On January 18, 2019, Congresswoman Maxine Waters and Congressman Patrick McHenry introduced legislation that would require the Securities and Exchange Commission (the "Commission") to carry out a study of Rule 10b5-1 trading plans. Rule 10b5-1 trading plans are passive investment agreements that provide an affirmative defense for companies and insiders (directors, officers and affiliated shareholders) transacting in the relevant company's securities from claims brought under the Exchange Act. Currently, any person or entity can establish a Rule 10b5‐1 trading plan to sell or buy a company's securities at a time when the person or entity is not aware of any material non-public information relating to the company. The study would review whether Rule 10b5-1 should be amended to:

  • limit the ability to adopt a trading plan to a time when the company or insider is permitted to buy or sell securities during issuer-adopted trading windows;
  • limit the ability of companies and insiders to adopt multiple trading plans;
  • establish a mandatory delay between the adoption of a trading plan and the execution of the first trade made pursuant to such plan;
  • limit the frequency with which companies and insiders may modify or cancel trading plans;
  • require companies and insiders to file adopted trading plans with the Commission; and
  • require boards of companies to adopt policies covering trading plans and monitor trading plan transactions

The Commission would be required to issue a report within one year of the adopted legislation and revise Rule 10b5-1 based on the study's results. A copy of the legislation can be found using the below link: https://financialservices.house.gov/uploadedfiles/waters_007_xml_hr_624.pdf.

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2019. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.