Analysis of Rule 10b5-1 Proposed Changes

The SEC has proposed an overhaul of Rule 10b5-1 plans. NASPP Executive Director Barbara Baksa recently caught up with John Jenkins, Senior Editor of CCRcorp, to discuss thoughts on the draft legislation.

John and Barbara cover many of the proposed Rule 105-1 changes in the podcast episode  Half Empty or Half Full? Thoughts on the SEC’s Rule 10b5-1 Proposal.

Here are a few highlights:

The proposed “Cooling Off” period of 4 months for 10b5-1 plan adoption seems long.

A cooling off period is the time that passes between adoption of a 10b5-1 plan and when trades under the plan can begin.

John says he’s half empty on a 4-month long period, as the idea of a cooling off period seems more about the optics than mechanics.

After all, what really matters is whether the insider was in possession of material non-public information (MNPI) or not when adopting the plan.  Thus, a shorter period of 30-60 days for cooling-off optics seems more ideal.

Insiders can only have one active 10b5-1 plan in effect at a time.

The SEC proposal includes a limit on one plan in effect at a time. This removes the potential for multiple, overlapping plans. The idea here is that the adoption of multiple plans may suggest a gaming of the system, trying to circumvent the terms of a prior plan.

Although John agrees that the adoption of multiple plans might raise some eyebrows, he also questions why a rule is needed in this situation.

He points out that there is almost no enforcement data on whether many plans create more risk of insider trading. Perhaps this is an area that needs more data before a firm rule is implemented.

Officer and Director written certification about material nonpublic information creates bureaucracy. 

The draft 10b5-1 rules include a requirement that directors and officers provide written certification to the company that they are not in possession of material, non-public information at the time they create their trading plan.

While not filed with the SEC, this written certification would be retained by the company for 10 years.

John firmly denounces this requirement as nothing more than added bureaucracy.

Such a certification appears to add nothing of substance to the process and only puts more burden on companies to maintain paperwork.

Check out the full  podcast episode for more “Half Empty, Half Full” insights on the SEC’s 10b5-1 plan proposal, including:

• Single trade arrangements
  
• Annual disclosure of the insider trading policy in the company’s 10K/proxy statements
• Section 16 reporting of 10b5-1 transactions using a checkbox on Form 4
• Section 16 reporting of gifts on Form 4 instead of Form 5
• more

As updates to the proposed legislation continue to evolve, you’ll find the latest news here in the NASPP Blog.