[This post revises and updates my earlier post primarily to reflect the contents of the proposing release.]
At an open meeting last week, the SEC voted—unanimously—to propose new rules regarding Rule 10b5-1 plans. (The SEC also voted three to two to propose new rules regarding issuer stock repurchases. The proposing release on stock buybacks will be discussed in a subsequent post.) Concerns about potential abuse of Rule 10b5-1 plans have been percolating for many years, and the proposal to add new conditions to the use of the Rule 10b5-1 affirmative defense and new disclosure requirements for 10b5-1 plans has long been anticipated. After all, these plans were one of the first rulemaking targets that SEC Chair Gary Gensler identified after he was sworn in as Chair: 10b5-1 plans, he said back in June, “have led to real cracks in our insider trading regime” and called for a proposal to “freshen up” these rules. (See this PubCo post and the SideBar below.) And in the related press release, Gensler again highlighted concerns about “gaps in Rule 10b5-1—gaps that today’s proposals would help fill.” What wasn’t anticipated was that the vote to issue the proposal would be unanimous! (Remember, though, even former SEC Chair Jay Clayton had discussed the need for “good corporate hygiene” in connection with Rule 10b5-1 plans. See this PubCo post.) But how likely is it that this newfound spirit of unanimity will carry forward to adoption? Time will tell. But do the statements on the proposal, discussed below, of Commissioners Hester Peirce and Elad Roisman already give us a preview of issues they might raise in possible future dissents on adoption of the rulemaking? There is a 45-day comment period after publication in the Federal Register, a time period that Roisman (perhaps taking a cue from Peirce) found to be of insufficient duration.
Background of the proposal
Corporate executives, directors and other insiders are constantly exposed to material non-public information, making it sometimes difficult for them to sell company shares without the risk of insider trading, or at least claims of insider trading. To address this issue, in 2000, Congress developed the Rule 10b5-1 affirmative defense. In general, Rule 10b5-1 allows a person, when acting in good faith and not aware of MNPI, to establish a formal trading contract, instruction or plan that specifies pre-established dates or formulas or other mechanisms—that are not subject to the person’s further influence—for determining when the person can sell shares, without the risk of insider trading. According to the SEC, people are “aware” of MNPI “if they know, consciously avoid knowing, or are reckless in not knowing that the information is material and nonpublic.” To be effective, the contract, instruction or plan must also conform to the specific requirements set forth in the Rule. In effect, the Rule provides an affirmative defense designed to demonstrate that a purchase or sale was not made “on the basis of” MNPI. If a 10b5-1 contract, instruction or plan is properly established, the issue is not whether the person had MNPI at the time of the purchase or sale of the security; rather, that analysis is performed at the time the instruction, contract or plan is established.
After the plan has been established, under current rules, there is no requirement for a cooling-off period—that, is the plan can provide for immediate trades. In addition, the person can modify it, so long as he or she is not aware of MNPI at the time of the modification, and can terminate it at any time—even if the insider is in possession of MNPI at the time. Why is that? Because the termination (and related cancellation of any planned trades) is not “in connection with the purchase or sale of any security.” Under existing rules, a person can adopt multiple plans that provide for trades, and there is no prohibition on overlapping plans. Although there are requirements that insiders report transactions on Forms 4 and 144, there is no independent public reporting requirement for 10b5-1 plans (other than the requirement on Form 144 to provide the date of plan adoption if the sale was under a 10b5-1 plan). However, some insiders do provide that information voluntarily.
The perceived wide berth the Rule gives insiders to conduct transactions under these plans, together with the absence of public information requirements, has long fueled controversy about Rule 10b5-1 plans. Back in 2007, as reported in the Washington Post, the SEC Enforcement Chief worried that “executives are taking advantage of a legal safe harbor to sell their stock and profit before their companies report bad news….[A]cademic studies suggest that the rule may be a cover for improper activity….If executives are in fact trading on inside information and using a plan for cover, they should expect the ‘safe harbor’ to provide no defense.’” (See this Cooley News Brief.) A few years later, a study conducted by the WSJ seemed to indicate fortuitous results from trading by insiders under 10b5-1 plans that appeared to be more than serendipitous. The article identified a number of problems with 10b5-1 plans, including the absence of public disclosure about the plan or changes to it and the absence of rules about how long the plans must be in place before trading under the plans can begin. (See this Cooley News Brief.) These have now become familiar themes. Recommendations for addressing potential problems with 10b5-1 plans were also the subject of a rulemaking petition from the Council of Institutional Investors in 2013 (see this Cooley News Brief), unsuccessful Congressional efforts in 2019 and 2021 (see this PubCo post and this PubCo post), as well as recommendations from the SEC Investor Advisory Committee just this year (see this PubCo post).
