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

Washington, D.C. — Today, Congressman Brad Sherman (D-CA) along with Senator Chris Van Hollen (D-MD) introduced the 8-K Trading Gap Act to protect our capital markets from potential insider trading.

In the U.S., publicly traded companies must disclose a material event - such as cyber hacks, credit rating adjustments, bankruptcy filings, etc. - to shareholders within 4 days through the Securities and Exchange Commission’s Form 8-K. Recent research by former SEC Commissioner Rob Jackson found evidence of opportunistic trading (potentially insider trading) during the 4-day gap between the occurrence of a material event and the Form 8-K public disclosure being filed.

This bill would require companies to create policies reasonably designed to prevent insider trades within the 4-day window, and it requires that the SEC issue reporting rules to ensure that these policies are adequate. Furthermore, this bill also applies equally to foreign issuers who disclose material events through SEC Form 6-K.

“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. I look forward to working with Senator Van Hollen to ensure corporate insiders will not be able to trade on non-public, material information at the expense of public investors.”

“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 text of the bill is available here.

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