79–006 

115TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 115–891 

PROMOTING TRANSPARENT STANDARDS FOR CORPORATE 

INSIDERS ACT 

AUGUST 3, 2018.—Committed to the Committee of the Whole House on the State 

of the Union and ordered to be printed 

Mr. HENSARLING, from the Committee on Financial Services, 

submitted the following 

R E P O R T 

[To accompany H.R. 6320] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Financial Services, to whom was referred the 

bill (H.R. 6320) to require the Securities and Exchange Commission 

to carry out a study of Rule 10b5–1 trading plans, and for other 

purposes, having considered the same, report favorably thereon 

without amendment and recommend that the bill do pass. 

PURPOSE AND SUMMARY

On July 10, 2018, Representative Maxine Waters introduced 

H.R. 6320, the ‘‘Promoting Transparent Standards for Corporate 

Insiders Act.’’ The bill requires the U.S. Securities and Exchange 

Commission (SEC) to conduct a study as to whether SEC Rule 

10b5–1 should be amended, as further described below, and, if so, 

to amend Rule 10b5–1, subject to notice and comment, in a manner 

consistent with the results of such study. 

Under Rule 10b5–1, directors and other major insiders of issuers 

registered under the Securities Exchange Act of 1934 who have access to material nonpublic information are able to establish a written plan that details when they will be able to buy or sell shares 

at a predetermined time on a scheduled basis. The bill requires the 

SEC to consider whether certain types of amendments to Rule 

10b5–1 would enhance the rule and directs the SEC to consider 

certain factors, including how any such amendments to Rule 10b5– 

1 would clarify and enhance existing prohibitions against insider 

trading, the impact of any such amendments on attracting candidates for insider positions, the impact on capital formation, and 

2 

the effects on a company’s willingness to operate as a public company. 

BACKGROUND AND NEED FOR LEGISLATION

In 2000, the SEC promulgated Rule 10b5–1 (‘‘Rule’’). Rule 10b5– 

1 addresses the issue of when insider trading liability arises in connection with a trader’s ‘‘use’’ or ‘‘knowing possession’’ of material 

nonpublic information. This rule provides that a person trades ‘‘on 

the basis of ’’ material nonpublic information when the person purchases or sells securities while aware of the information. However, 

the rule also sets forth several affirmative defenses, to permit persons to trade in certain circumstances where it is clear that the information was not a factor in the decision to trade. 

‘‘Insider trading ’’ is a term subject to many definitions and connotations and it encompasses both legal and prohibited activity. Illegal insider trading refers generally to buying or selling a security, 

in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information 

about the security. The Rule adopted by the SEC in 2000 gives corporate employees a means to buy and sell without fearing potential 

securities fraud charges. Under the rule, an insider can put in 

place a plan to trade company shares when the person does not 

have inside information. That allows a corporate employee to ‘‘carry 

out those pre-planned transactions at a later time, even if they 

later become aware of material nonpublic information.’’ 

Some critics of the Rule as currently written argue insiders can 

maneuver around the Rule and trade on material, nonpublic information. Further, some observers have highlighted in the press notable trades by insiders that critics claim raise concerns regarding 

the efficacy of Rule 10b5–1 plans, and others have found that insiders may outperform other shareholders despite utilizing Rule 10b5– 

1 plans, which presumably operate in a manner to ensure that insiders are trading in a manner more consistent with shareholders 

who do not possess material nonpublic information. Nonetheless, as 

a general matter, Rule 10b5–1 serves an important function by providing greater clarity regarding what trades are presumed to have 

been made on the basis of material nonpublic information, while 

providing insiders with an affirmative defense where trades are executed pursuant to an establish Rule 10b5–1 plan. The SEC’s 

adopting release for Rule 10b5–1 noted that ‘‘the revised defense is 

designed to cover situations in which a person can demonstrate 

that the material nonpublic information was not a factor in the 

trading decision.’’ Providing clarity regarding insider trading is important to our capital markets because equity compensation is the 

preferred way to reward executives and encourage performance, 

which means those rewarded with such shares must be able to sell 

them at appropriate times. 

Because Rule 10b5–1 became effective 2000, this bill directs the 

SEC to study whether amendments to Rule 10b5–1 are necessary. 

In particular, the SEC shall consider whether the Rule should be 

amended to, among other things: limit the ability of insiders to 

adopt a Rule 10b5–1 plan during the issuer’s trading windows; 

limit the ability of insiders to adopt multiple, overlapping trading 

plans; establish a mandatory delay between adoption of the trading 

plan and execution of the first trade, and if so, whether such delay 

3 

should be the same for trading plans adopted during the issuer’s 

trading window as opposed to outside such window and whether 

any exceptions to such a delay are appropriate; limit the frequency 

of modifications or cancellations to trading plans; require insiders 

to file with the SEC trading plan adoptions, amendments, terminations, and transactions; and require boards of issuers who have 

adopted trading plans to adopt certain policies, periodically monitor 

trading plan transactions, and ensure that the issuer’s policies discuss use of the plans in the context of equity hedging, holding, and 

ownership. 

