Month: January 2023

SEC adopts new rules on 10b5-1 plans [UPDATED]

[This post revises and updates my earlier post primarily to provide a more detailed discussion of the contents of the adopting release.]

At an open meeting in December last year—happy new year!—the SEC voted to adopt new rules regarding Rule 10b5-1 plans. The vote was unanimous—albeit somewhat grudgingly in one case. Still, the notion of unanimity on an important Corp Fin regulation has seemed like something of a pipe dream in the last several years. Commissioner Mark Uyeda was even complimentary of the process employed for this rulemaking—and he is typically quite critical of the process (see this PubCo post)—noting that the process employed this time facilitated the development of more responsive final rules. And did I detect a note of relief in the Chair’s voice? Perhaps the unanimity was in part the result of concerns long expressed about potential abuse of Rule 10b5-1 plans—from studies reported in media to letters from Senators to recent probes conducted by the SEC and DOJ (see this PubCo post, this PubCo post and this PubCo post). These concerns have been percolating for many years, and the adoption of rules adding 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: Rule 10b5-1 plans, he said in 2021, “have led to real cracks in our insider trading regime” and called for a proposal to “freshen up” these rules. (See this PubCo post.)  The final amendments add new conditions to the availability of the Rule 10b5-1(c) affirmative defense, including cooling-off periods for directors, officers and persons other than issuers, and create new disclosure requirements. According to Gensler, “[a]bout 20 years ago, the SEC established Exchange Act Rule 10b5-1. This rule provided affirmative defenses for corporate insiders and companies to buy and sell company stock as long as they adopted their trading plans in good faith—before becoming aware of material nonpublic information. Over the past two decades, though, we’ve heard from courts, commenters, and members of Congress that insiders have sought to benefit from the rule’s liability protections while trading securities opportunistically on the basis of material nonpublic information. I believe today’s amendments will help fill those potential gaps….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 decide 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.”