New Requirements for Insider Trading Plans Now in Effect
May 10, 2023
The U.S. Securities and Exchange Commission (“SEC”) has new requirements for both companies and their insiders for insider trading plans (also known as 10b5-1 plans).
Effective Dates for Compliance
Companies must comply with the new disclosure requirements in reports covering their first full fiscal period beginning on or after April 1, 2023.
Smaller Reporting Companies have an extended compliance deadline of the first filing covering a period that begins on or after October 1, 2023.
Section 16 insiders must comply with the amendments to Form 4 beginning with reports filed on or after April 1, 2023.
Fundamental Changes to Insider Trading Plans
Cooling-off Periods: Directors and officers must observe a 90-day cooling-off period from the plan’s adoption or a minimum of two business days after the disclosure of financial results. Other persons must adhere to a 30-day cooling-off period following the adoption of an insider trading plan. Currently, there is no required cooling-off period for companies trading in their own securities, but the SEC is considering such a requirement.
Certification Condition: Directors and officers must now certify that they are not aware of material nonpublic information and are adopting the plan in good faith.
Limitations on Multiple Overlapping Plans: The amendments restrict the ability of persons other than the company to use multiple overlapping plans.
Limitations on Single-Trade Plans: Persons other than the company are now limited to adopting no more than one single-trade plan during any consecutive 12-month period.
Good Faith Condition: All persons entering into an insider trading plan must act in good faith with respect to that plan.
Recommendation: We recommend that the above conditions be added to any agreement for the execution of the plan.
New Disclosure Requirements
Quarterly Disclosure: Companies must now disclose the use of insider trading plans and other trading arrangements by their directors and officers on a quarterly basis.
Annual Disclosure: Companies are now required to disclose their insider trading policies and procedures in new Item 408 of Regulation S-K and corresponding amendments to Forms 10-Q and 10-K.
Tabular and Narrative Disclosures: Companies must now provide tabular and narrative disclosures in new Item 402(x) of Regulation S-K regarding awards of options, stock appreciation rights, and other similar instruments to insiders shortly before and immediately after the release of material nonpublic information.
Inline XBRL Tags: Companies must apply Inline XBRL tags to the information specified by new Items 402(x), 408(a), and 408(b)(1).
Reporting of Dispositions of Equity Securities: Dispositions of equity securities by bona fide gifts must now be reported on Form 4, rather than Form 5, and a mandatory Rule 10b5-1(c) checkbox must be added to Forms 4 and 5.
Contact Lynne Bolduc, Esq. with questions at (949) 788-8900 or by email at lbolduc@FKBRlegal.com.
