WASHINGTON: The US Securities and Exchange Commission (SEC) on Wednesday will propose tightening a legal safe-harbor that allows corporate insiders to trade in a company's shares, and other rules to improve the resilience of money market funds.
The agency will also propose rules to fix problems highlighted by the meltdown of New York-family office Archegos earlier this year.
The slew of long-awaited proposed rules, which are subject to public consultation, mark a milestone for SEC chair Gary Gensler who has pledged an ambitious agenda since joining the Wall Street watchdog in April.
The proposed tightening of "10b5-1" corporate trading plans in particular will be cheered by progressives who have long-said the current rules are too loose, allowing insiders to game the system and reap windfalls at the expense of ordinary investors.
The plans allow insiders to trade in the company's stock on a pre-determined future date, providing legal protection against potential allegations of insider trading on material non-public information. Critics say it is far too easy to adopt, amend or cancel trades with little scrutiny.
Wednesday's proposal will mandate executives disclose those plans and any modifications, neither of which are uniformly required. It will also propose a "cooling-off period" of 120 days between the adoption of a plan and the first trade.
While critics have long said the plans are flawed, trades executed by executives at Pfizer and Moderna during the COVID-19 vaccine development process renewed scrutiny of such plans and highlighted transparency issues, said Daniel Taylor of the University of Pennsylvania's Wharton School.
"There is mounting evidence that these plans are, at best, being used in a manner in which they were not intended, and at worst, being abused to enrich corporate insiders," he added.
The SEC will also address systemic risks in the multi-trillion dollar US money market funds, which was bailed out for a second time as investors fled those vehicles during the 2020 pandemic-induced turmoil.
The agency will outline new liquidity requirements, scrap redemption fees and restrictions, and propose adjusting funds' value in line with dealing activity so as to transfer costs to redeeming investors, known as "swing pricing."
The SEC will also propose changes to stamp out fraudulent, deceptive, or manipulative conduct via security-based swaps.
Such privately-negotiated derivatives were at the center of the Archegos meltdown which left Wall Street banks on the other side of the family office's trades nursing $10 billion in losses.
Under the new rule, investors will have to publicly disclose their security based swap trades.