The SEC adopted amendments (https://www.sec.gov/rules/final/2022/33-11138.pdf) 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.

The SEC today proposed a number of rule changes including, among others (at the same meeting the SEC also proposed reforms for company share repurchase plans, money market funds and securities-based swap transactions, which are not covered below), significant changes to the conditions for so-called "10b5-1" trading plans. The proposals are subject to 45 day comment periods. Key terms of the proposed changes include:

• Would add new conditions to the availability of the affirmative defense under Exchange Act Rule 10b5-1(c)(1), including:
  
  
  • Officers and directors must have a 120-day cooling off period before the first trade under a 10b5-1 plan; issuers must have a 30-day cooling off period
  • Officers and directors must certify that they are not aware of material nonpublic information about the issuer or the security when adopting a new or modified trading arrangement
  • The affirmative defense under Rule 10b5-1 does not apply to multiple overlapping Rule 10b5-1 trading arrangements for open market trades in the same class of securities
  • 10b5-1 trading arrangements to execute a single trade are limited to one plan per 12 month period
  • 10b5-1 trading arrangements must be entered into and operated in good faith (essentially adds the concept of operating in good faith not just when entering the plan)
    
    
• Would require enhanced disclosure regarding Rule 10b5-1 plans, option grants, and issuer insider trading policies and procedures, including:
  
  
  • A requirement for an issuer to disclose in its annual reports whether or not (and if not, why not) the issuer has adopted insider trading policies and procedures. Additionally, issuers would be required to disclose their insider trading policies and procedures, if they have adopted such policies and procedures
  • A requirement for an issuer to disclose in its annual reports its option grant policies and practices, and to provide tabular disclosure showing grants made within 14 days of the release of material nonpublic information and the market price of the underlying securities on the trading day before and after the release of such information
  • A requirement for an issuer to disclose in its quarterly reports the adoption and termination of Rule 10b5 1 trading arrangements and other trading arrangements by directors, officers, and issuers, and the terms of such trading arrangements
    
    
• Would update Forms 4 and 5 to require identification of transactions made pursuant to Rule 10b5- 1 plans and to disclose all gifts of securities on Form 4 (as opposed to being allowed to defer until Form 5).