Legislation aimed at preventing corporate executives from trading stock before publicly disclosing significant events was approved late Monday by the House of Representatives in a bipartisan 384-7 vote.
The bill, H.R. 4335, is sponsored by Rep. Carolyn B. Maloney, D-N.Y. who said in a statement that a current loophole gives executives a four-day advantage to trade on information before it has to be disclosed to the public and shareholders in a Form 8-K filing with the SEC. The proposed 8-K Trading Gap Act to close that loophole "is a very simple solution to this problem," Ms. Maloney said in the statement. It would require public companies to have policies and procedures reasonably designed to prohibit officers and directors from trading company stock after the company has determined that a significant corporate event has occurred, but before it is publicly disclosed.
A Senate companion bill to H.R. 4335 was introduced in September by Sen. Chris Van Hollen, D-Md., who vowed in the same statement to press his Senate colleagues "to follow suit with urgency."
Congressional action is needed because "the SEC doesn't have authority to ban somebody from insider trading here," said Joshua Mitts, associate professor of law at Columbia Law School and co-author of a 2015 white paper on the 8-K trading gap with then-professor Robert J. Jackson Jr., now an SEC commissioner. "This is a pretty bipartisan bill," Mr. Mitts said in an interview.