The SEC's investor advisory committee approved recommendations Thursday to require a cooling-off period for corporate insiders buying and selling stocks and to more strictly enforce existing disclosure rules for special purpose acquisition companies, or SPACs.
The committee said the Securities and Exchange Commission should take the necessary steps to establish meaningful guardrails around the adoption, modification and cancellation of Rule 10b5-1 trading plans, concerning executive stock sales.
During the previous committee meeting in June, SEC Chairman Gary Gensler said that when "insiders or companies adopt 10b5-1 plans, there's currently no cooling-off period required before they make their first trade. I worry that some bad actors could perceive this as a loophole to participate in insider trading."
The committee recommended Thursday a required a cooling-off period of at least four months between the adoption or modification of a Rule 10b5-1 plan and the execution of the first trade under the newly adopted or newly modified plan. Moreover, it recommended the SEC prohibit "overlapping plans" — a single person or entity having more than one Rule 10b5-1 plan at a time.
On SPACs, the committee recommended increased focus on disclosure requirements, like on the role of the SPAC sponsor and necessitating "plain English" in the SPAC registration statement. It also suggested the SEC prepare and publish an analysis of the players in the various SPAC stages, their compensation and their incentives.
The committee characterized the SPAC recommendations as preliminary, focusing on the "practical challenges SPAC investors face in fully assessing the risks and opportunities associated with these investment vehicles." The committee intends to revisit SPAC governance and may offer additional suggestions for reform as more data emerges, it stated in the recommendation.
