Rule 10b5-1 compliance
To help prevent insider trading, the SEC requires Form 144 to be filed when an employee of a publicly traded company wants to sell $50,000 or 5,000 or more shares within a three-month span. However, as previously mentioned, the SEC identified gaps, leading to the Rule 10b5-1 amendment.
This final SEC rule provides affirmative defenses to trading on the basis of material nonpublic information in insider trading cases. The amendments add new conditions to the existing insider trading rules which are designed to address potential abuse to trade securities opportunistically based on material nonpublic information.
To be in compliance, companies, and corporate insiders must understand this complex array of disclosure and technical changes including:
- An issuer’s insider trading policies and procedures
- The adoption and termination (including modification) of plans that are intended to meet the rule’s conditions for establishing an affirmative defense
- Director and executive compensation regarding equity compensation awards made close in time to the issuer’s disclosure of material nonpublic information
The changes listed above for issuers will require Inline XBRL tagging in their corporate filings.
Section 16 disclosure and technical changes on Form 4 and 5
On March 20, 2023, the SEC will implement EDGAR Release 23.1 which will include changes related to Section 16 reporting.
Due to Rule 10b5-1, Forms 4 and 5 will be updated to include a new checkbox to allow filers to identify whether the reported transaction was subject to a contract, instruction, or written plan. While EDGAR will be updated on March 20, 2023, to support the new checkboxes, filers will be required to comply with the new disclosure filings beginning on or after April 1, 2023.
□ Check this box to indicate that a transaction was made pursuant to a contract, instruction or written plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).
□ Check this box to indicate that a transaction was made pursuant to a contract, instruction or written plan for the purchase or sale of equity securities of the issuer that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).
In addition to checking the new affirmative defense box to indicate that the Form 4 or Form 5 reports applicable transaction activity, filers should also “provide the date of adoption of the Rule 10b5-1(c) plan in the “Explanation of Responses” portion of the Form” (see Instruction 10 of each Form).
Finally, the new SEC rule requires gifts of bona fide equity securities must be reported on Form 4 instead of Form 5 effective February 27, 2023.
Form 144 filing deadline change, and Forms 3, 4 and 5 assistance
The SEC released a final rule extending the filing hours to receive a same-day filing date on Form 144 to 10 pm EST. These filing hours align with current Section 16 reporting for corporate insiders on Forms 3, 4 and 5. Beginning March 20, 2023, Forms 144 and 144/A can be submitted, accepted and disseminated until 10 pm EST.
SEC Connect is our end-to-end SaaS platform that keeps Rule 10b5-1 compliance simple, including Forms 3, 4 and 5 and Form 144. It is also an irreplaceable platform when filing Form D, Form 13F and even Schedule 13D and Schedule G.
SEC Resources
SEC Fact Sheet: https://www.sec.gov/files/33-11138-fact-sheet.pdf
Insider Trading Arrangements and Related Disclosures SEC Final rule: https://www.federalregister.gov/documents/2022/12/29/2022-27675/insider-trading-arrangements-and-related-disclosures
Extending Form 144 EDGAR Filing Hours SEC Final rule: https://www.federalregister.gov/documents/2023/02/27/2023-03931/extending-form-144-edgar-filing-hours
