Rule 10b5-1 and Insider Trading
Summary
SIFMA provided comments to the Securities and Exchange Commission (SEC) on Rule 10b5-1 and related disclosure requirements. SIFMA discusses the use of Rule 10b5-1 trading plans by insiders and provides an overview of key areas of concern relating to the proposed amendments.
Excerpt
April 1, 2022
Via e-mail to [email protected]
U.S. Securities and Exchange Commission
100 F Street, NE
Washington DC 20549-1090
Attn: Ms. Vanessa A. Countryman
Re: File No. S7-20-21; Rule 10b5-1 and Insider Trading
Dear Ms. Countryman:
The Securities Industry and Financial Markets Association (“SIFMA”)1 appreciates the opportunity to comment on the Commission’s proposed amendments to Rule 10b5-1 and related disclosure requirements.2 The Proposing Release notes that the Commission’s objective in proposing the rules is to “address concerns about abuse of the rule to opportunistically trade securities on the basis of material nonpublic information in ways that harm investors and undermine the integrity of the securities markets.”3 SIFMA is supportive of the Commission’s goals to increase transparency relating to the use of trading plans by company insiders and to enhance trading plan requirements to deter potential abuses of the affirmative defense under Rule 10b5-1. However, as discussed in this comment letter, SIFMA has concerns with the scope and clarity of certain of the proposed rules and believes the adoption of the amendments as proposed would not serve the Commission’s goals. SIFMA has provided alternative approaches for the Commission’s consideration where applicable.
Executive Summary
In Part I of this comment letter, we discuss the use of Rule 10b5-1 trading plans by insiders and provide an overview of our key areas of concern relating to the proposed amendments.
In Part II, we discuss SIFMA’s position on the proposed amendments to Rule 10b5-1 applicable to insiders, which can be summarized as follows:
- SIFMA is generally supportive of a cooling-off period for insider Rule 10b5-1 plans but believes a 30-day cooling-off period would be consistent with public commentary and industry practice, would be merited in light of the existing protections in Rule 10b5-1 and would better achieve the Commission’s investor protection goals;
- SIFMA urges the Commission to consider whether certain types of Rule 10b5-1 trading plans, including sales to cover withholding taxes in connection with equity vesting, should be excluded from any mandatory cooling-off period;
- SIFMA believes that non-material plan amendments and modifications should not be considered plan terminations triggering a new cooling-off period;
- The term “operated” and the concept of “operated in good faith” are not sufficiently clear as to the conduct they are intended to proscribe; and
- SIFMA is generally supportive of a restriction on multiple overlapping Rule 10b5-1 plans for insiders, but would suggest that the focus of the restrictions be on “opposite-way” plans as well as multiple market sales plans where one plan has the effect of amending the other plan, and also be limited to directors and executive officers.
In Part III, SIFMA discusses its significant concerns regarding proposed new Item 408(a)(2) of Regulation S-K, which would require quarterly disclosure regarding the adoption, termination and material terms of any contract, instruction or written plan for the purchase or sale of equity securities of an issuer “whether or not intended to satisfy the affirmative defense conditions of Rule 10b5-1(c)” by any director or officer subject to Section 16(a) reporting.
In Part IV, we discuss the need for an appropriate transition period and for excluding from the scope of the proposed rules existing Rule 10b5-1 trading plans already in effect as of the date of effectiveness of the new rules and trading plans that are amended, modified or terminated after the effective date.
SIFMA respectfully notes that this comment letter discusses the Proposing Release solely as it relates to company insiders and that SIFMA is concurrently submitting a separate letter regarding the Proposing Release and the Share Repurchase Disclosure Modernization proposal that discusses the implications of the Proposing Release for issuers.
1 SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s nearly 1 million employees, we advocate on legislation, regulation, and business policy, affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit
http://www.sifma.org.
2 Rule 10b5-1 and Insider Trading, 87 Fed. Reg. 8686 (proposed February 15, 2022) (the “Proposing Release”).
3 Id.