The U.S. Securities and Exchange Commission (SEC) today adopted amendments to its Rule 10b5-1 under the Securities Exchange Act of 1934 (Rule 10b5-1). Though the SEC had proposed a “cooling off” period for issuers when the amendments were initially proposed last year, the final rule does not impose any cooling-off period for plans entered into directly by Issuers. The amended rule continues to impose modified cooling off periods of various lengths to directors and officers, as well as to other persons that are not the issuer.
There remains some ambiguity as to whether certain transactions authorized by an issuer may be subject to the new cooling off period for other persons. The term “issuer” as used in the rule, and related release, appears to refer only to the issuer of the particular security or securities that are the subject of trades for which a person seeks the benefit of the rule. Accordingly, an issuer should consider with its counsel the potential implications of the amended rule when considering indirect transactions such as the purchase of shares through a subsidiary. The rule is scheduled to take effect 60 days following publication of the adopting release in the Federal Register.
We applaud the SEC for considering the feedback of many issuers, industry groups, law firms, and other commenters in coming to this conclusion today. We note that the SEC stated that it will continue to consider the “potential application of a cooling-off period to the issuer” and whether other regulatory action may be needed.
Issuers will want to consider with their counsel the implications of the final amendments to their policies and related disclosure as it relates to their officers, directors, and employees use of Rule 10b5-1 plans. The SEC is not expected to finalize its outstanding proposal to create additional disclosures for share buybacks under the Rule 10b-18 safe harbor until 2023.
As always, for detailed analysis and advice regarding your specific situation, please reach out to the Matthews South team.
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