Tag: 8-K trading gap

Bills introduced to address 8-K trading gap—again

In 2015, an academic study, reported in the WSJ, showed that corporate insiders consistently beat the market in their companies’ shares in the four days preceding 8-K filings, the period that the researchers called the “8-K trading gap.” The study also showed that, when insiders engaged in open market purchases—relatively unusual transactions for insiders—during that trading gap, insiders “are correct about the directional impact of the 8-K filing more often than not—and that the probability that this finding is the product of random chance is virtually zero.” The WSJ article reported that, after reviewing the study, Representative Carolyn Maloney, a member of the House Financial Services Committee, characterized the results as “troubling” and said she was preparing legislation to address the issue. Five years later, in January 2020, by an unusually bipartisan vote of 384 to 7, the House passed HR 4335, the “8-K Trading Gap Act of 2019.”  A substantially similar bill was introduced in the Senate. But then, the bill disappeared into the vapor.  Now, a similar bill, the ‘‘8–K Trading Gap Act of 2021,” has been introduced by Maloney in the House as H.R. 4467, and in the Senate by Senator Chris Van Hollen as S.2360. According to Van Hollen, “Time and again we’ve seen corporate executives take advantage of the 8-K trading gap by selling off bundles of shares prior to a major announcement. It’s clear this gap gives corporate insiders a massive unfair advantage over the public….Our legislation will close this harmful loophole and provide fairness to everyday shareholders. I’ll be working with my colleagues on the Banking, Housing, and Urban Affairs Committee to move this legislation at once.” Although Congress certainly has a full legislative plate, with the Dems now controlling both houses of Congress, will the bill finally make its way through Congress?