June 24, 2021

Van Hollen, Fischer Introduce Bipartisan Bill to Require Transparency in Corporate Stock Trading

Today U.S. Senators Chris Van Hollen (D-Md.) and Deb Fischer (R-Neb.) reintroduced their bipartisan Promoting Transparent Standards for Corporate Insiders Act, legislation to bring greater transparency to corporate stock trading. As we’ve seen repeatedly over the last year, while the U.S. Securities and Exchange Commission (SEC) prohibits the purchase or sale of securities based on non-public information, current regulations do not prevent corporate executives from gaming the system. Right now, the SEC provides executives with a safe harbor from insider trading liability if they create a trading plan that sets predetermined or scheduled times when executives will be able to buy or sell shares. However, as recent cases have shown, some dishonest players may be abusing loopholes in this system, which hurts everyday investors and reduces confidence in the integrity of our capital markets. The Promoting Transparent Standards for Corporate Insiders Act requires the SEC to study this issue, report their findings to Congress, and write additional rules addressing the ability of people to take advantage of the system. 

The bill has also been introduced in the U.S. House of Representatives by Financial Services Committee Chairwoman Maxine Waters (D-Calif.) and Ranking Member Patrick McHenry (R-N.C.). It passed the House on April 20, 2021.

“Insider trading is against the law. But current flaws in our system provide corporate executives a major loophole. This is unacceptable, and it’s time for the SEC to take action. Our bipartisan legislation will level the playing field and help ensure that corporate insiders are following the same rules as everyone else,” said Senator Van Hollen.

“Whether Americans are saving for retirement or to send kids to college through investments, they deserve transparency when it comes to corporate trading. The legislation we are reintroducing today would ensure everyone follows the rules and prevent bad actors from getting an unfair advantage. Through this common-sense bill, we can provide fairness to families and businesses in Nebraska and across the country,” said Senator Fischer.

The text of the bill can be found here.

Specifically, the bill would require the SEC to study whether Rule 10b5-1 should be amended to: (i) limit the time frame during which an issuer or insider can adopt a trading plan to issuer-approved trading windows; (ii) limit the ability of issuers and insiders to adopt multiple trading plans; (iii) establish a mandatory delay between the adoption of the trading plan and the first trade under the plan; (iv) limit the frequency that issuers and insiders may modify or cancel trading plans; (v) require issuers and insiders to file with the SEC trading plan adoptions, amendments, terminations, and transactions; and (vi) require corporate boards to adopt policies for trading plans and monitor trading plan transactions. The SEC would be required to provide a report to Congress within 180 days of enactment of the legislation, and to promulgate rules based on their findings within one year of enactment.