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Securities Compliance Sentinel Analysis of cutting-edge securities industry issues

WHAT IS HAPPENING WITH SECURITIES EXCHANGE ACT OF 1934 RULE 10b5-1 PLANS?

Posted in Insider Trading, SEA Rule 10b5-1 Plans, SEC Enforcement

The SEC has announced it is monitoring if there is abuse of so-called Securities Exchange Act of 1934 Rule 10b5-1 stock trading plans. 

The SEC stated that it will monitor the situation, and, if it finds that there is abuse, the SEC will consider action, especially if it is a high level executive.  The SEC has indicated it would like to send a “message” to these parties.  Rule 10b5-1 stock trading programs allow corporate insiders to trade their companies’ securities without violating Rule 10b5-1.  Rule 10b5-1(c) is an affirmative defense against insider trading liability if corporate executives show that the trades were made pursuant to a Rule 10b5-1 plan.

The SEC regulates corporate insider stock transactions by barring short-swing profits. Further, the Sarbanes-Oxley Act of 2002 requires executives to report within two business days to the SEC if they buy or sell stock in their companies. 

In sum, the SEC simply does not like these plans, and, given its push against insider trading, changes in the Rule could be in the works.