U.S. Rep. Carolyn B. Maloney (D-NY) and Sen. Chris Van Hollen (D-MD) have reintroduced a measure they said seeks to address an existing loophole enabling corporate executives to trade before the information is disclosed to the public and shareholders.
The 8-K Trading Gap Act focuses on addressing a four-day window in which company executives know about a significant event such as a bankruptcy or acquisition, but other investors, and the public, do not. Per the legislation, public companies would be required to establish a policy prohibiting insider trades during the four-day period.
“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,” Maloney said. “The 8-K Trading Gap Act has a very simple solution to this problem: prohibit executives from trading during the four-day gap between when an event happens and when the company publicly files a Form 8-K to alert the public and shareholders of the event.”
Van Hollen said corporate executives take advantage of the 8-K trading gap by selling off bundles of shares before a major announcement.
“It’s clear this gap gives corporate insiders a massive unfair advantage over the public,” he said. “Our legislation will close this harmful loophole and provide fairness to everyday shareholders. I’ll be working with my colleagues on the Banking, Housing, and Urban Affairs Committee to move this legislation at once.”
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