Back in February, three Democratic U.S. Senators wrote to then Acting SEC Chair Allison Herren Lee urging the SEC to reexamine its policies on Rule 10b5-1 plans — Liz blogged about it at the time. Since then, Commissioner Lee responded to the Senators with a letter saying that she instructed the staff to review Rule 10b5-1 and develop recommendations for possible changes. This excerpt from Commissioner Lee’s letter touches on aspects of the Rule for which Commissioner Lee requested review:
The Commission adopted Rule 10b5-1 in August 2000 and has not substantively revisited it since then. In the intervening years, market developments and other circumstances have revealed aspects of the rule that may need to be reconsidered, including whether better disclosures about these plans are warranted. Your letter identifies a number of approaches, such as cooling off periods, that may enhance the rule’s effectiveness. With respect to disclosure, there are no specific requirements related to information about 10b5-1 plans and, while some public companies do disclose the details of transactions made pursuant to their 10b5-1 plans, many do not. Similarly, while some insiders indicate on their beneficial ownership reporting forms when transactions are conducted pursuant to 10b5-1 plans, many do not.
As part of this review, the staff will consider the points you raise with respect to public disclosure of 10b5-1 plans, cooling off periods and short-swing profits.
In their February letter, the U.S. Senators requested feedback about the number of enforcement actions the SEC had taken with regards to 10b5-1 plans in the last five years. They also requested information about actions the SEC takes to ensure 10b5-1 plans are compliant with SEC rules. Commissioner Lee’s letter outlines, and includes a brief summary of, the Enforcement actions brought over the last five years, which includes mention of Rule 10b5-1 plans. It also says the Enforcement Division will continue to evaluate, as appropriate, Rule 10b5-1 plans during its investigations into potential Enforcement actions.
Reforms to Rule 10b5-1 could be on the horizon. Commissioner Caroline Crenshaw reportedly views a “cooling-off” period as a solution. And, as part of his confirmation process, SEC Chair Gary Gensler’s response to questions indicate he would consider modernizing Rule 10b5-1.
To help stay on top of the latest developments, mark your calendars for July 20th and tune in to our webcast “Insider Trading Policies & Rule 10b5-1 Plans”– to hear our own Dave Lynn of Morrison & Foerster, Meredith Cross of WilmerHale, Alan Dye of Hogan Lovells and Section 16.net and Haima Marlier of Morrison & Foerster discuss the new enforcement environment, Rule 10b5-1 plan considerations for share buybacks, intersection of insider trading policies and Rule 10b5-1 plans, blackout period trends and more!
-Lynn Jokela, TheCorporateCounsel.net May 25, 2021
