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July 24, 2014

Council of Institutional Investors "CII" Submits Rule 10b5-1 Rulemaking Petition to the SEC

On November 28 the Council of Institutional Investors (CII), an association of public, corporate and union pension funds and other employee benefit plans, submitted a letter to Securities and Exchange Commission Chairman Elisse Walter requesting that the SEC consider pursuing interpretive guidance or amendments to Rule 10b5-1 under the Securities Exchange Act of 1934 that would require Rule 10b5-1 plans to adopt protocols and guidelines as follows:

  1. Companies and company insiders should only be permitted to adopt Rule 10b5-1 plans during open “trading windows;”
     
  2. Companies and company insiders should be prohibited from adopting multiple, overlapping Rule 10b5-1 plans;
     
  3. Such plans should be subject to a mandatory delay, preferably of three months or more, between the adoption of a Rule 10b5-1 plan and the execution of the first trade pursuant to such plan; and
     
  4. Companies and company insiders should not be allowed to make “frequent” modifications or cancellations of Rule 10b5-1 plans.

A Rule 10b5-1 plan permits the company or company insider that establishes the plan to trade the company’s stock pursuant to pre-set directions through an independent broker having no access to inside information even through periods when a “trading window” is closed or other material undisclosed information is present or pending.

The CII’s request was stimulated by a recent Wall Street Journal article indicating that some executives at public companies may have utilized Rule 10b5-1 plans to take advantage of pending inside information that could affect the price of the stock of their company. The CII letter indicates that these practices are “inconsistent with the spirit, if not the letter, of Rule 10b5-1.”

©2014 Katten Muchin Rosenman LLP

About the Author

Robert L. Kohl, Entertainment Law, Katten Muchin law firm
Partner

Robert Kohl concentrates his practice in public company representation, including corporate financing matters, as well as partnership, limited liability company and securities law. Robert has extensive experience in all phases of business structuring and financing, including registered public offerings (initial public offerings and secondary offerings) and private placements (including Rule 144A debt offerings), acquisitions, dispositions, leveraged buy-outs, securities regulations and venture capital financings. He represents corporations, partnerships and limited liability companies,...

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