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SEC Releases C&DIs on New Insider Trading Rules

The SEC has published new Compliance and Disclosure Interpretations (CDIs) on insider trading rules regulating the use of Rule 10b5-1 plans. Continuing its rapid pace of rulemaking throughout 2022, the SEC finalized its new rules on 10b5-1 plans in December of last year, with an unusual unanimous 5-0 vote. The new rules require changes to existing plans in order for the trades executed under those plans to be eligible for an “affirmative defense” to insider trading liability, including new cooling-off periods, certifications and a ban on overlapping plans or more than one single-trade plan in 12 months. They also involve new disclosure requirements such as quarterly disclosure regarding the use of 10b5-1 plans, annual disclosure of insider trading policies, a checkbox on Forms 4 and 5 to indicate if a transaction was intended to satisfy Rule 10b5-1, and a brand-new tabular disclosure of options granted 4 days before or 1 day after the release of MNPI.

The new CDIs released by the SEC last week provide clarity on the timing of compliance and the prohibition on overlapping plans:

  • Timing of Compliance. For most companies (not Smaller Reporting Companies), compliance with the new disclosure requirements will be as follows:

    1. December 31 fiscal year-end—Quarterly disclosures must first be provided in the Form 10-Q for the period ended June 30, 2023, and should continue to be provided in the Form 10-Q for the period ended September 30, 2023 and the Form 10-K for the fiscal year ended December 31, 2023.

    2. June 30 fiscal year-end—Quarterly disclosures must first be provided in the Form 10-K for the fiscal year ended June 30, 2023.

    3. December 31 fiscal year-end—Annual disclosures must first be provided in the Form 10-K or 20-F for the fiscal year ended December 31, 2024.

    4. June 30 fiscal year-end—Annual disclosures must first be provided in the Form 10-K or 20-F for the fiscal year ended June 30, 2024.

  • Proxy Disclosures. Again, for most companies, the SEC states that for transition purposes only, this information must first be provided in proxy statements for the first annual meeting after completion of the first full fiscal year beginning on or after April 1, 2023.

  • Overlapping Plans. One of the exceptions to the ban on overlapping plans is if trading on the later plan is not authorized to begin until after all trades under the earlier plan are completed/expired. The CDI clarifies that if the executive deliberately terminates the earlier plan, then the later plan is subject to the same cooling-off period as elsewhere in the rule (i.e., 90 days for officers/directors, 30 days for others).

In other news, former SEC Commissioner Robert Jackson stated on a recent webinar that he had learned the much-anticipated climate rules would be delayed until fall, since “it’s a crucial rule that requires thoughtful, detailed staff policymaking” and the SEC was flooded with comments after the proposal. 

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Authors: Ani Huang

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