On September 9, the Investor Advisory Committee (IAC) of the United States Securities and Exchange Commission (SEC) announced recommendations for rule changes regarding the 10b5-1 trading plans, these plans trading enacted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (Rule 10b5-1 plans). The recommendations suggest changes to how the plans in Rule 10b5-1 can be enacted, amended and terminated or rescinded. These recommendations were released by the IAC on August 26 based on calls from SEC Chairman Gary Gensler to “refresh” rule 10b5-1 and provide updates to the applicable rules. According to President Gensler, the plans for Rule 10b5-1 “revealed potential loopholes in [the SEC’s] enforcement regime for insider trading.


The SEC has adopted Rule 10b5-1 as a means of providing “insiders” of the company, namely directors, officers and others who may be in a position to hold Material Non-Public Information (MNPI) on an ongoing basis, the ability to trade in company securities without breaking insider trading laws. Insiders regularly come into possession of MNPI in the normal course of their duties, which makes it difficult to deal with their employer’s securities without violating the prohibitions on insider trading. This problem is particularly prevalent for companies that offer directors, officers and some employees stock-based compensation. When an insider buys or sells securities with knowledge of MNPI, they are considered to have traded “on the basis of” MNPI and will be subject to scrutiny for insider trading. Adopting a valid plan under Rule 10b5-1 allows insiders to establish an affirmative defense against insider trading.

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