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house Bill H.R. 624

Should the SEC Study Potential Changes to an Insider Trading Rule?

Argument in favor

Insider trading is a serious crime that makes the market unfair for investors who don’t have inside knowledge of companies’ operations. Trades allowed under the rule in question need to be closely monitored and subject to rules that ensure executives and insiders can’t use their knowledge of companies’ operations to engage in insider trading.

Doug's Opinion
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01/27/2019
Expand this law to include members of Congress, past and present please.
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Anna's Opinion
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01/28/2019
Corruption is a huge problem in our economy and government. Pass this along with comprehensive anti corruption laws and a constitutional amendment that says corporations are not people and money is not speech.
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Azrael's Opinion
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01/27/2019
Have new rules for congress and all public employees They’re making fortunes on insider trading and shorting stocks No stocks may be purchased no stocks may be traded while in public service If you don’t like it find another line of work
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Argument opposed

When properly administered, plans under the rule in question are important investment tools for executives and other insiders to trade stocks. While bad investors will occasionally engage in improper trades, it’d be an overreaction to curtail these plans due to a few bad actors.

RAN's Opinion
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01/27/2019
How about we have investigations into how these politicians like Maxine Waters and many many others become so rich in government. I can guarantee it’s not on the up and up.
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Bernie's Opinion
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01/28/2019
Anything by Maxine is a disaster. How about investigate every member of Congress.
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Cindy's Opinion
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01/28/2019
A study for a million dollars to change regulations and write laws, NO Thanks!
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bill Progress


  • Not enacted
    The President has not signed this bill
  • The senate has not voted
      senate Committees
      Committee on Banking, Housing, and Urban Affairs
  • The house Passed January 28th, 2019
    Roll Call Vote 413 Yea / 3 Nay
      house Committees
      Committee on Financial Services
    IntroducedJanuary 16th, 2019

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What is House Bill H.R. 624?

This bill would require the Securities and Exchange Commission (SEC) to study and potentially amend Rule 10b5-1 to ensure that corporate insiders are unable to indirectly engage in illegal insider trading through changes to their trading plans.

Specifically, the SEC would be required to examine the impact of the following changes to 10b5-1 rules:

  • Limits on creating 10b5-1 trading plans during insider trading windows;

  • Prohibiting multiple, overlapping 10b5-1 plans;

  • Implementing a mandatory delay between the adoption of the plan and the first trade;

  • Creating rules as to the frequency with which insiders may adopt, modify, or cancel plans;

  • Requiring insiders to file trading plan adoptions, amendments, terminations, and transactions with the SEC; and

  • Requiring board oversight of 10b5-1 plans, including corporate policies, adoption, and monitoring.

Impact

Executives; insiders; stock trading; the SEC; and Rule 10b5-1.

Cost of House Bill H.R. 624

$1.00 Million
When this bill was introduced in the 115th Congress, the CBO estimated that implementing it would cost around $1 million for the SEC to conduct the required studies and rulemakings and issue reports.

More Information

In-DepthRep. Maxine Waters (D-CA) reintroduced this bill to direct the SEC to study how to amend Rule 10b5-1 to ensure that corporate insiders can’t indirectly engage in illegal insider trading:

"I am happy to work with Ranking Member McHenry on the first of what I hope will be many bipartisan bills to strengthen consumer and investor protections in the 116th Congress. Our bill, the Promoting Transparent Standards for Corporate Insiders Act, will play a critical role in holding corporate executives accountable and improving SEC Rule 10b5-1, which currently allows corporate insiders to avoid accusations of illegal insider trading. It would require the SEC to study how to amend its rule to address reported incidents of manipulation, report to Congress, and write rules consistent with the results of the study. It should be a top priority for regulators to ensure clear guidelines and robust enforcement of illicit activities, such as insider trading, and this legislation will serve as a driving force to hold regulators and bad actors accountable."

When he and Rep. Waters reintroduced this bill in the current Congress, Rep. Patrick McHenry (R-NC) said:

“Cracking down on fraud and abuse within our financial system is apolitical. I am proud to support this meaningful effort to help the SEC better understand illicit insider trading. I look forward to working with Chairwoman Waters, and the Financial Services Committee as a whole, to explore ways to improve federal government oversight and protect American investors.”

Americans for Financial Reform (AFR) and the Consumer Federation of America (CFA) wrote a letter to Congress in July 2018 supporting this bill in the 115th Congress:

“This [bill] is especially timely given the multi-trillion dollar wave of company share buybacks that have been occurring in the current low interest rate environment and in response to the enormous corporate tax cuts recently passed by Congress. Insiders can make large profits by selling directly into such share buybacks. The combination of share buybacks and insider trading represents a direct diversion of corporate revenues from investment in the broader economy to private payments for top executives. It constitutes a major incentive for corporate decision makers to inappropriately favor share buybacks over other uses of funds such as investment and hiring. Evidence has been available for many years that corporate executives take advantage of their knowledge of buyback plans to make additional profits selling their own stock. This evidence was recently summarized by SEC Commissioner Robert Jackson. It appears that the SEC’s current rule 10b5-1 facilitates such profiteering by providing an overly broad safe harbor against insider trading prohibitions. Over the past five years the Council of Institutional Investors (CII) has repeatedly urged the SEC to take action to prevent these abuses. This bill would require the SEC to study whether Rule 10b5-1 is providing adequate protection against insider trading and whether it should be changed in accordance with the recommendations of the CII. The specificity of the directives for this study should be useful in driving action by the SEC. We urge the Committee to pass this bill.”

