On December 14, 2022, the Securities and Exchange Commission (the "SEC") unanimously adopted amendments (the "amendments") to Rule 10b5-1 under the Securities Exchange Act of 1934 (the "Exchange Act") and related disclosure obligations for public companies. The amendments (i) add new conditions to the availability of the affirmative defense to insider trading liability contained in Rule 10b5-1 designed to address concerns about the rule's abuse by insiders to trade securities on the basis of material nonpublic information ("MNPI") and (ii) enhance public disclosure by issuers and insiders of trading plans designed to comply with Rule 10b5-1. This Legal Update summarizes the principal changes made by the amendments and discusses some practical considerations.


Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder prohibit purchases or sales of a security on the basis of MNPI about that security or the issuer, in breach of a duty owed to such issuer or the shareholders of such issuer or to any person who is the source of that MNPI. This prohibited conduct is more commonly referred to as "insider trading." Rule 10b5-1 provides an affirmative defense to insider trading liability for trades undertaken pursuant to a binding contract, an instruction to another person to execute the trade for the instructing person's account or a written plan (collectively, a "10b5-1 Plan") adopted when the trader was not aware of MNPI. 10b5-1 Plans must be entered into in good faith and not as part of a scheme to evade the prohibitions of the insider trading rules.

Since the adoption of Rule 10b5-1 in 2000, the SEC, courts, members of Congress, academics and others have grown increasingly concerned that Rule 10b5-1 has allowed traders to escape liability by trading on the basis of MNPI while still technically satisfying the Rule's requirements. To address these concerns, the SEC issued a proposal about a year ago consistent with prior statements made by SEC Chair Gary Gensler, as well as recommendations made to the SEC by the Investor Advisory Committee, with respect to 10b5-1 Plans.1 The proposal included new conditions to the availability of the Rule 10b5-1 affirmative defense, such as cooling-off periods between adoption of a 10b5-1 Plan and the first trade thereunder, limitations on multiple overlapping 10b5-1 Plans and limits on single-trade 10b5-1 Plans, as well as new disclosure requirements. The SEC received over 180 comment letters on the proposed amendments.

The adopted amendments, while generally consistent with the proposal, do take into account concerns raised by commenters. "[B]ased on feedback from the public," SEC Chair Gensler noted "we have modestly changed the proposed cooling-off period for insiders, are not adopting a cooling-off period for issuers, and are providing a phased implementation for disclosures for smaller reporting companies."2

Amendments to Rule 10b5-1


Prior to the effective date of the amendments, Rule 10b5-1 did not require any waiting or "cooling-off" periods between the date on which a 10b5-1 Plan is adopted and the date of the first transaction made pursuant to such plan, although some plans voluntarily included, and some companies required, such a cooling-off period. Under the amendments, in order to qualify for the affirmative defense provided by Rule 10b5-1:

  • Trading under a 10b5-1 Plan adopted by a director or "officer," as defined in Rule 16a-1(f),3 must not begin until the later of (1) 90 days following plan adoption or "modification" (as described below) and (2) two business days following disclosure of the issuer's financial results for the fiscal quarter in which the plan was adopted or modified (but not to exceed 120 days following plan adoption or modification); and
  • Trading under a 10b5-1 Plan for persons other than issuers or directors and officers (which includes non-officer employees who enter into 10b5-1 Plans) must not begin until 30 days following plan adoption or modification.

For purposes of the director and officer cooling-off period, the amendments provide that an issuer will be considered to have disclosed its financial results at the time it files a Form 10-Q or Form 10-K, or, in the case of foreign private issuers (FPIs), when such FPIs file a Form 20-F or furnish a Form 6-K that discloses financial results.

A longer cooling-off period of 120 days for directors and officers was initially considered in the proposed rules and some commentators advocated for shorter periods. SEC Commissioner Hester Peirce (while voting in favor of the amendments) expressed her disagreement with the adopted 90-day period stating,

"...the new regime in the final rule is unnecessarily restrictive. For example, the final rule imposes a lengthy cooling-off period. Although the new cooling-off period is shorter than proposed, it is longer than necessary for directors and officers. Many commenters reasonably called for a period as short as 30 or 60 days. A longer period could discourage the use of 10b5-1 plans."4

In an important change from the proposal, issuers are not subject to a cooling-off period.

The amendments clarify that a "modification" of an existing 10b5-1 Plan would be deemed to be a termination of such 10b5-1 Plan and would restart the applicable cooling-off period. The amendments provide that "any modification or change" to the amount, price, or timing of the purchase or sale of the securities underlying a 10b5-1 Plan is treated as a termination of the plan and the adoption of a new plan. To the extent that insiders seek to continue to rely on the affirmative defense, they would be subject to a new cooling-off period.5 Additionally, cancellation of one or more trades would constitute a "modification." However, modifications that do not change the sales or purchase prices or price ranges, the amount of securities to be sold or purchased or the timing of transactions under a 10b5-1 Plan (such as an adjustment for stock splits or a change in account information) will not trigger a new cooling-off period. The amendments do not provide any de minimis modification exception. In other words, a modification need not be "material" in order for it trigger a new cooling-off period.

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1. Gary Gensler, Prepared Remarks CFO Network Summit (June 7, 2021); Recommendations of the Investor Advisory Committee Regarding 10b5-1 Plans (Sept. 9, 2021).

2. Gary Gensler, Statement on Final Amendments to Rule 10b5-1 and Other Insider Trading Requirements (Dec. 14, 2022).

3. As defined in Rule 16a-1(f) "officer" generally means an issuer's president, principal financial officer, principal accounting officer (or, if there is no such accounting officer, the controller), any vice-president of the issuer in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the issuer and may include officers of the issuer's parent(s) or subsidiaries if they perform policy-making functions for the issuer.

4. Hester M. Pierce, Statement on Final Rule: "Insider Trading Arrangements and Related Disclosures" (Dec. 14, 2022).

5. See Rule 10b5-1(c)(iv) ("Any modification or change to the amount, price, or timing of the purchase or sale of the securities underlying a contract, instruction, or written plan as described in paragraph (c)(1)(i)(A) of this section is a termination of such contract, instruction, or written plan, and the adoption of a new contract, instruction, or written plan").

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.