[Congressional Record Volume 166, Number 7 (Monday, January 13, 2020)]
[House]
[Pages H188-H189]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      8-K TRADING GAP ACT OF 2019

  Mr. SAN NICOLAS. Madam Speaker, I move to suspend the rules and pass 
the bill (H.R. 4335) to amend the Securities Exchange Act of 1934 to 
require the Securities and Exchange Commission to issue rules that 
prohibit officers and directors of certain companies from trading 
securities in anticipation of a current report, and for other purposes, 
as amended.
  The Clerk read the title of the bill.
  The text of the bill is as follows:

                               H.R. 4335

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``8-K Trading Gap Act of 
     2019''.

     SEC. 2. PROHIBITION ON CERTAIN TRADING IN ANTICIPATION OF A 
                   CURRENT REPORT.

       The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) 
     is amended by inserting after section 10D the following:

     ``SEC. 10E. PROHIBITION ON CERTAIN TRADING IN ANTICIPATION OF 
                   A CURRENT REPORT.

       ``(a) Prohibition.--Not later than 1 year after the date of 
     enactment of this section, the Commission shall issue rules 
     that require each issuer that is subject to reporting 
     requirements under section 13(a) or 15(d) to establish and 
     maintain policies, controls, and procedures that are 
     reasonably designed to prohibit executive officers and 
     directors of the issuer from purchasing, selling, or 
     otherwise transferring any equity security of the issuer, 
     directly or indirectly--
       ``(1) with respect to an event described in sections 1 
     through 6 of Form 8-K, between--
       ``(A) the occurrence of such event; and
       ``(B) the filing or furnishing of a current report on Form 
     8-K with respect to such event; and
       ``(2) with respect to an event described in section 7 or 8 
     of Form 8-K, between--
       ``(A) the date on which the issuer determines that it will 
     disclose such event; and
       ``(B) the filing or furnishing of a current report on Form 
     8-K with respect to such event.
       ``(b) Permissible Transactions.--In issuing rules under 
     subsection (a), the Commission--
       ``(1) may exempt certain transactions that the Commission 
     determines is appropriate, including those that--
       ``(A) occur automatically;
       ``(B) are made pursuant to an advance election; or
       ``(C) except as provided in paragraph (2), involve a 
     purchase or sale of equity securities that satisfies the 
     conditions under section 240.10b5-1(c) of title 17, Code of 
     Federal Regulations;
       ``(2) may not exempt from those rules a transaction made by 
     an executive officer or director of an issuer under a plan 
     that--
       ``(A) is described in section 240.10b5-1(c)(1)(i)(A)(3) of 
     title 17, Code of Federal Regulations; and
       ``(B) was adopted--
       ``(i) with respect to an event described in sections 1 
     through 6 of Form 8-K, between--

       ``(I) the occurrence of such event; and
       ``(II) the filing or furnishing of a current report on Form 
     8-K with respect to such event; and

       ``(ii) with respect to an event described in section 7 or 8 
     of Form 8-K, between--

       ``(I) the date on which the issuer determines that it will 
     disclose such event; and
       ``(II) the filing or furnishing of a current report on Form 
     8-K with respect to such event; and

       ``(3) shall exempt from those rules--
       ``(A) issuers required to adopt and administer a code of 
     ethics pursuant section 270.17j-1 of title 17, Code of 
     Federal Regulations, and any other issuers registered under 
     the Investment Company Act of 1940 whose investment advisers 
     are required to adopt and administer a code of ethics 
     pursuant to section 275.204A-1 of title 17, Code of Federal 
     Regulations; and
       ``(B) any event where such event is described in sections 1 
     through 6 of Form 8-K and the issuer has announced such event 
     in a press release or other method of dissemination that 
     complies with the requirements of section 101(e)(2) of 
     Regulation FD (17 C.F.R. Part 243.101(e)(2)).''.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
Guam (Mr. San Nicolas) and the gentleman from Arkansas (Mr. Hill) each 
will control 20 minutes.
  The Chair recognizes the gentleman from Guam.


                             General Leave

  Mr. SAN NICOLAS. Madam Speaker, I ask unanimous consent that all 
Members may have 5 legislative days within which to revise and extend 
their remarks on this legislation and to insert extraneous material 
thereon.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Guam?
  There was no objection.
  Mr. SAN NICOLAS. Madam Speaker, I yield myself as much time as I may 
consume.
  Madam Speaker, I thank Representative Maloney, the chair of the 
Committee on Oversight and Reform and a member of the Financial 
Services Committee, for authoring H.R. 4335, the 8-K Trading Gap Act, a 
commonsense bill that would close a loophole in our securities laws 
that has been exploited by corporate insiders.
  Currently, public companies must disclose significant corporate 
events, such as bankruptcy or major cybersecurity hacks, to investors 
and the public on Form 8-K. However, the law gives them 4 business days 
after the event occurs to make this disclosure. As a result, corporate 
executives have the benefit of knowing material, nonpublic information 
for 4 days before investors and the rest of the public.
  This is a problem because there is no rule prohibiting these 
executives from buying or selling the company's securities during this 
4-day gap, and there is evidence that certain executives have done so 
and profited handsomely. According to a 2015 study, over a 6-year 
period, insiders who traded during this 4-day gap successfully earned 
$105 million in above-market returns on these trades.
  H.R. 4335, the 8-K Trading Gap Act, fixes this loophole by requiring 
public companies to put in place policies and procedures that are 
reasonably designed to prohibit officers and directors from trading 
company stock after the company has determined that a significant 
corporate event has occurred and before the company has filed a Form 8-
K disclosing such event.
  I support this commonsense fix and encourage my colleagues to join me 
in supporting the bill.
  Madam Speaker, I reserve the balance of my time.
  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.

                              {time}  1700

  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

[[Page H189]]

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.
  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.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from Guam (Mr. San Nicolas) that the House suspend the rules 
and pass the bill, H.R. 4335, as amended.
  The question was taken.
  The SPEAKER pro tempore. In the opinion of the Chair, two-thirds 
being in the affirmative, the ayes have it.
  Mr. SAN NICOLAS. Madam Speaker, on that I demand the yeas and nays.
  The yeas and nays were ordered.
  The SPEAKER pro tempore. Pursuant to clause 8 of rule XX, further 
proceedings on this motion will be postponed.

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