September 1, 2021

Rule 10b5-1 Reform: Draft Recommendations From IAC Subcommittee

Last week, a subcommittee of the SEC’s Investor Advisory Committee weighed in with a set of draft recommendations for Rule 10b5-1 reforms.  This excerpt from a recent Sullivan & Cromwell memo summarizes the recommendations, which are expected to be approved at the IAC’s September 9th meeting:

The key proposals in the draft recommendation are (1) the implementation of a four-month cooling-off period before trades may occur under a newly adopted or modified plan, (2) prohibitions on overlapping plans, (3) required disclosures in Current Reports on Form 8-K, Forms 4 and proxy statements, (4) the application of Form 4 requirements to foreign private issuers and (5) the electronic filing of Form 144. Notably, many of these changes, including the four-month cooling-off period, would apply to individual and corporate trading plans, even though much of the scrutiny around trading plans has related to individual plans.

The memo provides details on these and other recommendations, and notes that many of them are consistent with the reform ideas outlined by SEC Chair Gary Gensler in June. However, there are some potential changes that Gensler referenced that aren’t addressed in the draft. These include limits on the ability of insiders to terminate plans while in possession of MNPI, and his cryptic reference to rules addressing “the intersection [of 10b5-1 plans] with share buybacks.” S&C’s memo suggests that we might see a rulemaking proposal as early as this fall.

John Jenkins