SEC tightens insider buying and selling guidelines and strengthens the resilience of cash market funds – business insurance

(Reuters) – The U.S. The Securities and Exchange Commission on Wednesday proposed tightening a statutory safe harbor that allows corporate insiders to trade in a company's stocks and other rules to improve the resilience of money market funds.

The agency also revealed measures to increase transparency on share buybacks and the complex derivatives at the center of the New York-based Archegos collapse earlier this year.

The series of long-awaited changes mark a milestone for SEC Chairman Gary Gensler, who since joining the Wall Street watchdog in April has outlined an ambitious agenda to tackle corporate misconduct and eradicate inequalities in the markets.

The changes that need to be consulted will affect a portion of American businesses, from publicly traded companies and their top executives to banking groups and asset managers like BlackRock, Vanguard, Fidelity and Goldman Sachs.

In particular, the proposed tightening of the “10b5-1” corporate trading plans has been hailed by progressives who have long said the current rules are too loose, allowing insiders to play the system and reap profits at the expense of ordinary investors.

The plans allow insiders to trade shares in the company on a predetermined date in the future and provide legal protection against potential allegations of insider trading in material non-public information. Critics say it's way too easy to take, change, or cancel trades with little control.

Wednesday's proposal requires executives to disclose these plans and any changes none of which are currently required. For executives, the SEC also wants a "cool-off" period of 120 days between the adoption of a plan and the first trade. For companies that trade in their own securities, the proposal allows for a cooling-off period of 30 days.

The proposal would also discourage insiders from having multiple overlapping plans, which Gensler said could allow insiders to choose inexpensive plans at will.

While critics have long said the plans are flawed, the business conducted by Pfizer and Moderna executives during the COVID-19 vaccine development process has re-examined those plans and highlighted transparency issues, said Daniel Taylor of the University of Pennsylvania's Wharton School.

"There's growing evidence that these plans are being used at best in ways that were not intended and at worst being misused to enrich corporate insiders," he said.

Separately, the agency also said it would like companies to disclose share buybacks one business day after a trade is executed, contrary to the current quarterly disclosure rule.

“These problems speak for investor confidence in the markets. Anytime we can build investor confidence in the markets, that's a good thing, ”said Gensler.

The agency also made detailed changes to address systemic risk in the $ 5 trillion US money market fund sector, which was bailed for the second time when investors fled these vehicles during the pandemic turmoil in 2020.

Regulators have struggled for years to get a grip on the sector, which critics now claim has an implicit government guarantee.

On Wednesday, the SEC proposed new liquidity requirements, removing redemption fees and restrictions, and adjusting the value of funds to reflect trading activity to pass costs on to returning investors, a process known as swing pricing.

The agency also outlined a plan to prevent fraudulent, fraudulent or manipulative behavior through securities-based swaps.

Such privately negotiated derivatives were at the center of the Archegos collapse, which left the Wall Street banks on the other side of the family office's business, making $ 10 billion in losses.

According to the new rule, investors must make such deals public.

Comments are closed.