At the end of last week, the House of Representatives approved, on a 413-3 vote, a bipartisan bill which would require the SEC to conduct an in-depth study of 10b5-1 executive stock trading plans. (A Rule 10b5-1 stock trading plan allows an individual with access to material, nonpublic information to execute sales or purchases of company stock in accordance with a pre-determined schedule, creating an affirmative defense to potential violations of company rules or federal securities laws regarding insider trading.) The bill now moves to the Senate, where it appears Democrats are eager to move the bill and are working to create the same bipartisan atmosphere as in the House. In the past, the Senate has staunchly refused to take up any bill that does not exhibit a strong path to bipartisan adoption – especially those addressing governance and compensation issues. The almost unanimous approval in the House to approve of H.R. 624 - Promoting Transparent Standards for Corporate Insiders Act positions the bill on the type of path which could lead to Senate action.
As the Center has previously reported, the bill requires the SEC to conduct an in-depth study on potential changes to the rules around 10b5-1 plans. Specifically, the SEC will examine the following changes:
- Limiting the creation of 10b5-1 trading plans during insider trading windows;
- Prohibiting multiple, overlapping 10b5-1 plans;
- Implementing a mandatory delay between the adoption of the plan and the first trade;
- Creating rules as to the frequency with which insiders may adopt, modify, or cancel plans;
- Requiring insiders to file trading plan adoptions, amendments, terminations, and transactions with the SEC; and
- Requiring board oversight of 10b5-1 plans, including corporate policies, adoption, and monitoring.
Scrutiny of 10b5-1 plans have peaked over the past 18 months in the aftermath of major corporate scandals where executive trades – those made both within and outside of 10b5-1 plans – have come under fire. While the nature of the bill requiring a study does not mean legislation or changes to 10b5-1 rules are imminent, the study’s results will provide a blueprint of the potential changes that policymakers could pursue. Given the importance of 10b5-1 plans, the bill and the resulting study are notable, and the Center will continue to engage and educate policymakers and regulators on the subject.