At the time of the Rule’s adoption in 2000, the SEC noted the 

following benefits, ‘‘. . . the rule should increase investor confidence in the integrity and fairness of the market because it clarifies and strengthens existing insider trading law. Second, the rule 

will benefit corporate insiders by providing greater clarity and certainty on how they can plan and structure securities transactions.’’ 

Some eighteen years later, it is appropriate to review the results 

of the Rule and to consider if amendments may be appropriate to 

consider how any amendments to Rule 10b5–1 clarify and enhance 

existing prohibitions against insider trading, the impacts of such 

amendments with regards to attracting candidates for insider positions, the impacts on capital formation, the effects on a company’s 

willingness to operate as a public company, and any other considerations necessary and appropriate for the protection of investors. 

The bill directs the SEC to report to the House Financial Services 

Committee and Senate Banking Committee the findings of the 

study within one year of enactment. Additionally, if the SEC finds 

that amendments are necessary, the bill directs the SEC to revise 

Rule 10b5–1 consistent with the results of the study, subject to 

public notice and comment. 

HEARINGS

The Committee on Financial Services held no hearings examining matters relating to H.R. 6320. 

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on 

July 11, 2018, and ordered H.R. 6321 to be reported favorably to 

the House by voice vote. 

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion 

to report legislation and amendments thereto. The sole vote was on 

a motion by Chairman Hensarling to report the bill favorably to 

the House without amendment. The motion was agreed to by voice 

vote, a quorum being present. 

COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House 

of Representatives, the findings and recommendations of the Committee based on oversight activities under clause 2(b)(1) of rule X 

of the Rules of the House of Representatives, are incorporated in 

the descriptive portions of this report. 

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PERFORMANCE GOALS AND OBJECTIVES

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House 

of Representatives, the Committee states that H.R. 6320 will mandate the SEC to conduct a study on SEC rule 10b5–1 in order to 

determine if the rule needs to be amended in order to better prevent insider trading. 

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX

EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee adopts as its own the estimate of new budget authority, entitlement authority, or tax expenditures or revenues contained in the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

CONGRESSIONAL BUDGET OFFICE ESTIMATES

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House 

of Representatives, the following is the cost estimate provided by 

the Congressional Budget Office pursuant to section 402 of the 

Congressional Budget Act of 1974: 

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, July 17, 2018. 

Hon. JEB HENSARLING, 

Chairman, Committee on Financial Services, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 3555, H.R. 6177, H.R. 

6319, H.R. 6320, H.R. 6321, H.R. 6322, H.R. 6323, and H.R. 6324. 

If you wish further details on these estimates, we will be pleased 

to provide them. The CBO staff contact is Stephen Rabent. 

Sincerely, 

MARK P. HADLEY

(For Keith Hall, Director). 

Enclosure. 

Securities and Exchange Commission Legislation 

On July 11, the House Committee on Financial Services ordered 

eight bills to be reported related to the rules, regulations, and operations of the Securities and Exchange Commission (SEC). The bills 

are: 

• H.R. 3555, the Exchange Regulatory Improvement Act, 

would require the Securities and Exchange Commission (SEC) 

to issue regulations regarding its definition of what constitutes 

a facility used by a national securities exchange; 

• H.R. 6177, the Developing and Empowering our Aspiring 

Leaders Act of 2018, would direct the SEC to conduct a rulemaking to expand what types of asset acquisitions are considered qualifying investments for a venture capital fund; 

• H.R. 6319, the Expanding Investment in Small Business 

Act, would require the SEC to conduct a study on the limitation on the amount of outstanding securities a closed-end fund 

5 

may hold from a single issuer and still be classified as diversified; • H.R. 6320, the Promoting Transparent Standards for Corporate Insiders Act, would require the SEC to conduct a study 

of various proposals to change agency rules regarding the use 

of written trading plans by certain securities traders; • H.R. 6321, the Investment Adviser Regulatory Flexibility 

Improvement Act, would require the SEC to revise the definitions of a small business and small organization applicable for 

assessing the effect of the agency’s rulemakings under the Investment Advisers Act of 1940 on those entities; • H.R. 6322, the Enhancing Multi-Class Share Disclosures 

Act, would direct the SEC to issue a rule requiring securities 

issuers with multi-class stock structures to make disclosures 

regarding the voting power of certain individuals; • H.R. 6323, the National Senior Investor Initiative Act of 

2018, would direct the SEC to establish a taskforce to identify 

challenges that senior investors face and to report on its findings every two years; and • H.R. 6324, the Middle Market IPO Underwriting Cost Act, 

would direct the SEC to study the costs associated with small 

and medium-sized companies undertaking an initial public offering and to report on its findings. 

