House Overwhelmingly Passes 8-K Trading Gap Act
On January 13, by an overwhelming vote of 384-7, the U.S. House of Representatives passed the 8-K Trading Gap Act, a bill that would require public companies to put in place policies and procedures to prohibit officers and directors from trading company stock after a significant corporate event has occurred, but before the company has filed a Form 8-K disclosing such event.
SEC rules give companies four business days to report a significant corporate event on Form 8-K, a period known as the “8-K trading gap.” The bill’s origins trace back to a 2015 study by researchers at Columbia and Harvard universities that found “systematic abnormal returns” from trades by insiders during the 8-K trading gap.
“Corporate executives shouldn’t be allowed to trade on significant information ahead of the public and investors, but that’s exactly what’s happening because of this legal loophole,” Rep. Carolyn Maloney (D-NY), the bill’s sponsor, said in a press release. “Given the unanimous, bipartisan support for this bill in the House Committee on Financial Services, and the broad bipartisan vote out of the House, I hope the bill will pass the Senate quickly. It’s just commonsense.”
A companion bill was introduced in the Senate on September 17, 2019, but has not yet been considered by the Senate Committee on Banking, Housing, and Urban Affairs.