Indeed, concerns have also been expressed about other vehicles that may inadvertently permit companies and insiders to opportunistically trade on the basis of MNPI with little transparency. For example, issues have been raised about “spring-loaded” awards to executives, that is, awards made in coordination with the release of MNPI. The concern accelerated following events involving Eastman Kodak Co.’s stock last year. Kodak’s stock surged in July 2020 to its highest level in six years shortly after the company and a federal agency announced the company was set to receive a $765 million loan to help make drugs to protect against coronavirus. Kodak handed out options to executives the day before the loan was officially announced. Those options, some of which vested the day they were granted, soared in value with the stock.” The WSJ reported that one executive “stood to reap more than $95 million from the stock increase if he had exercised options at then-current prices,” although he did not in fact exercise at the time. Then, just last month, the SEC’s Office of the Chief Accountant and Corp Fin released Staff Accounting Bulletin No. 120, which provided guidance about proper recognition and disclosure of compensation cost for “spring-loaded” awards made to executives. (See this PubCo post.)
Issues have also come to light about the potential for opportunistic timing of executive gifts of shares while aware of MNPI. As reported in this article in the WSJ, a new academic study looked at “insider giving,” or, as the study authors described it, “opportunism posing as, or at least muddled with, ordinary philanthropy.” In essence, according to the WSJ, with insider giving, the donor “tim[es] the donation of a stock to a charity around inside information about the stock. That way, you take a tax deduction before bad news sends the share price tumbling or after good news sends the price higher—and the gift delivers a bigger deduction than you would have gotten otherwise.” The donation is not only tax deductible, it’s also exempt from capital gains tax that would be due on the appreciation in value upon the sale. The study authors argued that the practice is “far more widespread than previously believed,” and relied on by insiders, including large investors. Insider giving, they concluded, “is a potent substitute for insider trading.” (See this PubCo post.)
The SEC’s new proposal is designed to address these concerns by adding conditions to the availability of the Rule 10b5-1 affirmative defense that would, according to the press release, fill “critical gaps in the SEC’s insider trading regime” and enhancing disclosure requirements “to help shareholders understand when and how insiders are trading in securities” when “they may at times have material nonpublic information.”
The new SEC proposal
New conditions to Rule 10b5-1(c)(1) affirmative defense
The proposed amendments would add several new conditions to the availability of the Rule 10b5-1(c)(1) affirmative defense.
- Cooling-off periods. First, the proposal would add two new cooling-off periods—specified time periods that must elapse before trading can commence under the plan—to address concerns that companies and insiders can “misuse” the rule to establish or modify plans that take advantage of MNPI prior to disclosure of that information. Note that a “modification” of an existing Rule 10b5-1(c)(1) trading arrangement would include the cancellation of one or more trades and would be treated as a termination of the plan in its entirety and adoption of a new plan. As a result, a new cooling-off period would apply after a “modification.” Why? To discourage companies and insiders from selectively terminating or cancelling a planned trade under a Rule 10b5-1 plan based on MNPI. The SEC asks whether there should be an exception from the cooling-off period for de minimis changes to a Rule 10b5-1(c) trading arrangement.
- Officers (as defined in Rule 16a-1(f)) and directors must include, as part of their 10b5-1 plans, a 120-day cooling-off period after adoption of the plan, including modification of a trading arrangement, before any trading can commence. The 120-day period for insiders was intended to deter insiders from capitalizing on MNPI by covering essentially a quarter plus after adoption—meaning that that quarter’s financial results would be announced prior to trading under the plan.
