United States: Next Up For The SEC: DEPs, Rule 10b5-1 Plans And SPACs

Chairman Gensler Addresses Key Elements of his Agenda

Yesterday, SEC Chairman Gensler addressed key elements of his agenda in a speech before the SEC's Investment Advisory Committee, which subsequently approved two non-binding recommendations. Gensler focused on:

• Digital engagement practices (DEPs) used by online trading platforms. The SEC recently announced requests for information and comment in light of potential conflicts of interest between the platform and investors when DEPs are designed to optimize platform revenues, data collection or investment behavior. The SEC is also focusing on effects on investment advice and fairness of access and pricing, including for protected characteristics such as race and gender.
• Rule 10b5-1 plans. As we've previously blogged, Gensler believes the Rule 10b5-1(c) affirmative trading defense has potential gaps and has asked the Staff to focus on (1) mandatory cooling off periods before the first trade; (2) prohibitions against having multiple plans at the same time; and (3) enhanced public disclosure of such plans. The committee's recommendations address those topics, including:
  • Cooling off period of at least four months
  • Prohibition on overlapping plans
  • Require electronic submission of Form 144
  • Proxy statement disclosure of number of shares covered by NEO or issuer plans
  • Form 8-K disclosure of adoptions, modification or cancellation of plans and the number of shares covered
  • Enhanced disclosure of 10b5-1 trades, including adding modifying Form 4 to indicate plan trades and the date of plan adoption or modification
  • Require all companies listed on U.S. exchanges (including foreign private issuers) be subject to Form 4 reporting requirements
• SPACs. Gensler welcomed the committee's recommendations calling for enhanced disclosure and stricter enforcement of existing SPAC disclosure rules. The areas of SEC focus would include the adequacy of disclosure in the following areas: (1) the role of the SPAC sponsor; (2) plain English descriptions of the economics of participants; (3) clear descriptions of the mechanics and timeline of the SPAC process; (4) the "opportunity set" and target company areas of focus; (5) competitive pressure and risks involved in finding appropriate targets and reaching market acceptable prices; (6) acceptable ranges of terms for any additional funding; (7) the manner in which the sponsor plans to evaluate public company readiness of potential targets; and (8) minimum pre-de-SPAC diligence the sponsor will commit to regarding target accounting practices. Gensler expressed particular interest in disclosure regarding dilution and costs for investors.

In June, the SEC included Rule 10b5-1 plans and SPACs in its rulemaking agenda which signals, along with Gensler's speech, that the SEC is likely to take action on these matters.

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