SEC proposes changes to strengthen the laws against insider trading

The US regulator has proposed amendments to Rule 10b5-1 to strengthen disclosure requirements and investor protections against insider trading. This proposal includes modifications that provide an affirmative defense for parties that regularly have access to important nonpublic information, such as corporate officers, directors and issuers.

SEC Chair Gary Gensler, said:

Gary Gensler, SEC

Gary Gensler

Over the past two decades, we’ve heard concerns about and seen gaps in Rule 10b5-1 — gaps that today’s proposals would help fill. These issues speak to the confidence that investors have in the markets. Anytime we can increase investor confidence in the markets, that’s a good thing. It helps investors deciding where to put their money. It lowers the cost of capital for businesses seeking to raise capital, grow, and innovate, and thus facilitates capital formation. I’m pleased to support today’s proposal and, subject to Commission approval, look forward to the public’s feedback.

If the proposal passes, it will impose a cooling off period before trading could begin under a plan, ban on overlapping trading plans, and it will limit single-trade plans to one trading plan per twelve-month period.

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Additionally, directors and officers will be required to put in writing that they are not aware of any important nonpublic information when they enter into the plans.

The proposal also includes updates that would require more comprehensive disclosure about issuers’ policies and procedures against insider trading, as well as their actions around the timing of options grants and the release of details on it. There will be a new table which would report any options granted within 14 days of the release of information and the market price of the underlying securities the trading day before and the trading day after the disclosure.

SEC explained that the proposed changes aim to address gaps in the regulator’s insider trading procedure and to help shareholders understand when and how insiders are trading in securities for which they may at times information.

Earlier this month, SEC filed charges in a $49 million insider trading schemes.

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