- Issuers must include in their plans a 30-day cooling-off period after adoption or modification of the plan before any trading can commence. Why apply a cooling-off period to companies? To be sure, one of the commissioners was not entirely convinced that this condition was appropriate for companies. But the release contends that the company cooling-off period was designed to reduce the risk that companies would take advantage of information asymmetries and conducting stock buybacks while aware of MNPI. The SEC gave this example: if a company with positive MNPI buys back shares from shareholders unaware of the MNPI, it could pay lower prices for those shares than if the information had been disclosed. Further, after announcement of the MNPI and the buyback, the company’s share price may increase, allowing insiders to sell at prices “strategically inflated” by the buyback and the disclosure.
- Certifications. Section 16 officers and directors would be required to furnish to the company written certifications at the time of adoption or modification that (1) they are adopting the plan in good faith and not as part of a scheme to evade the Section 10(b) prohibitions and (2) that they are not aware of MNPI about the company or its securities. Both of these components are part of the current rule, so why require a certification? According to the SEC, the certification is designed “to reinforce directors’ and officers’ cognizance of their obligation not to trade or adopt a trading plan while aware of [MNPI], that it is their responsibility to determine whether they are aware of [MNPI] when adopting Rule 10b5-1 plans, and that the affirmative defense under Rule 10b5-1 requires them to act in good faith and not to adopt such plans as part of a plan or scheme to evade the insider trading laws.” The release acknowledges that insiders are often aware of MNPI and indicates that the determination of whether the insider is aware of MNPI involves an “inherently fact-specific analysis. Thus, a director or officer’s completion of this certification would reflect their personal determination that they do not have [MNPI].” However, the release states that the “certification would not be an independent basis of liability for directors or officers under Exchange Act Section 10(b) and Rule 10b-5. Rather the proposed certification would underscore the certifiers’ awareness of their legal obligations under the federal securities law related to the trading in the issuer’s securities.” A certification would not be required for plan terminations without adoption of a new/modified 10b5-1 plan. The release notes that “whether an inference can be drawn that an individual unlawfully traded on the basis of inside information may be informed by the manner in which they trade…, including where termination of a Rule 10b5-1 trading arrangement is soon followed by non-Rule 10b5-1 trades in the same security or issuer.” The insider must retain the certification for 10 years.
- No overlapping plans. Multiple overlapping trading arrangements for open market trades in the same class of securities would not be permitted; that is, the affirmative defense would not be available if the person who entered into the 10b5-1 plan had any outstanding (or subsequently entered into an additional) contract, instruction or plan for open market purchases or sales of the same class of securities. Why? The proposed prohibition is “designed to eliminate the ability of traders to use multiple plans to strategically execute trades based on [MNPI] and still claim the protection of an affirmative defense for such trades.” In particular, the SEC fears that the adoption of multiple trading arrangements could be used to simulate the types of schemes that led to the current prohibition on the use of a “corresponding or hedging transaction or position” with respect to the planned transactions. Under these prohibited hedging transactions, MNPI could be exploited “by setting up pre-existing hedged trading programs, and then canceling execution of the unfavorable side of the hedge, while permitting execution of the favorable transaction.” Similarly, the release envisions that here, in the absence of a prohibition on overlapping plans, “a person can adopt and employ multiple overlapping Rule 10b5-1(c)(1) trading arrangements and exploit inside information by setting up trades timed to occur around dates on which they expect the issuer will likely release [MNPI].” The SEC is “also concerned that a person could circumvent the proposed cooling-off period by setting up multiple overlapping Rule 10b5-1(c)(1) trading arrangements, and deciding later which trades to execute and which to cancel after they become aware of [MNPI] before it is publicly released.” The proposed requirement would not apply to transactions directly with the issuer, which are not executed by the director or officer on the open market, such as acquiring shares through participation in ESOPs or DRIPs. Among the questions asked by the SEC is whether there are legitimate uses of multiple, overlapping Rule 10b5-1 trade arrangements and how the proposed exclusion would “affect current practices with respect to tax qualified retirement savings plans, and tax withholding transactions with respect to equity compensation arrangements, such as stock options and restricted stock units.”
It’s worth noting here that the proposal would prohibit not just opposite-way plans as illustrated here, but also overlapping same-way plans, which may not provide the same types of opportunities for exploitation.
- Limitation on single-trade plans. The affirmative defense would be available only for one single-trade plan during any 12-month period. Why this limitation? The release refers to research indicating that “single-trade plans are consistently loss avoiding and often precede stock price declines,” thus suggesting to the SEC that insiders using single-trade plans may be trading on the basis of MNPI.
