SEC chairman calls for new restrictions on executive stock-trading plans
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The Securities and Exchange Commission is drafting a proposal that would restrict plans that corporate insiders use to avoid insider-trading claims when buying or selling their own company’s stock.
Speaking Monday at The Wall Street Journal’s CFO Network event, SEC Chairman Gary Gensler said he is seeking to revise rules that govern the arrangements, known as 10b5-1 plans. Insiders set up plans ahead of time and use them to schedule future trades. The arrangement gives executives a defense against insider-trading claims that would stem from having undisclosed material nonpublic information at the time of a trade.
The plans often generate controversy because there is no required public disclosure of a plan at the time an insider sets one up. Some investors say plans can be manipulated because, for instance, executives can modify or cancel them. Public companies sometimes disclose the plans to mitigate the perception that executives are trading on nonpublic information.
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The SEC passed a rule creating 10b5-1 plans in 2000. The agency’s officials were aware of weaknesses in the structure, former SEC Commissioner Joseph Grundfest said in 2013, but the agency hasn’t refined the rule.
Gensler suggested Monday that rule changes are now due. "In my view, these plans have led to real cracks in our insider-trading regime," he said.