Securities Law

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Ernst & Young

Rani Doyle

Managing Editor, Securities Law
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MONTH-IN-BRIEF (Dec 2021)

[lwptoc]

Securities Regulation

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

By Bella Zaslavsky, K&L Gates LLP

On December 15, 2021, the Securities and Exchange Commission announced its proposal to amend Rule 10b5-1. The announcement follows SEC Chair Gary Gensler’s June 2021 direction to the SEC Staff to propose recommended reforms to the rule, and largely track the recommendations made by the Investor Advisory Committee in September 2021. The proposed amendments are intended to enhance disclosure requirements and investor protections against insider trading.

Under Section 10(b) of Rule 10b-5 of the Securities Exchange Act of 1934, it is illegal to purchase or sell a security on the basis of material nonpublic information (MNPI). Rule 10b5‑1(c) provides an affirmative defense against insider trading to companies and insiders transacting in company securities. The proposed amendments include the following updates to Rule 10b5-1(c):

  • Cooling-off period. 10b5-1 trading arrangements entered into by insiders would include a 120-day cooling off period, while trading arrangements entered into by issuers would include a 30-day cooling-off period. Modifications would be treated as a termination of an existing arrangement and adoption of a new plan.
  • Prohibition against overlapping trading plans. Insiders would no longer be able to enter into multiple plans at any one time, or have overlapping plans, trading in the same class of securities.
  • Limitations on single-trade plans. Any single-trade plans would be limited to one trade plan per twelve-month period.

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