The SEC is considering additional restrictions on insider stock sales. We support these rules because it is too easy now for insiders to game the system. Even if sales are scheduled in advance, insiders control the timing of disclosures and other actions that can affect stock price.

Thomas Gorman is a former SEC attorney and is no partner at the international law firm Dorsey Whitney. His comments:

“Mr. Gensler’s recent remarks on executive stock trading plans call for the staff to consider possible amendments to the rules where it is possible that the safe- harbor rule is being used to game the system. Amendments of that type would be fully consistent with the initial focus of the rule which was to provide an avenue for executives to sell shares without the worry of possible insider trading implications. If, on the other hand, the Chair is looking to impose more restrictions on executive stock transactions, it could  undercut the purpose of executive stock programs which is to ensure the executives have “skin in the game,” Gorman says. 

“Here the staff is being directed to look at the time between the adoption of a plan and its implementation,  the cancelation of plans, disclosure requirements regarding the plans and possible limits on adopting multiple plans. Each of these points could be used as the Chairman notes to game the system. For example, if the plan is adopted at a point in time when the executive has inside information it could be used to trade illegally.  That of course is not the point.   Similar examples can easily be created for each of Mr. Gensler’s other point,” Gorman says. 

“The bottom line here is this:  The staff, and ultimately the Commission, must take care in assessing and implementing any requirements on the use of the plans that undercut the purpose and discourage executives owning firm shares.  If new provisions in the name of protection from insider trading are imposed that undercut executive stock ownership,  they may significantly undercut executive investment in and ownership of company stock which will have long term adverse consequences on corporate management,” Gorman says.