House Bill Includes Insider Trading Plan Study

August 27, 2018

News of Rep. Chris Collins’ (R-N.Y.) recent indictment for insider trading has brought attention to a little-known provision in the JOBS and Investor Confidence Act of 2018. Passing through the House of Representatives last month, the bill dubbed “JOBS Act 3.0” features a measure requiring the Securities and Exchange Commission (“SEC”) to study insider trading plans administered by Rule 10b5-1 of the Securities Exchange Act. Such plans let company insiders trade stock on a fixed schedule and avoid liability from insider trading.

The study includes examining the new restrictions to Rule 10b5-1, such as when an issuer can implement a 10b5-1 plan. Currently, Rule 10b5-1 offers an organized approach for company insiders to buy or sell shares without breaking insider trading laws. Critics believe Rule 10b5-1 is too open-ended and allows insiders to modify or cancel plans anytime to overcome the market via confidential information. Per the House bill, the agency would review if it should limit how often companies and insiders can change their trading plans. The SEC would also investigate how any changes could improve current insider trading prohibitions.

The bill will not have any impact on Collins, but his insider trading case brings increased attention to one of the SEC’s common enforcement actions.