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US Securities and Exchange Commission

House to Vote on SEC Mandates on Executive Trading Plans, Senior Investor Protection, and Digital Assets

Bill Flook  Editor, Accounting and Compliance Alert

· 5 minute read

Bill Flook  Editor, Accounting and Compliance Alert

· 5 minute read

The House is slated to vote this week on bills requiring the SEC to study reforms to 10b5-1 trading plans, establish an interdivisional task force on protecting senior investors, and set up a working group with the Commodity Futures Trading Commission (CFTC) on digital asset regulations. The chamber had planned on voting on the bills last week but was delayed by procedural wrangling by Republicans.

The House could vote on the measures under suspension of the rules, a fast-track process, as early as the evening of March 16, 2021, according to a schedule posted by House Majority Leader Steny Hoyer.

The bills are:

H.R. 1528, Promoting Transparent Standards for Corporate Insiders Act, sponsored by Rep. Maxine Waters, a California Democrat who chairs the House Financial Services Committee. The bill, backed by the North American Securities Administrators Association (NASAA), directs the SEC to study potential reforms to its Rule 10b5-1 safe harbor.

Rule 10b5-1 exists to give company insiders a structured way to buy or sell shares without running afoul of insider trading restrictions. Critics say the current safe harbor is vulnerable to abuses, allowing insiders to use the rule strategically in order to beat the market using material nonpublic information. Plans can be canceled when there is no news to trade on and kept in place when there is. Canceling a plan is not in itself considered a securities transaction.

Waters’ bill would mandate the SEC to study potential new limits to Rule 10b5-1, including additional restrictions on when an issuer can adopt a 10b5-1 plan and how soon afterward trades can take place. Among other provisions, the bill would also require the SEC to study how such changes might improve existing prohibitions against insider trading, and whether to limit how frequently companies and insiders can modify or cancel trading plans.

H.R. 1602, Eliminate Barriers to Innovation Act of 2021, sponsored by Rep. Patrick McHenry of North Carolina, the top Republican on the Financial Services Committee. The temporary working group set up by the bill would be made up of an equal number of SEC and CFTC staffers, as well as non-governmental members appointed by each agency from fin tech companies, regulated firms, investor protection organizations, and other areas.

The panel would have one year following enactment of the bill to submit a report to the SEC and CFTC analyzing the legal and regulatory framework, and related developments in the U.S. and other countries, on digital assets, with recommendations on the “creation, maintenance, and improvement” of digital asset markets; custody, cybersecurity, and other standards; and best practices to reduce fraud and manipulation, protect investors, and aid in countering money-laundering and financial terrorism.

H.R. 1565, Senior Security Act, sponsored by Rep. Josh Gottheimer, a New Jersey Democrat. The bill would set up a Senior Investor Task Force made up of staff from the Division of Enforcement, the Office of Compliance Inspections and Examinations (OCIE), and the Office of Investor Education and Advocacy. The SEC changed OCIE’s name to the Division of Examinations late last year.

The task force would be charged with identifying challenges encountered by senior investors, “including problems associated with financial exploitation and cognitive decline;” identifying changes to commission or self-regulatory organization rules that could benefit senior investors; coordinating with other, related task forces; and consulting with state securities and insurance regulators and law enforcement. The task force would provide a report every two years to Congress.

Also under the bill, the Government Accountability Office (GAO) would be required to report to Congress within two years of enactment on the results of a study on financial exploitation of seniors, among other provisions.

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