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Volume XI, Number 289

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Commissioner Gary Gensler Has His Eyes Set on Rule 10b5-1 Plans

The Securities and Exchange Commission (“SEC”) is honing in on Rule 10b5-1 plans. Rule 10b5-1 plans provide an affirmative defense and allow corporate directors and officers to sell and purchase securities without violating insider trading laws. Rule 10b5-1 permits corporate directors and officers to sell a predetermined number of shares at a predetermined time, the predetermination shelters corporate insiders from accusations of insider trading. It is common to see corporate insiders sell some of their shares at regular intervals.

The SEC is aiming to make changes to Rule 10b5-1 plans to address weaknesses in their structure. SEC Chairman Gary Gensler has expressed skepticism about the plans, and has asked his staff to recommend changes to the rule in order to reduce manipulations. The SEC’s announcements are impactful because Rule 10b5-1 plans are very common, they accounted for 61% of all insider trades during 2020.

The SEC is likely to focus on the following four areas in their analysis of the rule:

Extending Timeline from Plan Adoption to Trade Execution – Commissioner Gensler stated that he supports a proposal to establish a four-to-six month window between establishing a plan and executing a trade. Curing concerns that bad actors were using immediate trading after plan adoption as a loop hole to facilitate insider trading.

Removing the Ability to Cancel Trades Anytime – Commissioner Gensler stated that he is in favor of removing corporate insider’s ability to cancel planned trades at any time. The Commissioner believes that it undermines investor confidence, when corporate insiders are allowed to cancel trades at any time without having to provide any disclosures.

How Many Plans Can be Established at Once  Commissioner Gensler is considering placing limits on how many different plans can be established at once. The goal of the limitation is to prevent insiders from adopting a variety of plans and canceling plans with unfavorable trades before the trades are executed.  

Mandatory Disclosures – Commissioner Gensler is considering implementing a proposal that would require public companies to report each executives’ adoption, modification and termination of a plan.

{ Securities and Exchange Commission Chairman Gary Gensler has expressed skepticism about the plans and in June asked the commission’s staff to recommend changes that would curb abuses.

 

©1994-2021 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.National Law Review, Volume XI, Number 265
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About this Author

Charles A. Koech Corporate Attorney Mintz Law Firm Boston
Associate

Charles is a corporate attorney who draws on in-house experience with a global asset management company to advise clients on a broad range of legal, contractual, and regulatory issues. He has experience drafting and negotiating commercial and financial agreements and counseling clients on contractual disputes, compliance matters, and risk management issues. He works with clients across the financial services sector, including private equity funds, and a variety of other industries.

Prior to joining Mintz, Charles was vice president and counsel...

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