Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

In public remarks SEC Gary Gensler hinted at the following changes to Rule 10b5-1:

  • When insiders or companies adopt 10b5-1 plans, there’s currently no cooling off period required before they make their first trade. Chair Gensler worries that some bad actors could perceive this as a loophole to participate in insider trading. Proposals to mandate four- to six-month cooling-off periods have received public, bipartisan support from former SEC Chair Jay Clayton and current Commissioners Caroline Crenshaw and Allison Herren Lee. Chair Gensler believes this approach deserves further consideration.
  • There currently are no limitations on when 10b5-1 plans can be canceled. As a result, insiders can cancel a plan when they do have material nonpublic information. This seems upside-down to Chair Gensler who believes this may undermine investor confidence. In Chair Gensler’s view, canceling a plan may be as economically significant as carrying out an actual transaction. That’s because material nonpublic information might influence an insider’s decision to cancel an order to sell. Thus, Chair Gensler has asked staff to consider limitations on when and how plans can be canceled.
  • There are no mandatory disclosure requirements regarding Rule 10b5‑1 plans. Chair Gensler believes more disclosure regarding the adoption, modification, and terms of Rule 10b5‑1 plans by individuals and companies could enhance confidence in our markets.
  • There are no limits on the number of 10b5-1 plans that insiders can adopt. With the ability to enter into multiple plans, and potentially to cancel them, Chair Gensler believes insiders might mistakenly think they have a “free option” to pick amongst favorable plans as they please. Chair Gensler has asked staff to consider whether there should be a limit on the number of 10b5-1 plans.

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