The proposed rules would strengthen disclosure requirements and investor protections that provide an affirmative defense to insider trading for directors, officers and others with access to material nonpublic information.
The SEC has issued a Fact Sheet summarizing the key provision of the proposed rules.
The proposed rules were developed to provide additional investor protections related to corporate insider trading policies and activities, and to require additional disclosures of issuers regarding certain equity transactions with its directors and officers.
Amendments to affirmative defense to insider trading liability - Rule 10b5-1(c)(1)
The proposed amendments are intended to protect investors by limiting the ability for issuers and their directors and officers to profit from transacting on material nonpublic information.
They add conditions to be satisfied for a trading arrangement to be eligible for the affirmative defense in Rule 10b5-1(c)(1), including:
Addition of insider trading arrangement disclosures
The proposed rules would add disclosure requirements in periodic filings (e.g. Forms 10-Q, 10-K and 20-F) related to certain trading arrangements. These disclosures would be subject to certification of the principal executive officer and principal financial officer under Section 302 of the Sarbanes-Oxley Act.
Under the proposed rules, a registrant would be required to disclose:
Disclosure of stock option grants issued in close proximity to the release of material nonpublic information
Registrants that have issued stock options to named executive officers or directors within 14 days of the release of material nonpublic information will be required to disclose the details of each award. This includes the market price of the underlying securities in the trading day immediately before and after disclosure of the material nonpublic information.
In addition, registrants would be required to disclose policies and procedures related to the timing of option grants in the presence of material nonpublic information, and a discussion of how the board of directors or compensation committee takes into account material nonpublic information when structuring and issuing such awards.
Reporting of gifts on Form 4
The proposed amendments would also require officers, directors or beneficial owners of more than 10% of a registrant’s shares making a gift of a registrant’s equity securities to report the disposition by gift on Form 4 within two business days of the disposition.