8-K Trading Gap Act of 2019
Floor Speech
BREAK IN TRANSCRIPT
Mr. HILL of Arkansas. Madam Speaker, I yield myself such time as I may consume.
I rise in support of H.R. 4335, the 8-K Trading Gap Act of 2019.
Madam Speaker, I thank my friend, the gentlewoman from New York, Congresswoman Maloney, and her staff for her efforts on this bill and for working with Republicans to make this a bipartisan bill.
Madam Speaker, we all agree that fraud and abuse, such as illegal insider trading, have no place in our financial system. Bad actors damage the integrity, efficiency, and effectiveness of our markets, which in turn hurts everyday investors.
When significant corporation events occur, such as the appointment of a new chief financial officer, public companies must disclose these events to shareholders and to the public on form 8-K. This form must be filed within 4 business days of that significant event.
It is reasonable to believe that company insiders may have knowledge of the event or material, nonpublic information days before that same information is disclosed to the general public and shareholders.
Most companies and their executives strive to operate within the law. Trading within that period is clearly illegal. However, there is no SEC rule that explicitly prohibits insiders from buying or selling company stock during this 4-business-day gap, which starts at the time the event occurred and ends with the filing of form 8-K in which information about the event is then disclosed to the public.
Simply put, that is what this measure does. The bill before us today prohibits executive insiders from profitably trading in their company's stock while in possession of material, nonpublic information stemming from a yet-to-be-disclosed event.
At the same time, the bill also provides appropriately tailored exemptions for companies not intended to be covered by the bill, such as registered funds or business development corporations.
In addition, the bill provides flexibility to companies by allowing for announcements via press releases while not requiring the immediate filing of form 8-K.
Again, I thank our chair of the Oversight and Reform Committee, a former loyal and longstanding member of the House Committee on Financial Services, and her staff for her diligent efforts in working across the aisle to draft and design this bipartisan bill that strikes the right balance of strengthening our securities laws while tailoring the bill to minimize unintended and unnecessary application.
Madam Speaker, I urge all of my colleagues to join me in supporting this well-balanced piece of legislation, and I reserve the balance of my time.
Mr. SAN NICOLAS. Madam Speaker, I yield 2 minutes to the gentlewoman from New York (Mrs. Carolyn B. Maloney), chairwoman of the Oversight and Reform Committee and the sponsor of this legislation.
Mrs. CAROLYN B. MALONEY of New York. Madam Speaker, I rise in strong support of this bill, the 8-K Trading Gap Act. I thank Mr. San Nicolas for yielding and for his leadership on the committee, and, of course, Chairwoman Waters.
This bill would fix a loophole in our current law that allows corporate executives to trade on information before it is disclosed to the public and to their own shareholders.
Right now, when there is a significant corporate event in a public company, the company has to disclose that event to the public by filing a form 8-K within 4 days of the event occurring. Of course, during this 4-day gap, executives at the company know about the significant event, but other investors do not.
There has been research from academics at Columbia Law School and Harvard Law School that shows that executives do actually trade in this 4-day gap and profit significantly from it. In fact, one of the authors of this study was Robert Jackson, who is now an SEC Commissioner.
Commissioner Jackson brought this issue to my attention when he was still an academic, and I would like to thank him for his hard work on this issue.
My bill would address this problem by simply prohibiting executives from trading during this 4-day gap that they know about and the public doesn't, which is clearly illegal.
When SEC Chairman Clayton testified before the Financial Services Committee, I asked him about this bill. He said that he thought it was ``good corporate hygiene that, once a determination has been made that there is a material event to disclose, that the company's insider trading policy . . . would have a control in there where the senior executives would not be allowed to trade.''
This is basically an endorsement of this bill. That is exactly what my bill would do, and I think it is just plain common sense.
I very much want to thank Ranking Members McHenry, Huizenga, and Hill for their work with me on this bill, and I would also like to thank Chairwoman Waters for her support.
I urge my colleagues to support it. It is a commonsense, good- government bill. It will help investors and help the entire system.
BREAK IN TRANSCRIPT
Mr. HILL of Arkansas. Madam Speaker, I am prepared to close. I urge my colleagues to support Mrs. Maloney's good work. I thank my friend from Guam for his leadership, and I yield back the balance of my time.
Mr. SAN NICOLAS. Madam Speaker, I yield myself such time as I may consume.
Madam Speaker, investor confidence and market integrity are built on the premise that our markets are fair and transparent. H.R. 4335 will help ensure that this is the case by preventing corporate insiders from unfairly taking advantage of significant corporate events before they are disclosed to the public.
For that reason, the bill is supported by investor groups, like the Council of Institutional Investors, as well as our State securities regulators, which are represented by the North American Securities Administrators Association.
Madam Speaker, I urge all of my colleagues to join me in their support of H.R. 4335. I thank our colleagues on the other side of the aisle for their support.
With publicly traded companies, Madam Speaker, nobody should have an advantage over the public. I yield back the balance of my time.
BREAK IN TRANSCRIPT
Source