Van Hollen, Sherman Introduce Bicameral Legislation to Eliminate Corporate Insiders’ Unfair Advantage in Stock Sales

Van Hollen, Sherman Introduce Bicameral Legislation to Eliminate Corporate Insiders' Unfair Advantage in Stock Sales

Legislation closes 8-K trading gap, preventing executives from profiting before significant problems are disclosed to the SEC, public

U.S. Senator Chris Van Hollen (D-Md.), a member of the Senate Banking, Housing and Urban Affairs Committee, and Congressman Brad Sherman (D-Calif.), a member of the House Financial Services Committee, have reintroduced the 8-K Trading Gap Act. This bicameral legislation prevents executives and other corporate insiders, including foreign issuers, from profiting off the gap between the occurrence of a significant event - such as bankruptcy or an acquisition - and its legally-mandated disclosure to the Securities and Exchange Commission (SEC) and the general public. Under current law, companies have four days to file the 8-K disclosure form with the SEC, but they are not barred from trading in advance of the filing - giving them an unfair advantage. The 8-K Trading Gap Act would close this gap by requiring the SEC to write a rule to prohibit insiders from making trades during this four-day period.

"The 8-K trading gap gives corporate executives a major loophole to cash in on their stocks when major changes are about to hit - before shareholders and the public are made aware. With the 8-K trading gap, insiders get a several-day head start to make lucrative financial moves prior to a major stock price-altering announcement. Our legislation will close this harmful loophole to prevent insiders from benefitting from this unfair advantage while ensuring a fairer market for the public," said Senator Van Hollen.

"The integrity of our capital markets rely on transparency and equal access to information and trading opportunities for all market participants," said Congressman Brad Sherman. "As Ranking Member of the Subcommittee on Capital Markets, investor protection is at the forefront of my priorities. Our capital markets remain the envy of the world because Congress passed laws to make them transparent and fair. This bill is a vital step toward safeguarding our markets and ensuring that everyone plays by the same set of rules."

This legislation has been endorsed by the Healthy Markets Association.

The text of the bill is available here.