On December 15, 2021, the US Securities and Exchange Commission proposed several changes and new disclosure requirements to address what it believed to be potentially abusive practices by publicly traded companies, directors and officers in connection with trading plans under Rule 10b5- 1 tackle. certain stock awards and stock gifts. The SEC also proposed new disclosure requirements for company stock repurchases (often conducted in accordance with Rule 10b5-1 trading plans), citing its view of the possibility of opportunistic and harmful use of repurchases by company insiders. If adopted, these rules could materially affect many of the common practices that publicly traded companies and their insiders rely on in administering stock allocation programs, conducting stock buybacks and in personal trading.

Rule 10b5-1 of the Securities Exchange Act of 1934 (Exchange Act) provides an affirmative defense of insider trading information to individuals and companies trading stocks under schemes made in good faith. The SEC’s proposed changes to Rule 10b5-1 would add new terms to the availability of the affirmative defense of insider trading liability under the trading plans under Rule 10b5-1, including: Currently, companies are required to conduct all open and private repurchases of equity securities the company or a related buyer on a regular basis.6 The proposal would significantly change the current disclosure framework for companies, including FPIs and certain registered closed-end funds. a next business day disclosure of buybacks on a new Form SR; and an improvement in the existing disclosure requirements.

The proposed rules would require companies to stop all equity repurchases made by or on behalf of the Company or an affiliated buyer report a new SR form before the end of the first business day after the repurchase is carried out. Corporations would, rather than file, file Form SR with the SEC and would use it to disclose:

Corporations would also need to file an amended Form SR to correct material changes to transactions previously reported on Form SR , including when an executed buyback order cannot be cleared and settled.

The proposed rules would also require additional disclosures regarding the structure of a company’s buyback program and its share buybacks.7 In particular, a company would have to disclose:

It would also added a new check box that would be checked if any of the Company’s directors or officers were within 10 working days of or after the program was announced.

The public comment deadline for both proposals remains 45 days after the proposed publications are posted in the Federal regis ter open. Companies may want to review their compensation committee calendar to see if they might need to revise it if the proposed rules are adopted. Organizations may also want to start considering necessary controls and processes that will allow them to provide new information in the event that the proposed rules are adopted. Finally, companies may want to assess the various circumstances in which they and their insiders take advantage of the affirmative defense of existing plans under Rule 10b5-1 and plan the timing and other changes that may be required if the proposals are adopted in their current form / p>

This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered to be advertising under applicable national law.

This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered to be advertising under applicable national law.

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