arrangement
- the affirmative defense under Rule 10b5-1(c)(1) is not applicable to multiple overlapping Rule 10b5-1 trading arrangements for open market trades in the same class of securities
The proposed rules would also introduce enhanced transparency requirements concerning Rule 10b5-1 trading arrangements, option grants, and issuer insider trading policies and procedures, including the following:
- An issuer must disclose in its annual reports whether or not (and if not, why not) the issuer has adopted insider trading policies and procedures. Also, issuers would be required to disclose their insider trading policies and procedures, if they have adopted such policies and procedures
- An issuer must disclose in its annual reports its option grant policies and practices, and to provide tabular disclosure showing grants made within 14 days of the release of material nonpublic information and the market price of the underlying securities on the trading day before and after the release of such information
- An issuer must disclose in its quarterly reports the adoption and termination of Rule 10b5‑1 trading arrangements and other trading arrangements by directors, officers, and issuers, and the terms of such trading arrangements
- Section 16 officers and directors must disclose by checking a box on Forms 4 and 5 whether a reported transaction was made pursuant to a 10b5-1(c) trading arrangement
The proposed amendments would also require corporate insiders who are subject to the reporting requirements of Exchange Act Section 16 to disclose bona fide gifts of securities on Form 4 in a timely manner.
Interested parties may submit comments regarding the proposed rule during the comment period, which will remain open for 45 days after publication in the Federal Register. For details on ways to respond, refer to the Rule 10b5-1 and Insider Trading Proposed Rule at sec.gov.
The proposing release will be published in the Federal Register and the SEC’s website.