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SEC to consider new rules on company trading plans


(Reuters) — The head of the U.S. Securities and Exchange Commission said on Monday he has asked staff about tightening measures on trading plans companies use when selling stocks they own.

Gary Gensler said the regulations, known as Rule 10b5-1, should be aimed at preventing company insiders from abusing these trading plans to obtain huge windfalls at the expense of ordinary investors.

He added that staff should consider limitations on how these trading plans could be amended or canceled when company staff have access to nonpublic material information.

“When insiders or companies adopt 10b5-1 plans, there’s currently no cooling-off period required before they make their first trade,” Mr. Gensler said at the Wall Street Journal’s CFO Network event. “I worry that some bad actors could perceive this as a loophole to participate in insider trading.”

“Canceling a plan may be as economically significant as carrying out an actual transaction ... because material nonpublic information might influence an insider’s decision to cancel an order to sell.”

Trading plans give company insiders a structured way to buy or sell shares without running afoul of insider trading restrictions.

Insiders set up plans in advance and use them to schedule future trades, which gives executives a defense against insider-trading claims that would stem from possessing undisclosed material nonpublic information at the time of a trade.

Critics say the current safe harbor is vulnerable to abuses, allowing insiders to strategically beat the market via material, nonpublic information. Public companies sometimes disclose the plans to mitigate the perception that executives are trading on nonpublic information. Many companies often keep the plans in place in these cases even though canceling a plan is not considered a securities transaction.

Mr. Gensler said he has asked staff to consider more robust disclosure regarding the adoption, modification and terms of the trading plans and to limit the number of plans insiders can adopt, including other potential reforms.

Monday’s comments come after three Senate Democrats in February called on the regulator to freshen up the rules that oversee these plans, which they said lack transparency while maintaining risks that undermine public confidence.



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