SEC Chair Addresses “Cracks” In Insider Trading Rules


Speaking at the CFO Network Summit on June 7, 2021, SEC Chair Gary Gensler informed the audience about his plans to “freshen up” Rule 10b5-1. Approximately 20 years ago, the SEC enacted Rule 10b5-1 as a means to regulate insider trading.  Rule 10b5-1 provides a safe harbor for companies and company insiders to purchase and sell shares of stock pursuant to preestablished trading plans adopted in good faith and before becoming aware of material information.  

In Gensler’s view, however, some of these plans suffer from “real cracks,” such as: (i) the lack of a cooling off period between the time a plan is adopted and the time the first trade is made; (ii) no restrictions on when 10b5-1 plans can be cancelled; and (iii) no limits on the number of 10b5-1 plans that insiders can adopt.  Seeking to level the playing field and increase investor confidence in the markets, Gensler has asked the SEC staff to make recommendations on proposed changes to Rule 10b5-1.
 

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About Nina Varindani

Nina Varindani is a Partner in Faruqi & Faruqi, LLP's New York office and focuses her practice on securities litigation and shareholder derivative litigation, representing investors in federal and state class action and derivative lawsuits, books and records demands and litigation demands.

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