On December 15, 2021, the Securities and Exchange Commission proposed amendments to Rule 10b5-1 under the Securities Exchange Act of 1934 that would enhance investor protections against insider trading by increasing disclosure requirements for corporate officers, directors and issuers. The proposed amendments also include updates to Rule 10b5-1(c) that provides an affirmative defense to insider trading for parties that frequently have access to material nonpublic information (MNPI) such as corporate officers, directors and issuers.
The SEC reports that the proposed amendments would add new conditions to the availability of the Rule 105b-1(c) affirmative defense, including a required 120-day cooling-off period before any corporate officer or director can proceed with trades under a Rule 10b5-1 trading arrangement, while issuers would have 30-day cooling off period before they could commence with trading under these plans. The SEC also proposes that all Rule 10b5-1 trading arrangement be entered into and operated in good faith, and when adopting a new or modified trading arrangements, officers and directors must certify that they are not aware of any MPNI about the issuer or security. The SEC also proposes a prohibition on overlapping trading arrangements and would limit single-trade insider trading arrangements to one plan per 12-month period.
The proposed amendments would also create new disclosure requirements for Rule 10b5-1 trading arrangements, option grants and insider trading policies and procedures. The SEC proposes that issuers be required disclose in their annual reports whether or not they have adopted insider trading policies, and if not, provide reasons why such policies have not been adopted. In addition, issuers with insider trading policies and procedures would be required to disclose them. The SEC also proposes that issuers disclose in their annual reports their option grant policies and practices along with any grants made within 14 days of releasing MNPI and share the price of securities on day before and after the release of MNPI. In their quarterly reports, the SEC proposes that issuers disclose their adoption or termination of any Rule 10b5-1 trading arrangements and the terms of those plans. In addition, officers and directors subject to Section 16 reporting obligations would be required to disclose on Form 4 and 5 whether a reported transaction was made pursuant to a 10b5-1(c) trading arrangement, and disclose any bona fide gift of securities on Form 4.
The proposed amendments will be published in the Federal Register and on SEC.gov. The public will have 45 days after the proposed amendments are published in the Federal Register to comment on these proposals.