SEC publishes stricter insider trading rules amid surge in executive stock sales

The US Securities and Exchange Commission (SEC) on Wednesday will propose tightening the legal harbour that allows corporate insiders to trade company shares, as well as other rules to improve the resilience of money market funds. The agency will also propose rules to address the problems revealed by the collapse of New York-based Archegos family office earlier this year. The slew of long-awaited proposed rules, which are subject to public consultation, mark a major milestone for SEC chairman Gary Gensler, who has announced his ambitious plans since joining Wall Street's watchdog in April.

The proposed tightening of corporate "10b5-1" trading plans, in particular, will be supported by progressives, who have long argued that the current rules are too lenient, allowing insiders to game the system and reap windfall profits at the expense of ordinary investors.

The plans allow insiders to trade in company shares at a predetermined future date, providing legal protection against potential accusations of insider trading in material non-public information. Critics say it is too easy to accept, change or cancel trades without much scrutiny.

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Wednesday's proposal would oblige managers to disclose these plans and any changes, none of which are required uniformly. It would also propose a "reflection period" of 120 days between the adoption of the plan and the first deal.

According to Daniel Taylor of the Wharton School at the University of Pennsylvania, although critics have long said the plans are flawed, the deals made by Pfizer and Moderna executives during the development of the Covid-19 vaccine have renewed consideration of such plans and highlighted problems with transparency.

"There is growing evidence that these plans are at best not being used as intended, and at worst are being used to enrich corporate insiders," he added.

The Securities and Exchange Commission will also look at systemic risks in the multimillion-dollar US money market funds, which were bailed out for a second time as investors fled the funds during the turmoil of the 2020 pandemic.

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