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SEC Forces Executives to Put Trading Plans Online, Not on Paper (2)

June 3, 2022, 4:30 PMUpdated: June 3, 2022, 9:08 PM

The SEC will require executives looking to sell company stock to enter information about their trading plans into the agency’s public corporate filings database, instead of mailing it to the agency.

Company officials currently can submit their trading details to the Securities and Exchange Commission on paper, usually turning down the option to enter the information into the agency’s online EDGAR database. Most of the paperwork is only available for the public to review in the agency’s reading room.

An executive must send the information when they plan to sell at least $50,000 of stock in a three-month period. The document, known as Form 144, includes details about the adoption or modification of trading plans.

The new rule adopted Friday after a unanimous commission vote comes as the agency is heightening its scrutiny of potential insider trading. The agency released a proposal last year that would force executives to be more careful about unloading company stock.

“In a digital age, it’s important for investors to have easy, online access to material information, rather than needing to visit SEC facilities to access that information,” SEC Chair Gary Gensler said in a statement.

‘Big Deal’

Of the roughly 30,000 Form 144 filings made with the SEC last year, only 234 were submitted electronically through EDGAR, according to the agency. The forms are the primary source of information about executives’ trading arrangements, known as Rule 10b5-1 plans, which provide a defense against insider trading.

The increased transparency will have a major impact on insider trading, said Daniel Taylor, director of the Wharton Forensic Analytics Lab at the University of Pennsylvania. He’s helped review thousands of paper Form 144 filings, finding several executives who set up trading plans and then executed them as soon as the next day.

“It sounds small going from paper to electronic,” Taylor said. “But it is a really big deal.”

The new rule doesn’t finalize an SEC proposal from December to enact a roughly four-month “cooling-off” period between when executives can schedule a trade and then sell their stock under Rule 10b5-1. The SEC currently doesn’t impose a cooling-off period, but many companies do to varying extents.

The proposal received bipartisan support at the commission and remains pending on the agency’s agenda.

“I think they’re just getting warmed up,” Taylor said.

(Updates with additional background throughout)

To contact the reporter on this story: Andrew Ramonas in Washington at aramonas@bloomberglaw.com

To contact the editor responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com