The SEC published in the Federal Register its proposal to amend Exchange Act Rule 10b5-1 ("Trading 'on the Basis of' Material Nonpublic Information in Insider Trading Cases") to address concerns about liability coverage abuse. Comments are due by April 1, 2022. The proposed changes would (i) add new obligations for parties seeking the safe harbor provision of Rule 10b5-1(c)(1) and (ii) impose additional disclosure requirements.
As previously covered, Rule 10b5-1(c)(1) currently provides an affirmative defense against allegations of insider trading, provided that the trade in question was made pursuant to a plan made before the trader gained access to material nonpublic information. If adopted, the SEC's proposed amendments would implement additional conditions for parties seeking the affirmative defense. The SEC's proposed amendments would also heighten certain disclosure requirements around insider trading protocols.
Issuers would also be required to disclose in quarterly reports their director, officer and issuer trading plan adoptions and terminations under 10b5-1, as well as the terms of such arrangements. Finally, Section 16 officers and directors would be required to disclose 10b5-1(c) trading arrangements and gifts of securities on Forms 4 and 5.
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