prologue
In August 2000, the Securities and Exchange Commission (“SEC”) adopted Rule 10b5-1 under the Securities Exchange Act of 1934 (the “Securities Exchange Act”), which, among other things, provides an affirmative defense to charges. established. a security based on material nonpublic information (“MNPI”) of a transaction executed pursuant to a binding arrangement when a person was not in possession of material nonpublic information about the issuer of the security; trading, or security itself. These arrangements became known as 10b5-1 plans. On December 14, 2022, the SEC adopted an amendment to Rule 10b5-1 intended to address concerns about opportunistic trading of his MNPI under the 10b5-1 plan. In short, the fix is: (ii) create new disclosure requirements regarding the issuer’s insider trading policies and procedures and the adoption and termination of her 10b5-1 plan by directors and officers; (iii) create new disclosure requirements for stock-based compensation awards made to directors and executive officers in time for the issuer’s disclosure of her MNPI; (iv) updating Forms 4 and 5 to confirm whether the transaction reported was made in accordance with his 10b5-1 plan and all bona fide gifts of securities on Form 4 (instead of Form 5); request the applicant to disclose
Background
Section 10(b) of the Securities and Exchange Act and Rule 10b-5 thereunder, in violation of the obligations owed to the issuer of securities, the shareholders of such issuers, or the issuer of securities, under the MNPI trading in securities is prohibited. MNPI source. Rule 10b5-1 clarifies that if he was aware of the MNPI when he completed the transaction, he will be deemed to have traded under the MNPI. Rule 10b5-1(c) provides an affirmative defense against liability for transactions under the MNPI for transactions entered into pursuant to a 10b5-1 plan. To establish an affirmative defense, a 10b5-1 plan must demonstrate that: (i) Adopted without knowing MNPI; (ii) specify the amount, price and date of each security to be purchased or sold; Contains a written formula, algorithm, or computer program for determining the amount, price, and date of each purchase or sale. or did not allow that person to subsequently influence how, when, or whether to trade. (iii) was a binding contract, instruction, or written plan; (iv) entered into in good faith and not as part of a plan or scheme to circumvent the prohibitions of Rule 10b-5;
Amendments to Rule 10b5-1
Cooling off period
- Directors and Officers Adopting a 10b5-1 plan (as defined in Rule 16a-1(f) under the Exchange Act) may not rely on the affirmative defenses of Rule 10b5-1. 1) 90 days after adoption or modification of the plan; or (2) after disclosure in certain periodic reports (Forms 10-Q, 10-K, 20-F, or 6-K) of the issuer’s financial results for the fiscal quarter in which the plan was adopted or changed. After 2 business days (but not more than 120 days after plan adoption or change).
- Persons other than the issuer, directors or officers Adoption of a 10b5-1 plan cannot be relied upon on the affirmative defenses of Rule 10b5-1 unless the plan provides that trading will not commence until 30 days after adoption or modification of the plan.
- 10b5-1 Plan Amendments or Changes Affects the amount, price, or timing of the purchase or sale of any security (or modification or alteration of any written formula or algorithm, or computer program that affects the amount, price, or timing of the purchase or sale of any security); ), it will be considered termination of the original plan and adoption of the new plan, and the new cooling-off period will apply.
- The amendments to Rule 10b5-1 do not affect affirmative defenses available under 10b5-1 Plans entered into prior to the effective date of the revised rule. Effective Date of Revised Regulations. In that case, the amendment or change is equivalent to adopting the new His 10b5-1 Plan, and the rules as amended apply.
Director and Officer Qualifications
- Directors and Officers (1) not being aware of the MNPI for the issuer or its securities and (2) being part of a plan or scheme for them to circumvent the prohibition of Rule 10b-5 at the time of adoption of the new or modified plan; Adopt the plan in good faith, not as.
Restrictions on Multiple Duplicate 10b5-1 Plans and Single Transaction Arrangements
- Persons other than the issuer You may not hold more than one outstanding 10b5-1 Plan for the purpose of selling a class of securities on the open market during the same period (except for Sell-to-cover transactions).
- Persons other than the issuer may rely on the affirmative defenses of Rule 10b5-1(c)(1) for only one proposed transaction during a 12-month period (excluding sell-to-cover transactions).
