On January 13, 2020, the House of Representatives in a vote of 384 to 7 passed a bill titled the 8-K Trading Gap Act. The bill would require companies to promulgate policies and procedures that prohibit corporate executives from trading company stock during the time period between the occurrence of a major corporate event and the public disclosure of the event. As brief background, a company must file SEC Form 8-K to report the occurrence of certain corporate events deemed by the SEC to be important to shareholders. Form 8-K lists specific qualifying events, which include senior officer appointments and departures, bankruptcies, and the acquisition or disposition of significant amounts of assets. A company has a maximum of four business days from the occurrence of an 8-K event to file the form. This time period is referred to as the “8-K trading gap” because, in theory, insiders would be able to trade on the basis of the information during this period.
Although the law at all times prohibits corporate insiders from trading specifically on the basis of material non-public information, the law does not explicitly prohibit corporate insiders from trading during the 8-K trading gap. Representative Carolyn B. Maloney, who introduced the bill, has warned that because of this, corporate insiders practically speaking still have a “head start on the public, allowing them to sell off stock or cash in on private information.” Representative Maloney cited as support for this legislation a 2015 study of profits made by corporate insiders during 8-K trading gaps.
Senator Chris Van Hollen introduced a Senate version of the bill in September of 2019. It remains to be seen when and if the Senate will pass the bill, which is still with the Senate Committee on Banking, Housing, Urban Affairs.