The American Bar Association acknowledges that rule 10b5-1 trading plans can increase an insider’s liability risk, but also points that properly structured and administered rule 10b5-1 trading plans are a safe and effective way for insiders to trade:

“When used improperly, Rule 10b5-1 trading plans can increase an insider's liability risk, such as where trades occur too soon after the adoption of a plan, where plans are repeatedly adopted and terminated or where the insider supplements a plan with non-plan trades, each of which may suggest that the insider attempted to take advantage of material nonpublic information. But when structured and administered properly, Rule 10b5-1 trading plans can provide a safe and effective way for insiders to trade.”

In the current session of Congress, this bill has one cosponsor, Rep. Patrick McHenry (R-NC), as well as the support of the Council of Institutional Investors (CII) and Public Citizen. Last Congress, this bill was part of a bipartisan economic growth bill, the JOBS Act 3.0, which the House passed on a 406-4 vote. This bill had one cosponsor, Rep. Patrick McHenry (R-NC).


Of NoteRule 10b5-1 of the Securities Exchange Act of 1934 allows officers, directors and other insiders of public companies to purchase and sell their company's stock while they are in possession of material nonpublic information, provided that the transaction is made pursuant to a trading plan previously established at a time when the insider was not aware of material non-public information. Bipartisan political scrutiny of executive 10b5-1 plans increased over the 2017-2018 period due to the timing of some 10b5-1 stock trades relative to the internal discovery and/or public announcement of major scandals by multiple companies, including Intel and Equifax.

Critics of rule 10b5-1 have long viewed it as creating an opportunity for abuse, as insiders may be aware of material nonpublic information at the time plans are established, and the rule can be used to provide cover for improper trades.


Media:

Summary by Lorelei Yang

(Photo Credit: iStockphoto.com / gopixa)

AKA

Promoting Transparent Standards for Corporate Insiders Act

Official Title

To require the Securities and Exchange Commission to carry out a study of Rule 10b5-1 trading plans, and for other purposes.

    Expand this law to include members of Congress, past and present please.
    Like (137)
    Follow
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    How about we have investigations into how these politicians like Maxine Waters and many many others become so rich in government. I can guarantee it’s not on the up and up.
    Like (35)
    Follow
    Share
    Corruption is a huge problem in our economy and government. Pass this along with comprehensive anti corruption laws and a constitutional amendment that says corporations are not people and money is not speech.
    Like (58)
    Follow
    Share
    Have new rules for congress and all public employees They’re making fortunes on insider trading and shorting stocks No stocks may be purchased no stocks may be traded while in public service If you don’t like it find another line of work
    Like (30)
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    Crack down on insider trading.
    Like (17)
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    Under Trump, insider trading has gotten lots worse because his Bunch ALL think they are ABOVE the law. They are involved up to their eyeballs. Martha Stewart spent time in jail for a tiny infraction. This BUNCH is in BIG TIME. They deserve to all go to jail for it.
    Like (12)
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    The system is fraught with illegal activity. Shut it down.
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    Congress has gotten filthy rich from insider trading.
    Like (12)
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    Mick Mulvaney stopped the investigation into the Equitable debacle and those two Equitable execs who sold their stock immediately before public announcement was made never were investigated. Republicans will always work to find a way to protect the 1%. To put another barrier in their way is a good thing. Just make sure to include all public officials up to and including the president in this bill. They aren’t trustworthy when it comes to their own wealth.
    Like (11)
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    H.R. 624 AKA the Amendment of Rule 10b5-1 of 2018 I support and recommend passage of this bill H.R. 624 AKA the Amendment of Rule 10b5-1 of 2018 which would require the Securities and Exchange Commission (SEC) to study and potentially amend Rule 10b5-1 to ensure that corporate insiders are unable to indirectly engage in illegal insider trading through changes to their trading plans. Insider trading is a serious crime that makes the market unfair for investors who don’t have inside knowledge of companies’ operations. Trades allowed under the rule in question need to be closely monitored and subject to rules that ensure executives and insiders can’t use their knowledge of companies’ operations to engage in insider trading. SneakyPete.......... 👍🏻🙏🏻👍🏻🙏🏻👍🏻. 1*27*19..........
    Like (11)
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    Damn right, it should!
    Like (10)
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    Anything by Maxine is a disaster. How about investigate every member of Congress.
    Like (9)
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    Why not? Looking at the ramifications of your actions before you proceed is just good sense.
    Like (9)
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    Raise the minimum wage and stop funding all the corporate excess. It is ridiculous for Americans to think that corporate CEOs somehow price products lower because their labor costs are lower. No, the 1% does the same thing with that economic windfall as they did with their tax break; they use it to play the market. Time for play is over, it is time we, the tax payers, stop subsidizing every minimum wage worker out there with our Federal dollars. Make corporations pay a living wage instead of forcing middle class workers to subsidize poverty wages.
    Like (7)
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    Doing what is right when being watched is easy. Doing what is right when no one is watching takes integrity. Insider trading is a serious crime, those that do it are not going to tell on themselves.
    Like (6)
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    A study for a million dollars to change regulations and write laws, NO Thanks!
    Like (5)
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    I'm sure that there are plenty who have found loopholes into the insider trading laws. Time to look at everything that Congress has passed and ensure that they are also bound by the same laws they create
    Like (4)
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    What is the problem that this bill is trying to fix? Current rules adequately cover insider training except for members of Congress.
    Like (4)
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    Especially the government workers and politicians should not be able to make inside trades.
    Like (4)
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    Yes, insider trading should be closely monitored and restrictions made so people with that type of information do not benefit from it.
    Like (4)
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