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SEC Scrutinizes Rules on Stock Trading by Executives

On Behalf of | Jul 30, 2021 | Blog, Securities Law

Corporate executives and their trading practices are being further scrutinized by the U.S. Securities and Exchange Commission (SEC), which is reviewing possible rule changes, as well as possible abuses of existing rules pertaining to stock trading options.

The SEC’s plans were disclosed on June 14 through comments made by Chairman Gary Gensler in an interview with The Wall Street Journal.

SEC says ‘Rule 10b5-1’ may provide too much flexibility

According to Gensler, certain rules leave open the possibility of “cracks” in the SEC’s current insider-trading regime. Certain stock trading guidelines, he said, may be too lenient, allowing corporate insiders to engage in de facto insider trading.

Gensler said that the IRS plans to review existing trading practices under under Rule 10b5-1. In addition, regulators plan to identify and penalize individuals who abuse the rule.

Adopted in 2002, Rule 10b5-1 states that preset trades must occur well enough ahead of time to minimize the potential advantages that insiders have in trading on non-public information. Executives must make good-faith efforts to avoid trades in which insiders gain advantages due to previous knowledge of corporate developments.

The question is whether the Rule 10b5-1 provides insiders with too much flexibility when working with brokers to make trades. The SEC is reviewing possible new rules that would limit opportunities for executives to commence with such transactions; specifically, the SEC plans to look at executives’ ability to create, change and cancel stock trading plans.

If you have questions or concerns about these or other securities matters, please contact the securities law attorneys of Ford O’Brien Landy LLP. Our attorneys advise and represent clients in matters of regulatory defense in New York and nationwide.

Source: Reuters, “SEC targets corporate insider-trading loopholes with potential rules, enforcement review,” June 15, 2021