Michael Rivera and Abby Yi Explain Potential Legislative Changes to Stock Trading Plans

September 26, 2019
Corporate Counsel

On September 25, 2019, Corporate Counsel published the last article in a three-part series from Bass, Berry & Sims attorneys Michael Rivera and Abby Yi highlighting important developments relating to policy and training guidelines involving insider trading. The first article offered guidance on how to mitigate risks associated with employees who may unintentionally share confidential information with others. The second article unpacked recommendations to comply with the U.S. Securities and Exchange Commission’s (SEC) guidance to public companies that insider trading policies and procedures should address cybersecurity risks.

Part three discusses potential legislative changes involving stock trading plans, commonly known as 10b5-1 plans, that corporate insiders have frequently relied on to legally buy and sell their company’s stock for nearly two decades. Recently, these plans have been scrutinized by the media, academia and government officials for being prone to manipulation by insiders.

To address calls for reform, the House of Representatives approved the Promoting Transparent Standards for Corporate Insiders Act (Corporate Insiders Act) in January 2019, which would require the SEC to undertake a one-year study to review whether Rule 10b5-1 under the Securities Exchange Act of 1934 should be amended to include additional restrictions on 10b5-1 plans. The permissible scope of 10b5-1 could also be impacted by the Insider Trading Prohibition Act, which was approved in May 2019 by the Financial Services Committee of the House of Representatives and seeks to more clearly define what constitutes illegal insider trading. Other insider trading legislation could be on the horizon given that former Southern District of New York U.S. Attorney Preet Bharara is leading a task force studying ways for Congress and the SEC to amend insider trading laws.

“In-house counsel should monitor the status of these proposed legislation and be prepared to modify their company’s policies, as well as educate executives, if legislation is enacted. As an interim measure, in-house counsel should consider proactively revising company policies to take into account the issues and concerns raised by critics and in the proposed legislation discussed above,” Michael and Abby explained. “More generally, public companies should routinely revisit their insider trading policies to ensure they are current with the realities of the workplace and compliant with the ever-changing regulatory landscape. As there is not a one-size-fits-all insider trading policy, companies should customize their policies to reflect their size, culture, business, and risk areas.”

All three articles are available on the Corporate Counsel website at the following links: