The Securities and Exchange Commission (SEC) held an open meeting on December 14, 2022, in part, to consider amendments to Rule 10b5-1 and related disclosure rules, including Rule 10b5-1 trading plans, insider trading policies, and issuer and insider disclosures. Following the meeting, the SEC adopted the proposed rule amendments, notably including:
For Rule 10b5-1 trading plans:
- A mandatory cooling-off period prior to trading for officers and directors that ends on the later of 90 days following adoption of the plan and two business days following disclosure of the issuer’s financial results in a Form 10-Q or Form 10-K that covers the fiscal quarter in which the plan was adopted;
- A 30-day mandatory cooling-off period prior to trading by persons other than officers, directors, or the issuer;
- No mandatory cooling-off period for issuers, although the SEC continues to consider whether adoption of a cooling-off period for issuers is warranted;
- Personal certification by officers and directors at the time of adoption of a new or modified trading plan that they are not aware of material nonpublic information about the issuer or its securities and are adopting the plan in good faith; and
- Quarterly disclosure regarding the adoption and termination of Rule 10b5-1 and other trading plans by directors and officers, including the terms of such trading plans.
With regard to the affirmative defense from insider trading liability under Rule 10b5-1(c)(1):
- Providing that it does not apply to multiple overlapping trading arrangements for open market trades; and
- Limiting its availability to one single-trade plan during any consecutive 12-month period.
Requiring disclosures:
- By an issuer in its Form 10-K as to whether the issuer has adopted insider trading policies and procedures and, if not, an explanation as to why not;
- Of grants of equity compensation awards close in time to the issuer’s disclosure of material nonpublic information; and
- On Form 4 within two business days after gifts of securities by insiders.
Also of note, on December 7, 2022, the SEC reopened the comment period on proposed amendments to issuer buyback disclosures. The Inflation Reduction Act of 2022, which imposes an excise tax of one percent of the fair market value on issuer buybacks during a taxable year for certain corporations (with certain exceptions) beginning January 1, 2023, was enacted after the proposed amendments were published in early 2022.
This article is provided for informational purposes only—it does not constitute legal advice and does not create an attorney-client relationship between the firm and the reader. Readers should consult legal counsel before taking action relating to the subject matter of this article.