- Operate in good faith. Rule 10b5-1 trading arrangements must not only be entered into, but also operated in good faith. Here, the SEC intends “to make clear that the affirmative defense would not be available to a trader that cancels or modifies their plan in an effort to evade the prohibitions of the rule or uses their influence to affect the timing of a corporate disclosure to occur before or after a planned trade under a trading arrangement to make such trade more profitable or to avoid or reduce a loss.” To help deter fraudulent and manipulative conduct, the proposal would add as a condition a requirement to operate the plan in good faith through the duration of the plan.
New disclosure requirements
Trading arrangements and insider trading policies. Currently, there are no mandatory disclosure requirements about Rule 10b5-1 plans (other than a Form 144 representation), which, according to the SEC, deprives investors of the ability to assess potential misuse and improper trading, as well as “potential incentive conflicts and information asymmetries when making investment and voting decisions.” In addition, there is no current requirement for a company to disclose its insider trading policies or procedures, disclosure of which could help investors assess how effectively the company protects against the misuse of MNPI. Accordingly, the proposal would require enhanced disclosure regarding Rule 10b5-1 plans and insider trading policies and procedures by adding a new Item 408 to Reg S-K and corresponding changes to Forms 10-K and 10-Q to require the new disclosures discussed below. The disclosures under Item 408 would be required to be block-text- or data-tagged, as applicable, using Inline XBRL.
- Quarterly reporting of trading arrangements. Under proposed new Item 408(a) of Reg S-K, companies would be required to disclose in Forms 10-K and 10-Q whether, during the last fiscal quarter, the company or any Section 16 officer or director adopted or terminated any contract, instruction or written plan to purchase or sell securities of the company, whether or not under Rule 10b5-1, describing the material terms of those trading arrangements, including the date of adoption or termination; duration of the plan and the aggregate amount of securities to be sold or purchased under the plan. Note again that a modification is deemed to be a termination. The disclosure was designed to provide additional transparency and possibly serve as a deterrent to potential misconduct. Item 408(a) would not apply to foreign private issuers that file annual reports using Form 20-F, although the SEC asks whether it should be required in their annual reporting. The SEC also asks whether providing a description of the material terms of a trading arrangement would encourage front-running of trades under the arrangement.
- Annual disclosure of insider trading policies and procedures. Under proposed new Item 408(b) of Reg S-K, companies would be required to disclose in their Forms 10-K, as well as in proxy and information statements, whether or not (and if not, why not) they have adopted insider trading policies and procedures governing the purchase, sale or other disposition of company securities by directors, officers and employees reasonably designed to promote compliance with insider trading laws, rules and regulations, including any applicable listing standards. Companies would be required to disclose those insider trading policies and procedures, if adopted. The proposal advises that companies should provide “detailed and meaningful information from which investors can assess the sufficiency of their insider trading policies and procedures,” but does not specify the policy details that the company should address. However, the release does offer some examples, including, where part of the policy,
- “information on the issuer’s process for analyzing whether directors, officers, employees, or the issuer itself when conducting an open-market share repurchase have material nonpublic information;
- the issuer’s process for documenting such analyses and approving requests to purchase or sell its securities; or
- how the issuer enforces compliance with any such policies and procedures it may have.”
The company could also discuss the policies applicable to other dispositions, such as gifts. To the extent that these policies are contained in codes of ethics, the company could cross-reference to provisions of the code containing those policies. These disclosures would be subject to SOX 302 officer certifications. Disclosure requirements comparable to Item 408(b) would apply to foreign private issuers.
Section 16 disclosures. In December 2020, the SEC proposed amending Forms 4 and 5 under Section 16 to add a checkbox that would permit Section 16 filers to voluntarily indicate whether a reported transaction was made under a 10b5-1 plan. Commenters on the proposal asserted that, based on their own analyses, many of these transactions “were likely made on the basis of” MNPI and recommended that the disclosure be mandatory. And that’s just what is being proposed now.
