10B5-1 Rule Proposal

The SEC has sought comment on how the restriction of the overlapping plan could affect withholding tax on equity pledges, and it is possible that the SEC will address this issue in the final rules by exempting withholding tax transactions from restrictions on overlapping regimes, such as the same concerns about potentially abusive practices for « sell to hedge » transactions. which are intended only to meet withholding tax obligations do not exist. The proposed rule would require a company to indicate whether it has insider trading policies and procedures in place for the purchase and sale of its securities by directors, officers and employees, or by the company itself, that are reasonably designed to promote compliance with applicable insider trading laws and registration standards. The proposed rule would also require companies to disclose these policies and procedures, but does not specify whether the publication on the company`s website meets this requirement. A cornerstone of the affirmative defense is that the business insider is not in possession of MNPI at the time of adopting a 10b5-1 plan. To reinforce this obligation, the SEC proposed to require officers and directors to certify the following: The proposed amendments to Rule 10b5-1 would update affirmative defense requirements, including imposing a cooling-off period before negotiation can begin under a plan, prohibiting overlapping trading plans, and restricting single-trade plans to a single plan of negotiation by Twelve Month Period. In addition, the proposed rules would require directors and officers to provide written attestations that they are not aware of important non-public information when entering plans and would expand the current bona fide requirement for trading under Rule 10b5-1. The SEC also proposes to include an optional second checkbox that applicants could use for transactions « conducted under a pre-programmed contract, direction, or written plan that is not intended to comply with the terms of Rule 10b5-1(c). » The SEC`s proposals for Article 10b5(1) plans are broad and represent a significant break with the current rules applicable to such plans. The main changes are divided into two parts: the requirements of the proposed plan, which must be met for the affirmative defence to be available, and the proposed disclosure requirements, which are intended to improve transparency. Given the diversity of these policies and procedures for listed companies, the proposed rule does not specify what information must be disclosed in insider trading policies. However, the proposed rule provides guidance for such disclosures. The proposed rule states that the purpose of the requirement is to provide investors with detailed and meaningful information so that they can assess the adequacy of insider trading policies and procedures. This information may, among other things, highlight certain guidelines for the evaluation of certain internal transactions or processes for their documentation and approval.

Commissioner Elad Roisman agreed to a cooling-off period for individuals and voted in favour of the proposal on the basis of this provision.14 However, he indicated that no further changes to the rule were likely necessary and expressed concern that, for individuals, the burdens of compliance will outweigh the benefits. Commissioner Roisman would also have preferred to exempt companies from the mandatory cooling-off period, as he believes that companies should be able to decide whether share buybacks are appropriate based on up-to-date information, and it is quite easy to determine companies` knowledge of the NPM. 2 « Agents » means those defined in Rule 16a-1 of the Exchange Act for the purposes of these proposed Regulations. Officers and directors of publicly traded companies – i.e. insiders – often use rule 10b5-1 trading plans to buy or sell a predetermined number of shares of their own companies at a predetermined time. Currently, company insiders may disclose bona fide gifts of equity securities on a Form 5 in a deferred reporting schedule (within 45 days of the issuer`s fiscal year). In some circumstances, this led the company insider to report the gift more than a year after the donation. The SEC believes that the delay in reporting may have led to abuses, for example by anti-giving a donation for maximum tax benefit. The proposed rule requires that bona fide gifts of equity be reported on Form 4 before the end of the second business day following the transaction, which expedites disclosure at a date close to the event. The SEC has identified concerns that corporate insiders simultaneously enter into multiple 10b5-1 plans to strategically execute transactions under one plan and terminate transactions under another to take advantage of MNPI.

There are no restrictions for business insiders or companies to use multiple overlapping 10b5-1 plans. To address this issue, the SEC has proposed eliminating the ability of insiders to rely on an affirmative defense if they maintain multiple overlapping 10b5-1 plans for the same class of securities. Many corporations do not allow officers and directors to enter into overlapping regimes under Rule 105b-1 as part of their commercial policy. Currently, companies are required to regularly disclose all over-the-counter and private buybacks of equity securities by the company or a related buyer.6 The proposal would significantly change the current disclosure framework for entities, including REITs and certain registered closed-end funds, and would require next business day disclosure requirements. The Chair and the other four Commissioners voted in favour of the proposal and expressed their particular support for the cooling-off periods for individuals. However, this is where the agreement ended, with most Commissioners expressing a desire to amend some aspects of the proposal. Requiring disclosure in these areas can also be a catalyst for changing policies and practices regarding insider trading, disclosure of NPMIs, and the timing of equity compensation. We anticipate that the expanded disclosures could open the door to further scrutiny by shareholders. While some companies already have policies in place and make disclosures in accordance with the proposed rule, others need to act. In accordance with Rule 10b5-1, directors and other key insiders of the Company – key shareholders, officers and other persons having access to MNPI – may establish a written plan detailing when they may buy or sell shares on a planned basis at a predetermined time.