In our article “SEC to Consider Changes to 10b5-1 Plans” in the HSE Securities and Capital Markets Newsletter - Summer 2021 issue, we discussed how SEC Chairman Gary Gensler had announced that he was looking to revise rules governing Rule 10b5-1 plans.

On August 26, 2021, the Investor as Owner Subcommittee of the SEC’s Investor Advisory Committee (“IAC”) released proposed recommended changes, which were approved by the IAC at its September 9, 2021 meeting, but with an understanding that the recommendations would be revised to clarify that they do not apply to company repurchase plans.

The IAC is a committee that was established by the Dodd-Frank Act to advise the SEC on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, and on initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace. The IAC submits its recommendations for review and consideration by the SEC.

Background on Rule 10b5-1

As we discussed in our prior article, executives are frequently in possession of material non-public information (“MNPI”), which limits their ability to trade shares without the risk of claims of insider trading. Rule 10b5-1 was adopted by the SEC in 2000 and sets forth a procedure that provides an affirmative defense against allegations of insider trading. Under Rule 10b5-1, executives execute a 10b5-1 plan instructing a third-party to execute trades on their behalf according to a set of written instructions which specify when such trades are to be made (e.g., timing, share prices, etc.). A 10b5-1 plan must be adopted at a time when the executive is not aware of any MNPI and can be modified at any time that the executive is not aware of any MNPI.

IAC Recommendations

The recommendations propose the following changes:

  • Require a “cooling off” period of at least four months between the adoption or modification of a Rule 10b5-1 plan and the execution of the first trade under the newly adopted or newly modified plan.
  • Prohibit overlapping plans (i.e., a single person may not have more than one Rule 10b5-1 plan at a time).
  • Require electronic submission of Form 144, as opposed to a paper-only filing.
  • Require enhanced public disclosure of Rule 10b5-1 plans, including:
  • Proxy statement disclosure of the number of shares covered under Rule 10b5-1 plans by each named executive officer.
  • Form 8-K disclosure of the adoption, modification, or cancellation of Rule 10b5-1 plans, and the number of shares covered by the plan.
  • Form 4 disclosure indicating whether a sale was pursuant to a Rule 10b5-1 plan, and if so, the date that such 10b5-1 plan was adopted or modified.
  • Ensuring the insiders of all companies with securities listed on a U.S. exchange (including ADRs and ADSs filing Form 20-Fs) must file Form 4s.

The recommendations state that the IAC believes that improving the disclosure requirements for Rule 10b5-1 plans would afford greater transparency to the investing public and improve the SEC’s ability to investigate and enforce violations of the rule.

The SEC is expected to prioritize rule making on Rule 10b5-1 plans, so we may see proposed rules sometime before the end of 2021.

The IAC recommendations do not address the cancellation of Rule 10b5-1 plans while in possession of MNPI, which was a concern raised by SEC Chairman Gary Gensler in his speech at the Wall Street Journal’s CFO Network event on June 7, where he announced revising the rules. It will be interesting to see if proposed rules cover this topic.

A copy of the IAC’s recommendations is available at https://www.sec.gov/spotlight/investor-advisory-committee-2012/draft-recommendation-of-the-iao-subcommittee-on-10b5-1-plans-082621.pdf.

If you have any questions about this LEGALcurrents, please contact a member of Harter Secrest & Emery’s Securities and Capital Markets or Employee Benefits and Executive Compensation groups at 585.232.6500, 716.853.1616, or visit hselaw.com.


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