In addition, currently, Section 16 filers need to report bona fide gifts of equity on Form 5 within 45 days after fiscal year end. However, the release indicates that the length of the filing period provides time to permit insiders to “engage in problematic practices,” such as making gifts of equity while in possession of MNPI or backdating a stock gift to maximize a donor’s tax benefit. The SEC notes (and Gensler affirmed in his statement below) that the insider trading laws apply to gifts because the Exchange Act does not require that a “sale” of securities be for value. As an example, the SEC indicates that a donor violates Section 10(b) in giving a company’s security “in fraudulent breach of a duty of trust and confidence” when the donor was aware of MNPI, and “knew or was reckless in not knowing that the donee would sell the securities prior to the disclosure of such information.” Accordingly, the SEC is proposing to amend Rule 16a-3 to require reporting on Form 4 of dispositions by bona fide gifts of equity securities.
- Checkbox on Forms 4 and 5. The new checkbox would require Section 16 filers to indicate whether a reported sale or purchase was made under a Rule 10b5-1(c) trading arrangement, the date of adoption of the plan, and optionally provide additional relevant information. Another optional checkbox would allow a filer to indicate whether a transaction reported on the form was made pursuant to a pre-planned contract, instruction or written plan that was not intended to satisfy the conditions of Rule 10b5-1(c).
- Form 4 gift disclosure. Under the proposal, Section 16 insiders would be required to report bona fide gifts of equity securities on Form 4 within two business days.
Spring-loaded and bullet-dodged grants. Issues have also been raised about opportunistic timing of grants of options, SARs or similar instruments in relation to the release of MNPI. For example, making the grant immediately before the release of positive MNPI (spring-loading) can result in a grant that will likely be “in the money” as soon as the MNPI is released. Likewise, delaying a grant until after the release of negative MNPI could result in lower-priced awards (bullet-dodging). The SEC believes that engagement by companies in these practices would like be material to investors, especially when they vote on say-on-pay proposals, approve executive comp or vote for directors. Although current rules require tabular disclosure of information about equity granted to NEOs, the release observes that information about grants that may be bullet-dodging or spring-loaded is not separately presented. To enhance transparency, the SEC is proposing to require disclosure of information about company award policies and a new table, presented in Inline XBRL, to be included in Forms 10-K, as well as in proxy statements and information statements related to the election of directors, shareholder approval of new comp plans and say on pay. Neither smaller reporting companies nor emerging growth companies would be exempt, but they could limit the NEOs subject to the tabular disclosure using the current scaled approach.
- Tabular disclosure of equity grants near the release of MNPI. Under proposed new Reg S-K Item 402(x), companies would be required to provide a new table showing grants to NEOs made within 14 days before or after an issuer share repurchase or the filing (or furnishing, as the case may be) of a periodic report or Form 8-K that contains MNPI and the market price of the underlying securities on the trading day before and after the release of that information. Disclosure would also be required of the grant date fair value of each award computed in accordance with FASB ASC Topic 718. The release indicates that a window of 14 days was selected to cover the period when a company may be aware of MNPI at the time that its board makes grants, for example, the period after the quarter end but before the earnings release.
- Award grant policies and practices. Proposed Item 402(x) would also require narrative disclosure about the company’s option, SAR or other equity grant policies and practices addressing the timing of grants and the release of MNPI, “including how the board determines when to grant options and whether, and if so, how, the board or compensation committee takes material nonpublic information into account when determining the timing and terms of an award. For companies that are subject to CD&A, the proposed narrative disclosure could be included in CD&A.”
At the open meeting
Peirce began her statement by saying that, given her many dissents and policy disagreements with the Chair, she felt much like the Grinch at Christmas. (Gensler responded that he did not think of her that way; he thought of her as a colleague and friend, to which she replied, “just wait.” For an idea of the potential meaning of her response, see the discussion of her statement regarding the buyback proposal in this PubCo post.) However, on this proposal, thanks to the great collaboration among commissioners and staffs, she was actually going to support the proposal. She believed that the proposed changes regarding insider cooling-off periods and overlapping plans were reasonable and that the limitation on single-trade plans was narrowly tailored. Not that she didn’t have some concerns—here providing us perhaps with a trailer of coming attractions. She viewed the certification requirement and the need to retain it for 10 years as burdensome. In addition, the release provides that the certification will not be considered an independent basis for liability, but why was that language not included in the text of the proposed rule? Might the proposed condition that the plan be “operated” in good faith lead directors and officers “to consider their Rule 10b5-1 plans in connection with corporate actions long after establishing their plans. The general idea behind a Rule 10b5-1 plan is for the director or officer to ‘set it and forget it’ to ensure that she is not trading on the basis of material nonpublic information. Are we inadvertently rendering the safe harbor a ‘sort-of safe harbor’ by making its availability contingent on ongoing good faith to be judged in hindsight?” She also questioned whether the disclosure requirements related to insider trading policies and procedures were necessary and whether the proposed disclosure requirements relating to spring-loaded options would discourage the use of equity-based compensation. (With regard to both proposals, she declared that she does not support “the indirect regulation of corporate activity through our disclosure rules.”)
