SEC amends Rule 10b5-1 and revamps affirmative defense to … – Eversheds Sutherland(US) LLP

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​In addition, company insiders who report transactions using Forms 4 or 5 will need to indicate using a checkbox whether the transaction was intended to satisfy the affirmative defense requirements and disclose the date that the plan was adopted.
2 The amendments do not affect the Rule’s affirmative defense for persons that are not “natural persons,” which can be invoked if the person making the trade was not aware of MNPI and had implemented reasonable policies and procedures to ensure that such trading would not violate rules prohibiting trading on MNPI. See Rule 10b5–1(c)(2) [17 CFR 240.10b5–1(c)(2)].
3 See, e.g., “Waters and McHenry Introduce Bipartisan Legislation to Curb Illegal Insider Trading,” U.S. House Committee on Financial Services, (Jan. 18, 2019) (stating Rule 10b5-1 “currently allows corporate insiders to avoid accusations of illegal insider trading”); Letter from Senators Elizabeth Warren, Sherrod Brown and Chris Van Hollen (Feb. 10, 2021) (stating “the plans’ lack of transparency, damage investors and risk undermining public confidence”).
4 The amended Rule also includes updates relating to structured data requirements and requirements for reporting on gifts. For more information on the amended Rule see SEC Press Release 2022-222 (Dec. 14, 2022) and the SEC’s Fact Sheet, Rule 10b5-1: Insider Trading Arrangements and Related Disclosures.

5 Smaller Reporting Companies, as defined in Securities Act Rule 405 and Exchange Act Rule 12b-2, have until August 27, 2023 to comply with the new disclosure requirements.
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