Using information from the SEC regarding the costs of similar 

activities, CBO estimates that implementing seven of those bills— 

H.R. 3555, H.R. 6177, H.R. 6319, H.R. 6320, H.R. 6321, H.R. 6322, 

and H.R. 6324—would each have a gross cost of about $1 million 

for the agency to conduct the required studies and rulemakings and 

to issue reports. CBO estimates that implementing the eighth 

bill—H.R. 6323—would have a gross cost of $7 million over the 

2019–2023 period for the SEC to establish and carry out the functions of the taskforce established under the bill. 

However, the SEC is authorized to collect fees sufficient to offset 

its annual appropriation; therefore, CBO estimates that the net effect on discretionary spending of implementing each of those bills 

would be negligible, assuming appropriation actions consistent with 

that authority. H.R. 6323 also would require the Government Accountability Office (GAO) to conduct a study on the economic costs 

of the financial exploitation of senior citizens and CBO estimates 

that implementing that section would cost GAO less than $500,000; 

such spending would be subject to the availability of appropriated 

funds. 

None of the bills would affect direct spending or revenues; therefore, pay-as-you-go procedures do not apply for any of the eight 

bills. 

None of the bills would increase net direct spending or on-budget 

deficits in any of the four consecutive 10-year periods beginning in 

2029, CBO estimates. 

None of the bills contain intergovernmental mandates as defined 

in the Unfunded Mandate Reform Act (UMRA) and would not affect the budgets of state, local, or tribal governments. All of them 

would require the SEC to take actions that could raise the agency’s 

administrative costs and the fees it collects to offset those costs. If 

the SEC increased fees, it would increase the cost of an existing 

mandate on private entities required to pay those fees. CBO estiVerDate Sep 11 2014 05:55 Aug 04, 2018 Jkt 079006 PO 00000 Frm 00005 Fmt 6659 Sfmt 6602 E:\HR\OC\HR891.XXX HR891
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mates that none of the bills would increase fees in an amount that 

would exceed the annual threshold for private-sector mandates established in UMRA ($160 million in 2018, adjusted annually for inflation). 

The CBO staff contacts for this estimate are Stephen Rabent (for 

federal costs) and Rachel Austin (for mandates). The estimate was 

reviewed by H. Samuel Papenfuss, Deputy Assistant Director for 

Budget Analysis. 

FEDERAL MANDATES STATEMENT

This information is provided in accordance with section 423 of 

the Unfunded Mandates Reform Act of 1995. 

The Committee has determined that the bill does not contain 

Federal mandates on the private sector. The Committee has determined that the bill does not impose a Federal intergovernmental 

mandate on State, local, or tribal governments. 

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the 

Federal Advisory Committee Act were created by this legislation. 

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the 

terms and conditions of employment or access to public services or 

accommodations within the meaning of the section 102(b)(3) of the 

Congressional Accountability Act. 

EARMARK IDENTIFICATION

With respect to clause 9 of rule XXI of the Rules of the House 

of Representatives, the Committee has carefully reviewed the provisions of the bill and states that the provisions of the bill do not 

contain any congressional earmarks, limited tax benefits, or limited 

tariff benefits within the meaning of the rule. 

DUPLICATION OF FEDERAL PROGRAMS

In compliance with clause 3(c)(5) of rule XIII of the Rules of the 

House of Representatives, the Committee states that no provision 

of the bill establishes or reauthorizes: (1) a program of the Federal 

Government known to be duplicative of another Federal program; 

(2) a program included in any report from the Government Accountability Office to Congress pursuant to section 21 of Public 

Law 111–139; or (3) a program related to a program identified in 

the most recent Catalog of Federal Domestic Assistance, published 

pursuant to the Federal Program Information Act (Pub. L. No. 95– 

220, as amended by Pub. L. No. 98–169). 

DISCLOSURE OF DIRECTED RULEMAKING

Pursuant to section 3(i) of H. Res. 5, (115th Congress), the following statement is made concerning directed rule makings: The 

Committee estimates that the bill requires no directed rulemakings 

within the meaning of such section. 

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SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title 

This section cites H.R. 6320 as the ‘‘Promoting Transparent 

Standards for Corporate Insiders Act.’’ 

Section 2. SEC study 

This section cites that the SEC shall conduct a study of whether 

Rule 10b5–1 should be amended to more effectively regulate insider 

trading. It also requires the SEC to prepare a report to the Committee on Financial Services of the House of Representatives and 

the Committee on Banking, Housing, and Urban Affairs of the Senate and to revise the rule, subject to public notice and comment, 

consistent with the results of the study. If the SEC finds that no 

amendments are necessary, the Commission would not be expected 

to revise Rule 10b5–1. 

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows: H.R. 6320 does not repeal or 

amend any section of a statute. Therefore, the Office of Legislative 

Counsel did not prepare the report contemplated by Clause 

3(e)(1)(B) of rule XIII of the Rules of the House of Representatives. 

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