SEC adopts amendments to modernize rules related to insider trading plans

On December 14, the SEC Commissioners unanimously voted to adopt amendments to Rule 10b5-1 and increased disclosures of a registrant’s policies and procedures related to insider trading. The changes amend the affirmative defense to insider trading for parties that frequently have access to material nonpublic information provided under Rule 10b-5(c) and include:

imposing minimum cooling-off periods for directors, officers, and persons other than issuers; 

requiring certifications by directors and officers that they are not aware of material nonpublic information and are adopting the plan in good faith as of the date they enter into a new or modified plan; and

prohibiting overlapping trading plans and limiting single-trade plans to one trading plan per 12-month period.

The amendments also require enhanced disclosures related to a registrant’s insider trading policies and procedures as well as any option awards granted to directors and officers during specified periods around the disclosure of material nonpublic information (including earnings information). In addition, the amendments include a requirement that Form 4 and 5 filers indicate by checkbox that a reported transaction was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).

The amendments to Forms 4 and 5 will apply to beneficial ownership reports filed on or after April 1, 2023. The new disclosure requirements in Forms 10-Q, 10-K, and 20-F and proxy or information statements will apply to the first filing that covers the first full fiscal period that begins on or after April 1, 2023. Smaller reporting companies have a six-month deferral date of compliance.
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