The SEC today proposed a number of rule changes including, among others (at the same meeting the SEC also proposed reforms for company share repurchase plans, money market funds and securities-based swap transactions, which are not covered below), significant changes to the conditions for so-called "10b5-1" trading plans. The proposals are subject to 45 day comment periods. Key terms of the proposed changes include:

• Would add new conditions to the availability of the affirmative defense under Exchange Act Rule 10b5-1(c)(1), including:
  • Officers and directors must have a 120-day cooling off period before the first trade under a 10b5-1 plan; issuers must have a 30-day cooling off period
  • Officers and directors must certify that they are not aware of material nonpublic information about the issuer or the security when adopting a new or modified trading arrangement
  • The affirmative defense under Rule 10b5-1 does not apply to multiple overlapping Rule 10b5-1 trading arrangements for open market trades in the same class of securities
  • 10b5-1 trading arrangements to execute a single trade are limited to one plan per 12 month period
  • 10b5-1 trading arrangements must be entered into and operated in good faith (essentially adds the concept of operating in good faith not just when entering the plan)
• Would require enhanced disclosure regarding Rule 10b5-1 plans, option grants, and issuer insider trading policies and procedures, including:
  • A requirement for an issuer to disclose in its annual reports whether or not (and if not, why not) the issuer has adopted insider trading policies and procedures. Additionally, issuers would be required to disclose their insider trading policies and procedures, if they have adopted such policies and procedures
  • A requirement for an issuer to disclose in its annual reports its option grant policies and practices, and to provide tabular disclosure showing grants made within 14 days of the release of material nonpublic information and the market price of the underlying securities on the trading day before and after the release of such information
  • A requirement for an issuer to disclose in its quarterly reports the adoption and termination of Rule 10b5 1 trading arrangements and other trading arrangements by directors, officers, and issuers, and the terms of such trading arrangements
• Would update Forms 4 and 5 to require identification of transactions made pursuant to Rule 10b5- 1 plans and to disclose all gifts of securities on Form 4 (as opposed to being allowed to defer until Form 5).