Roisman also had “mixed feelings” about the proposal, approving of the cooling-off period for insiders (not companies) and gift reporting, but not much else. Really, is all the rest of this even necessary? In his view, the 120-day cooling-off period will “do almost all the work.” To say that he has “reservations about other aspects of the proposal is an understatement,” he said. Roisman expressed a fundamental concern about the rulemaking process for both proposals on the agenda: in his view, this proposal is premised on the justification that “10b5-1 plans and buybacks are being used hand-in-glove by executives to artificially inflate their companies’ share prices to benefit themselves and facilitate insider trading. Underpinning this justification are assumptions that existing rules may not adequately enable us to prosecute illegal insider trading and that 10b5-1 plans are facilitating this evasion. I have not seen evidence to support this conclusion or these underlying assumptions.” In addition, he thought that the overlap with the proposal regarding company stock buybacks “muddies the waters” about the impact of the two proposals and how they would operate together. This proposal involves real costs, but he could see few benefits. He noted that much of the comp provided to executives is in equity, and they need to be able to access their wealth. He favored the 120-day cooling-off period for insiders as a reasonable period in that MNPI would likely be stale in that time period. For companies, however, their knowledge of MNPI “should be easier to ascertain,” the cooling-off requirement would be too burdensome and would make consideration of timing, prices and amounts in repurchase programs more uncertain. In sum, it was not the rule he would have written. He also took up cudgel that Peirce previously raised about the unusual brevity of the 45-day comment period, especially in light of the timing over the holidays.
In her statement, Commissioner Lee expressed her concern that 10b5-1 plans can be used to enable rather than avoid insider trading. The SEC rule, she said, “should offer a safe harbor, not a pirates’ cove.” She contended that “prophylactic measures designed to prevent the misconduct (rather than punish it after the fact) are vital. Because if companies and corporate insiders profit by trading on information that is available only to them, they not only disadvantage other shareholders, but also erode investor confidence and thereby undermine the integrity of our markets. So today’s proposal seeks to ensure our rules are operating as intended to prevent, rather than shield, trading on inside information and bolster investor confidence in our markets.” After two decades of experience with Rule 10b5-1, she observed, these plans have proliferated and, notwithstanding the absence of disclosure requirements, many commentators have observed the “potential for abuse,” and academic studies “have produced compelling findings that suggest opportunistic use of 10b5-1 plans.” Accordingly, she was pleased with the proposal. In her view, the “proposal seeks to curb potential abuses of our rules and enhance transparency for investors, while not unduly restricting issuer and individual trading in a company’s securities for foreseeable, appropriate purposes.”
In her statement, Commissioner Caroline Crenshaw asserted that “[e]xperience and academic research [support] the need for changes.” For example, she noted that “recent academic work shows a concentration of loss avoiding trades by corporate executives made using single trade plans adopted within 60 days of an earnings announcement. Today’s proposal may reduce the prevalence of such trades by imposing important additional requirements and restrictions.” In addition, the proposed disclosure requirements would empower “corporate boards and shareholders, who have an incentive to scrutinize trades and plan cancellations that occur near in time to the release of news that moves the share price.” However, she questioned “whether some changes, particularly those impacting single trade plans, go far enough or will be as effective as other available alternatives.”
Gensler believed that the proposed amendments “would help close potential gaps in our insider trading regime.” The cooling-off periods would “more distinctly separate establishing a trading plan from the actual trades.” In addition, the prohibition of overlapping plans and limitation on single-trade plans would help eliminate the ability of insiders to “seek to pick amongst favorable plans as they please.” He also noted that “charitable gifts of securities are subject to insider trading laws,” and he was pleased about the “improved visibility that this proposal would provide into those gifts (via Form 4).” These issues, he said, “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.”