In a
February letter, Senators Elizabeth Warren (D-MA), Chris Van Hollen (D-MD), and Sherrod Brown (D-OH) requested the SEC review and reform policies covering 10b5-1 plans. The senators highlighted concerns with lack of enforcement and no requirement to disclose plans or trades. The letter recommended the SEC consider a cooling-off period between implementation and trading as well as rules to prevent short-swing purchases and windfall profits. With little fanfare, SEC Commissioner Allison Lee
responded to the letter in mid-April and the reply offers some insight into changes the SEC may be contemplating to Rule 10b5-1, including:
- Enhanced disclosure of new or modified plans (though disclosure of trades under a plan may be less likely than disclosing the plan itself.)
- A mandatory cooling-off period (in addition to Commissioner Lee’s letter, Commissioner Caroline Crenshaw views the mechanism as a potential safeguard against insider trading.)
- Less likely: a rule addressing windfalls for executives. It would be challenging at best to prove a scheme to buy short-term dips in share prices versus coincidental purchases during periods of market volatility (as seen during the first months of COVID-19 impacts).
Addressing 10b5-1 plans is on the SEC’s to-do list. Chairman Gensler stated his support for modernizing rule 10b5-1 in his confirmation hearings. Commissioner Lee also disclosed that she had instructed SEC staff to examine existing rules and current practices and provided a rundown of the requested enforcement actions. The question is where reform efforts rank. It is likely that the SEC’s current concerns regarding HCM and climate risk will take precedence, as well as concerns about investor safety/gamification of trading.
