As part of its efforts to address perceived insider abuse of Rule 10b5-1 trading plans, the SEC has proposed to amend Forms 4 and 5 to add a checkbox that insiders would be required to check when reporting a transaction that occurred pursuant to a Rule 10b5-1(c) trading arrangement. As discussed in an earlier blog, the SEC proposed to add the checkbox a year ago but said its use would be discretionary, as a convenient means of making voluntary disclosure. The SEC now says that checking the box should be mandatory, to “help investors and the public better discern whether Rule 10b5-1 trading arrangements are being used to engage in opportunistic trading on the basis of inside information.” In addition to checking the box, filers would also be required to disclose the date the trading plan was adopted.
If the SEC adopts its proposed changes to Rule 10b5-1, some insiders’ trading plans may not meet the requirements of the rule. To address that possibility, the SEC has proposed to add a second, optional checkbox to Forms 4 and 5 to allow filers to indicate that a reported transaction was made pursuant to a trading plan that was not intended to comply with Rule 10b5-1(c).
Separately, to address a different “problematic practice,” the SEC has proposed to amend Rule 16a-3 to require that gifts, which currently may be reported on Form 5 after the end of the issuer’s fiscal year, be reported on Form 4 within two business days. The new deadline is intended to address circumstances in which an insider may have gifted stock while in possession of material nonpublic information, to an entity that sold the stock in an unreported transaction, or may have backdated a gift to maximize the tax deduction. The SEC said the timing of a gift can reveal the insider’s beliefs about the issuer’s future stock price and that the earlier deadline “would help investors, other market participants, and the Commission better evaluate the actions of these insiders and the context in which equity securities gifts are being made.”
Comments are due 45 days after the proposing release is published in the Federal Register.
-Alan Dye, Section16.net December 20, 2021
