SEC Chair Gary Gensler gave a speech yesterday in which he talked about his request to the Staff that they make recommendations to the Commissioners regarding “freshening up” Rule 10b5-1. Gensler enumerated several “loopholes” in current Rule 10b5-1: no required cooling-off period before trades can be made under plans; no limitations on cancelling 10b5-1 plans (an executive could theoretically cancel a plan while in possession of MNPI); no mandatory disclosure requirements regarding adoption, modification and terms of 10b5-1 plans; and no limits on the number of 10b5-1 plans an insider can adopt.

Here are three things you should know about these loopholes and the potential for rulemaking:

  1. Cooling-off periods, limits on cancelling plans when in possession of MNPI, and limiting insiders to enter into only one 10b5-1 plan at a time are all consensus practices that many companies have already instituted through insider trading policies and other corporate compliance procedures.
  2. Chair Gensler specifically referred to mandating a four- to six-month cooling-off period. Query whether such a long cooling-off period is truly necessary to demonstrate that an insider has adopted a plan in good faith.

    If an executive adopts a 10b5-1 plan two days after the company releases its Q1 results – say, on May 8th – is there a need to mandate that the plan cannot trade until September or October? Or would something more in line with common practices used by many companies today – such as 30-60 days, or following the next earnings release – also demonstrate good faith?

  3. We do not yet know what type of disclosure might be mandated – a press release or Form 8-K disclosure at the time of adoption, amendment and termination; specifics regarding terms of a plan; proxy statement disclosure of company policies and procedures with respect to 10b5-1 plans; or something else.

    Many company insiders already disclose 10b5-1 plans in Section 16 filings, to provide context to those who track such filings for transactions made at times that an insider might be in possession of MNPI.

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Photo of Allison Handy Allison Handy

Allison Handy is the firmwide co-chair of the Corporate & Securities practice. Her extensive experience includes advising public and private companies in connection with corporate governance practices, disclosure issues, and capital markets transactions, such as equity offerings, debt offerings and tender offers. She…

Allison Handy is the firmwide co-chair of the Corporate & Securities practice. Her extensive experience includes advising public and private companies in connection with corporate governance practices, disclosure issues, and capital markets transactions, such as equity offerings, debt offerings and tender offers. She is also a leader of the firm’s Environmental, Social, and Governance advisory team.

Allison provides counsel to companies on a broad range of issues faced by management and directors in connection with the many compliance aspects of securities laws, including governance rules adopted by the Securities and Exchange Commission (SEC) and stock exchanges. She advises boards and committees in matters related to internal investigations and the efforts of shareholder activists, and works closely with in-house counsel, financial personnel, and outside auditors and advisors to help her clients prepare proxy statements and other reports to investors that meet complex disclosure obligations.

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Photo of Kelly Reinholdtsen Kelly Reinholdtsen

Kelly Reinholdtsen advises both public and private companies on the design and operation of equity-based arrangements, including compliance with federal and state securities laws, Section 16 and Rule 144.

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