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On the same panel at the Securities Regulation Institute, we also addressed the SEC’s share repurchase rule proposal and the new Rule 10b5-1 and insider trading disclosure rules. Some observations and considerations are as follows:

1. The changes to Rule 10b5-1 adopted by the SEC are significant enough that companies now need to step back and consider how insiders should use Rule 10b5-1 going forward:

– Are Rule 10b5-1 plans with long cooling off periods and restrictions on overlapping plans too restrictive to be useful for some or all of the transactions that insiders regularly engage in?
– How will the brokers that insiders use for executing Rule 10b5-1 plans implement these rules, and will they allow the use of non-Rule 10b5-1 trading plans in some instances?
– If you have a policy that says all insider transactions must be conducted through Rule 10b5-1 plans, should you now revisit that policy given how Rule 10b5-1 has become more restrictive?
– Should the company encourage insiders to engage in transactions in the window period, rather than rely on Rule 10b5-1 transactions?
– Should you revise who are your Section 16 insiders in light of the increased transparency around Rule 10b5-1 plans?

2. Given the increased transparency around insider trading policies, it makes sense to review and update your insider trading policies now to make sure it is ready for “prime time.”
– Are your window periods appropriate, or are they too aggressive and might subject your company to scrutiny when they are made public?
– Are your preclearance procedures appropriate?
– Is the group that you subject to preclearance and window period procedures the right group?
– Do you need to revisit your approach to gifts of securities, in light of the SEC’s interpretive guidance indicating that gifts could, under certain circumstances, be treated as a trade or sale?
– What actually constitutes your policies and procedures relating to insider trading and are you comfortable with filings those materials as an exhibit to the Form 10-K?

3. Should you now consider putting in place a policy around the company’s repurchase of its own securities and dealing with material nonpublic information in light of the requirement to discuss whether such a policy exists?

4. The new disclosure required in Item 402 of Regulation S-K regarding the grant of options in an around the time of release of material nonpublic information is obviously disclosure that companies want to avoid. As a result, do you need to adopt or amend equity grant policies to ensure that you won’t have situations going forward where this disclosure would be required?

5. With respect to the SEC’s share repurchase disclosure rule proposal, a lot depends on how rapidly the SEC ends up requiring the disclosure of share repurchases.
– A one day reporting requirement would obviously create logistical difficulties, so it would make sense to try to “automate” the process as much as possible.
– A whole new series of disclosures controls and procedures will be necessary to ensure that accurate reporting is done in a timely manner.
– The decision will have to be made internally as to who “owns” this disclosure requirement, Legal or Treasury?
– Once the disclosure is required, there will need to be a coordinated effort because these disclosures could be potentially closely watched, and Treasury, Investor Relations and Legal will need to be prepared to respond to inquiries regarding the company’s share repurchase patterns.

– Dave Lynn