SEC’s New Restrictions on Insider Stock Transactions and Buybacks

The issue of stock trades by corporate executives, including buybacks, which can be timed around information only known to insiders, has been an issue for investors, and we are pleased to see the SEC move to tighten restrictions. The SEC’s proposed rule would require corporate directors or officers to wait 120 days before trading after either adopting or modifying a 10b5-1 plan. Executives would also have to certify that they are not aware of any important information not available to the public about the company or stock when creating or modifying a plan.

Response from CII:

Today, the Council of Institutional Investors (CII) applauds the Securities and Exchange Commission (SEC) for unanimously proposing rules to close loopholes and enhance transparency of executive trading plans in company stock. CII has pressed for reform of these so-called “10b5-1 trading plans” for a decade and its advocacy is referenced multiple times in the rule proposal.

Under SEC Rule 10b5-1, executives, directors and other top company insiders are able to establish a written plan that details when they will be able to buy or sell shares at a predetermined time on a scheduled basis. But press reports and empirical research suggest that some corporate insiders have traded on inside information not available to the public using a 10b5-1 plan as cover. That’s why in December 2012, CII submitted a rulemaking petition to the SEC recommending improvements to Rule 10b5-1.

“At a time when many Americans believe the stock market is rigged, cleaning up practices that can be a pathway for abusive trades will help restore trust in our markets,” said CII Executive Director Amy Borrus. “We applaud the SEC for proposing rules to close loopholes and improve transparency around 10b5-1 trading plans and will review the proposal carefully and submit a comment letter.”

For background on 10b5-1 plans and CII’s views and recommendations on them, see the June 10, 2021, testimony by CII General Counsel Jeff Mahoney before the SEC’s Investor Advisory Committee.

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