This video can be viewed at the below link.[1]

When is it okay that insiders are selling stock when they know something the rest of us don’t know?

Executives of public companies are often compensated in part with stock in those companies. And over time they want to sell some of those shares.

Here’s the thing: They often know more about those companies than their shareholders do.

So, about 20 years ago, the SEC tried to address this issue through a rule. The basic idea was that executives could sell stock if they had a written plan in place to do so at a future date. The hope was that the transactions would happen after the rest of the shareholders became aware of the material non-public information.

But this rule, called 10b5-1 has become antiquated, exposing real gaps in our insider trading enforcement regime.

So we, the SEC, have proposed changes to the rule to restore trust and confidence in the system.

First, we’re proposing changing how long those company insiders have to wait between creating the plan on one hand and selling the shares.

Right now, an executive could actually adopt a plan in the morning and sell shares in the afternoon. That doesn’t seem right.

So we’re proposing that insiders should only be able to sell using plans putting out the sale four months in the future, to get past the next time the company releases its quarterly figures.

Second, we’re proposing that executives should have to publicly disclose when they enter into these plans.

Third, we’re proposing that insiders only be allowed to have one plan at a time. Now, currently there are no limits on the number of plans that insiders can adopt. Meaning that they could possibly adopt multiple plans and only follow through on the one most advantageous based upon possibly material non-public information. That doesn’t seem right either.

Further, the changes we’ve proposed also address when the companies themselves can use these plans to buy back stock, and when the company insiders can make donations of their stock potentially to get beneficial tax treatment.

These issues speak to the confidence that investors have in the markets. The goal is to level the playing field so that the company insiders don’t get a better deal than the rest of us.