Modified Good Faith Condition
- everyone 10b5-1 If you enter into a plan, you must act in good faith with respect to that plan (e.g., do not engage in opportunistic transactions with respect to such plan or profit from transactions under such plan). (Do not improperly influence the timing of a company’s disclosures because of
Additional Disclosure: 10b5-1 Trade Agreements
Quarterly Reporting of Rule 10b5-1 and Non-10b5-1 Trade Agreements
- New Item 408(a) in Regulation SK requires:
- 10b5-1 Quarterly disclosures by the issuer regarding the use of the plan, and a written statement that meets the requirements for a non-rule 10b5-1 trading arrangement as defined in new Section 408(c) (“Non-Regulatory 10b5-1 Trading Arrangements”). arrangement) by the directors and officers of the issuer for trading in securities. Required disclosures include:
- Whether a director or officer has adopted or terminated (i) a 10b5-1 plan and/or (ii) a non-rule 10b5-1 trading agreement.When
- 10b5-1 Plan or non-rule 10b5-1 Description of material terms of the trading arrangement. Other than terms relating to the price at which the individual executing the respective trading arrangement is permitted to trade.
- Names and titles of directors or officers.
- Adoption or termination date of the trading agreement.
- the term of the trading agreement; and
- The total number of securities sold or purchased under the trading agreement.
- Amendments or changes to the 10b5-1 Plan by any director or officer that initiate a new “cooling-off” period as described above are also considered a termination of the existing plan and must be disclosed. Adoption of a new plan.
- 10b5-1 Quarterly disclosures by the issuer regarding the use of the plan, and a written statement that meets the requirements for a non-rule 10b5-1 trading arrangement as defined in new Section 408(c) (“Non-Regulatory 10b5-1 Trading Arrangements”). arrangement) by the directors and officers of the issuer for trading in securities. Required disclosures include:
Annual disclosure of insider trading policies and procedures
- New Item 408(b) has the following requirements:
- Form 10-K as to whether the issuer has adopted insider trading policies and procedures or, if the issuer has not adopted such insider trading policies and procedures, whether an explanation is required. and 20-F, and Annual Disclosure in Proxy/Information Statements for Schedules 14A and 14C. Why not?
- Regulation SK, Item 601, requires issuers to file their insider trading policies and procedures annually as an exhibit to Forms 10-K and 20-F.
Identifying Rule 10b5-1 and Non-10b5-1 Transactions on Form 4/5
- Filers of Forms 4 and 5 must indicate by a check box whether the reported transaction is intended to meet the affirmative defense conditions of Rule 10b5-1(c).
Disclosure re: Specific Equity Awards Close to MNPI Release
- New item 402(x) requires:
- Disclosure by explanation Concerning the issuer’s policies and practices regarding the timing of the granting of instruments such as stock options, stock valuation gains (“SARs”) and/or similar options in connection with the disclosure of material non-public information by the issuer. to award such awards (for example, whether such awards will be awarded on a prescribed schedule); material non-public information in determining the timing and terms of any awards by the Board or Compensation Committee; whether and, if so, how, and whether the issuer timed the disclosure of material nonpublic information for the purpose of affecting the value of key management personnel.
- Tabular disclosure During the last completed fiscal year, instruments such as stock options, SARs, and/or similar options were awarded within four (4) business days prior to being awarded to a named executive officer (“NEO”); If so, include the following information for each such award: filing a periodic report on Form 10-Q or Form 10-K, or an updated report on Form 8-K disclosing material nonpublic information (including earnings information) other than an updated report on Form 8-K; Submission or Submission-K will disclose material new option grants pursuant to Item 5.02(e), ending one business day after the triggering event.
- NEO name;
- Award date.
- Number of securities eligible for award.
- Exercise price per share.
- The grant-date fair value of each award calculated using the same methodology used in the issuer’s financial statements under generally accepted accounting principles.When
- The percentage change in the market price of the underlying security between the closing price of the security one trading day before and one trading day after the disclosure of material nonpublic information.
XBRL tagging of required disclosures
- Issuers may tag the information specified in Regulation SK new Items 402(x), 408(a), and 408(b)(1) and Form 20-F new Item 16J(a) in inline XBRL. must be attached. Follow Rule 405 and the EDGAR Filer Manual.
Form 4 Gift Report
- Section 16 rapporteurs report dispositions of bona fide gifts of equity securities on Form 4 (instead of Form 5 as previously permitted) according to the deadline for filing Form 4 (i.e., by the end of the next business day) need to do it. trade execution date).
effective date
The final rule will become effective 60 days after the date of publication of the hiring release in the Federal Register.
Section 16 reporters must follow the amendments to Forms 4 and 5 for beneficial ownership reports filed on or after April 1, 2023.
Issuers that are small reporting companies must submit their U.S. Securities Exchange Act periodic reports on Forms 10-Q, 10-K, and 20-F, and all powers of attorney or information statements beginning with the first eligible filing. must comply with the new disclosure and tagging requirements in the First full accounting period beginning on or after October 1, 2023.
All other issuers are required to submit all proxy or Information statements must comply with the new disclosure and tagging requirements. Accounting periods beginning on or after April 1, 2023.
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