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April 5, 2022

Better Markets Urges SEC to Close Loopholes That Allow Abusive Insider Trading

WASHINGTON, D.C.—Legal Director and Securities Specialist Stephen Hall issued the following statement on the filing of Better Markets’ Comment Letter to the Securities and Exchange Commission in response to the agency’s proposal to rein in abusive insider stock trading:

“In light of the well-documented history of abuses involving insider trading by executives acting under the protection of pre-established trading plans, we welcome the SEC’s action to clamp down on this form of legalized misconduct.

“Over 20 years ago, the SEC established a safe harbor allowing executives and other insiders to trade pursuant to pre-established trading plans, known as 10b5-1 Plans.  The rule was designed to facilitate lawful trading by corporate insiders, who often have knowledge of material nonpublic information.  Trading that satisfies the requirements of the safe harbor is protected from insider trading liability.  However, the safe harbor has proven to be filled with loopholes that have allowed executives to engage in illegal, abusive, and highly profitable insider trading activity, all at the expense of investors and market integrity.

“The SEC’s proposal is a thoughtful set of reforms that will close many of the loopholes under existing rule 10b5-1.  Mandatory cooling-off periods before trades can commence under the plans will deter insiders from improperly entering into plans with inside information and then immediately commencing trading to capitalize on that knowledge.  Restrictions on the use of overlapping plans and single-trade plans will address several of the most pernicious schemes used by clever insiders to game the system.  And the disclosure requirements will increase transparency, better enabling the SEC and the investing public to spot abuses.

“As we explain in our comment letter, because compliance with the safe harbor is fully voluntary, weakening any aspect of the rule out of concern for alleged “costs” to the industry would be unjustified.  The SEC’s overriding concern must be protecting the public from the abuses facilitated by the current safe harbor.  In fact, the SEC should revisit the justification for the safe harbor and narrow it further or even eliminate it entirely if the additional analysis shows that it serves no real purpose.”

Read our full comment letter here.

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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.

Contact: Evelyn Swan, Press Secretary, at 202-618-6433 or eswan@Bettermarkets.org

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