Part 2 New Trading Plan Rules

Friends, you may find this blog “assumes” too much Trading Plan knowledge to be of value. With this in mind, before you read this blog, please consider reading the previous C-Suite blog produced in July of 2021 that warned of the pending SEC Regulation changes in 10b5-1 Trading Plans.

OOPS! Some people are “Cheetah-ing” (you can’t make this up!)

In our last Trading Plan blog, we reminded readers that when initiating a trading plan, it was critical that an officer NOT have Material Non-Public Information (MNPI). The Chief of the SEC Enforcement Division’s Market Abuse Unit, Joseph Sansone, recently drew attention to the violation of trading regulations by Cheetah Mobile’s CEO, Sheng Fu, for, you guessed it, initiating a trading plan when in direct possession of insider information. In this case, Sheng knew of a significant decline in advertising revenue from the company’s most prominent advertising partner.

Merely having a plan did not provide an affirmative defense for the “Cheetah” CEO. Trading Plans will protect all stakeholders if designed, implemented, and administered correctly. Fortunately, trading Plans have survived the recent SEC scrutiny and now bring greater clarity and assurance of efficacy. The amended regulations are excellent news for those seeking affirmative defense against insider trading.

On December 14, 2022, the SEC adopted several amendments and new disclosure requirements intended to address what appears to have been abusive practices related to Rule 10b5-1 trading plans and various securities transactions.

 Some of the more significant new provisions are as follows:

  • New cooling-off periods delay the timing of first trades after a plan is adopted or amended.
  • Limitations on the number of 10b5-1 plans an insider may have on a single trade tied to execution around MNPI, such as an earnings release.
  • There are new restrictions on canceling an existing trading plan based on MNPI.
  • There are numerous new required disclosures by issuers about Rule 10b5-1 plans, insider trading policies, and option grant practices.
  • Directors and Officers are now required to acknowledge they are not aware of MNPI in implementing a plan and that they are acting in good faith.
    • These representations make all parties aware that no affirmative defense will attach when canceling or modifying a plan leads to improved trading results.
  • Existing plans will be grandfathered, but if a grandfathered plan is amended, the old plan will terminate, necessitating refiling subject to the new regulations.

For an in-depth breakdown of each of the provisions mentioned above, see the National Law Review’s recent piece on the topic.

As stated, these new regs bring clarity and improved comfort to those desiring an affirmative defense for the many benefits that trading plans bestow both in the exercise of stock options and in a thoughtful exit strategy from a concentrated wealth position in held shares. In conclusion, working with professionals conversant on the proper way to design, implement, and manage a 10b5-1 trading plan is wise.

Stoddard Barnhill, CFP®
sbarnhill@thebahnsengroup.com

Sarah Leitzke, CFP®
sleitzke@thebahnsengroup.com

Phillip Barnhill, CLU®
pbarnhill@thebahnsengroup.com

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About the Authors

Stoddard Barnhill, CFP®

Private Wealth Advisor

Sarah Leitzke, CFP®

Private Wealth Advisor

Phil Barnhill, CLU®

Director of Risk Management

For nearly 25 years Phil has worked exclusively with senior leaders of public and large private companies. Over the past seven years Stoddard has been carefully mentored in this niche market and is now mentoring Sarah, leading to a highly-specialized practice knowledge within the team. This focus on corporate executives and their family dynamics comes with significant insights into executive compensation, stock concentration, equity monetization, and the full life-cycle of a career in the C-Suite.

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Hightower Advisors, LLC is a SEC registered investment adviser. Registration as an investment adviser does not imply a certain level of skill or training. Some investment professionals may also be registered with Hightower Securities, LLC and offer securities through Hightower Securities, LLC, member FINRA/SIPC. You can check the background of our firm and investment professionals on brokercheck.finra.org. Unless otherwise indicated relative to a specific award or ranking, Hightower Advisors, LLC does not pay a fee to be considered for any ranking or recognition, but may have paid to publicize rankings obtained and disseminated prior to 11.4.2022. All awards / rankings / ratings obtained and distributed on or after 11.4.2022 will be accompanied by specific disclosure as applicable. 
 
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