On January 18, 2019, Congresswoman Maxine Waters and Congressman Patrick McHenry introduced legislation that would require the Securities and Exchange Commission (the “Commission”) to carry out a study of Rule 10b5-1 trading plans. Rule 10b5-1 trading plans are passive investment agreements that provide an affirmative defense for companies and insiders (directors, officers and affiliated shareholders) transacting in the relevant company’s securities from claims brought under the Exchange Act. Currently, any person or entity can establish a Rule 10b5‐1 trading plan to sell or buy a company’s securities at a time when the person or entity is not aware of any material non-public information relating to the company. The study would review whether Rule 10b5-1 should be amended to:
- limit the ability to adopt a trading plan to a time when the company or insider is permitted to buy or sell securities during issuer-adopted trading windows;
- limit the ability of companies and insiders to adopt multiple trading plans;
- establish a mandatory delay between the adoption of a trading plan and the execution of the first trade made pursuant to such plan;
- limit the frequency with which companies and insiders may modify or cancel trading plans;
- require companies and insiders to file adopted trading plans with the Commission; and
- require boards of companies to adopt policies covering trading plans and monitor trading plan transactions
The Commission would be required to issue a report within one year of the adopted legislation and revise Rule 10b5-1 based on the study’s results. A copy of the legislation can be found using the below link: https://financialservices.house.gov/uploadedfiles/waters_007_xml_hr_624.pdf.