February 3, 2023

Volume XIII, Number 34

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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.”

©2023 Katten Muchin Rosenman LLPNational Law Review, Volume III, Number 11
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About this Author

Our Financial Services Practice advises a broad spectrum of domestic and international fund managers, trading advisors, banks, brokerages and proprietary trading firms in all aspects of exchange-traded and over-the-counter commodities, securities and derivatives transactions. We help clients find business-based solutions and make business-driven decisions that are in compliance with applicable regulatory requirements. Our lawyers have extensive experience in the financial markets and are fully attuned to the need to provide advice quickly and efficiently in light of the time-sensitive and...

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