On January 13, 2020, the United States House of Representatives approved the 8-K Trading Gap Act, H.R. 4335, 116th Cong. (2019-20), (the “Bill”) by a vote of 384-7. The Bill is designed to close a “loophole” to the current laws that prohibit corporate insiders from trading company stock using material nonpublic information.
More specifically, the Bill’s purpose is to prohibit corporate insiders from trading company stock after a significant corporate event but before that information is publicly disclosed on SEC Form 8-K, which can be up to four days (the “Gap”). The Bill stems from a 2015 study, co-authored by SEC commissioner Robert J. Jackson, Jr., which found that corporate insiders not only can profit, but in fact have been profiting on trading during the Gap. Notwithstanding the study’s findings, this type of insider trading is often hard to prove, which many believe warrants an outright ban on trading during the Gap as proposed in the Bill.
It is unclear when the Senate will consider and vote on the Bill.
For more information, the Bill can be found here, and the 2015 Study can be found here.
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