SEC Adopts Amendments to Modernize Rule 10b5-1 Insider Trading Plans and Related Disclosures

Posted by Howard Berkenblit on December 14, 2022 at 5:15 PM
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The SEC adopted amendments ( today to Rule 10b5-1 under the Securities Exchange Act of 1934, as well as related amendments regarding disclosures about insider trading policies, disclosures about equity awards made close in time to disclosure of material non-public information and reporting of gifts by insiders.  Issuers will be required to comply with the new disclosure requirements in Exchange Act periodic reports on Forms 10-Q, 10-K, and 20-F and in any proxy or information statements in the first filing that covers the first full fiscal period that begins on or after April 1, 2023. The final amendments defer by six months the date of compliance with the additional disclosure requirements for smaller reporting companies. Section 16 reporting persons will be required to comply with the amendments to Forms 4 and 5 for beneficial ownership reports filed on or after April 1, 2023.

Amendments Related to Rule 10b5-1 Plans

  • Adds a requirement for all plans by directors or officers to have a “cooling-off period” of the later of: (1) 90 days following plan adoption or modification; or (2) two business days following the disclosure in certain periodic reports of the issuer’s financial results for the fiscal quarter in which the plan was adopted or modified (but not to exceed 120 days following plan adoption or modification) before any trading can commence under the trading arrangement. For persons other than issuers or directors and officers, a cooling-off period of 30 days will be required.  Issuers will not be subject to a cooling off period.
  • Adds a condition for directors and officers to include a representation in their Rule 10b5-1 plan certifying, at the time of the adoption of a new or modified plan, that: (1) they are not aware of material nonpublic information about the issuer or its securities; and (2) they are adopting the plan in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b-5.
  • Adds a limitation on the ability of anyone other than issuers to use multiple overlapping Rule 10b5-1 plans.
  • Adds a limitation on the ability of anyone other than issuers to rely on the affirmative defense for a single-trade plan to one such plan during any consecutive 12-month period.
  • Adds a condition that all persons entering into a Rule 10b5-1 plan must act in good faith with respect to that plan.

New Disclosure Requirements Regarding 10b5-1 Plans, Insider Trading Policies and Option Grants

The amendments will require:

  • Quarterly disclosure by issuers regarding the use of Rule 10b5-1 plans and certain other written trading arrangements by an issuer’s directors and officers for the trading of its securities.
  • Annual disclosure of an issuer’s insider trading policies and procedures and annual filing of such policies as exhibits.
  • Certain tabular and narrative disclosures about issuer policies and Board considerations regarding awards of options close in time to (4 business days before until one business day after) the release of material nonpublic information.
  • XBRL tagging of the required disclosures.
  • Form 4 and 5 filers to indicate by checkbox that a reported transaction was intended to satisfy the affirmative defense conditions of Rule 10b5- 1(c).

Accelerated Reporting of Gifts by Insiders

The amendments will require the reporting on Form 4 of gifts of issuer securities by insiders within two business days rather than the current rules allowing annual reporting on Form 5.

Topics: Securities Exchange Act, Rule 10b5-1 plans

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The SEC Pulse provides updates and commentary from our Capital Markets Group on issues affecting publicly traded and privately owned businesses, investment banks and foreign companies who trade or raise capital in the United States, and boards of directors and company officers in securities transactions and corporate governance matters.

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