On 28 January 2019, the U.S. House of Representatives passed a bill that, if enacted into law, would direct the SEC to conduct a study of Rule 10b5-1 trading plans and revise Rule 10b5-1 in light of the study's results. In general, Rule 10b5-1 provides a safe harbor against allegations of insider trading by enabling corporate executives to enter into trading contracts, give instructions or adopt plans for the future purchase or sale of their own company's securities at a time when they are not aware of material, non-public information. Concerns over Rule 10b5-1 trading plans have emerged from time to time since its adoption in 2000.
The bill would direct the SEC to conduct a study on whether Rule 10b5-1 should be amended to:
- limit the availability of trading plans to issuer-adopted trading windows;
- limit an insider's ability to adopt multiple 10b5-1 trading plans;
- establish a mandatory delay between trading plan adoption and first trade execution;
- limit the frequency with which plans can be modified or cancelled;
- require SEC filings upon trading plan adoptions, amendments, terminations and transactions; and
- require trading plans adopted by boards of issuers to meet additional requirements.
Considering the prevalence of blackout periods that already restrict the ability of key corporate executives and insiders to execute trades, these potential additional limitations to 10b5-1 plans could be significant. The bill has been received in the Senate and referred to the Committee on Banking, Housing, and Urban Affairs.
The Act may be accessed here.
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