WASHINGTON—Wall Street’s regulator is putting forward tighter rules on how and when corporate insiders can sell their companies’ stocks, just as executives are cashing in at historic levels.
The Securities and Exchange Commission proposed new restrictions on executive stock trading and greater disclosure requirements around company share buybacks at a meeting Wednesday. If most of the SEC’s five commissioners support these proposals, along with two others, the agency will put the changes out for public comment before voting to complete them, potentially next year.
“The core issue is that these insiders regularly have material information that the public doesn’t have,” SEC Chairman Gary Gensler said in a statement. Wednesday’s proposal seeks to ensure their stock trading is done “in a way that’s fair to the marketplace,” he added.
Under current rules, corporate officers and directors establish 10b5-1 plans, which schedule future share purchases or sales, to avoid running afoul of insider-trading claims.
The plans have been controversial for years because there is no required public disclosure at the time a company insider sets up a plan. Some investors say the arrangements can be abused because executives can modify or cancel them, or establish a plan to sell shares the same day.
The proposed rule would require corporate directors or officers to wait 120 days before trading after either adopting or modifying a 10b5-1 plan. Executives would also have to certify that they are not aware of any important information not available to the public about the company or stock when creating or modifying a plan.
Companies would also have to disclose more information about their insider-trading policies and their practices around option grants that are timed within 14 days of a significant news release.
Recent academic research has shown that trades occurring within 60 days of a plan’s establishment were more likely to avoid significant losses and to have come ahead of stock-price declines. The advantages disappeared after 60 days.
All five SEC commissioners voted to support the 10b5-1 rule, though Republicans Hester Peirce and Elad Roisman voiced concerns that some of the proposed changes would go too far.
In addition to the executive-trading proposal, commissioners will vote on proposed changes to disclosures around stock buybacks by public companies, which are also hitting records this year.
Repurchases support stock prices by reducing the number of shares outstanding in a company, lifting the firm’s earnings per share. Like dividends, they enable companies to return cash to investors. But critics say buybacks allow executives who are partly paid in equity or options a roundabout way of boosting their own compensation at the expense of workers’ wages or productive investments.
The SEC’s proposal would require disclosures of stock buybacks to be more detailed and more frequent. Firms would have to describe the rationale for buybacks and the criteria used to determine the amount of shares to be repurchased.
Rather than disclosing monthly share repurchases once per quarter, companies would have to report buybacks on the next business day. The proposal would also require firms to indicate whether any executives bought or sold shares within 10 business days of the announcement of a buyback program.
SEC officials said one goal of the proposal is to help investors determine whether there is any connection between a company’s stock-buyback program and executive compensation.
Ms. Peirce and Mr. Roisman said they wouldn’t support the proposed changes around buybacks, while the commission’s three Democrats said they would.
“Say ‘dividend,’ and nobody gets angry, but say ‘share buyback,’ and the rage boils over,” Ms. Peirce said. “Today’s proposal channels some of that rage against repurchases in a way that only a regulator can: through painfully granular, unnecessarily frequent disclosure obligations.”
Also on Wednesday, the SEC advanced proposed changes to rules governing money-market mutual funds and to the regulation of opaque swap trades that fueled billions of dollars of losses at global investment banks earlier this year when Archegos Capital Management imploded.
Under the SEC’s swap proposal, companies that place large bets using contracts that track the performance of a company’s stock—but don’t involve holding actual shares—would need to report those bets publicly. Archegos used such swaps to quietly amass big, concentrated positions in companies such as ViacomCBS Inc. and Chinese internet giant Baidu Inc.
Wall Street banks typically broker such swaps. They can allow sophisticated investors to sidestep SEC rules requiring any person or firm that acquires more than 5% of a company’s shares to publicly disclose the stake. Wednesday’s proposal could bring similar disclosure requirements to swap-based trades.
—Alexander Osipovich contributed to this article.
Write to Paul Kiernan at paul.kiernan@wsj.com
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