Thought Leadership

SEC Proposes Changes to Insider Trading Rule

Client Updates

Last week, the Securities and Exchange Commission (“SEC”) proposed a series of new rules and amendments to existing rules, including changes to existing Rule 10b5-1(c).1 First enacted in 2000, Rule 10b5-1(c) allows directors, officers, and other company insiders to make trades in a company’s securities even while in possession of material non-public information (“MNPI”), if certain conditions are met, including that the trades were made pursuant to a pre-existing “contract,” “instruction,” or “written plan,” which are collectively and colloquially known as a “10b5-1 Plan.”2

The proposed changes would create a “cooling-off period” before trading under a 10b5-1 Plan can begin, prohibit overlapping trading plans, limit single-trade plans to one trading plan per twelve month period, require the person setting up the trade to certify they are not aware of MNPI, and require issuers to disclose more about policies and procedures concerning MNPI and issues relating to the timing of options grants, among other things.

This update reviews the purpose of Rule 10b-5-1; the proposed amendments; the reactions of other SEC Commissioners; and key takeaways for companies and executives.


Since the 1960s, courts and the SEC have taken the position that Section 10(b) of the 1934 Exchange Act and Rule 10b-5 promulgated thereunder, which generally prohibit the use of “manipulative [or] deceptive devices” in connection with the purchase or sale of security, prohibit corporate insiders from buying or selling securities on the basis of MNPI, commonly referred to as “insider trading.”3

Over the next 30 years, insider-trading doctrine developed largely through (sometimes conflicting or inconsistent) case law. In 2000, the SEC enacted Rule 10b5-1 to clarify the elements of, and defenses to, insider trading liability.

As relevant here, Rule 10b5-1(c), provides a defense to insider trading charges, by stating that a purchase or sale of a security is not “on the basis” of MNPI if certain conditions are met. Among other things,

  • the person making the purchase or sale must demonstrate that, before becoming aware of the MNPI, they had “entered into a binding contract to purchase or sell the security,” “instructed another person to purchase or sell the security for the instructing person’s account,” or “adopted a written plan for trading securities” (collectively a “10b5-1 Plan”).4

  • In addition, the 10b5-1 Plan must include specifics about the amount and timing of securities transactions made pursuant to the Plan,5 and the rule also limits a person’s ability to deviate from the Plan by entering into a hedging or other off-setting transaction.6

  • Finally, the affirmative defense applies only when the 10b5-1 Plan “was given or entered into in good faith and not as part of a plan or scheme to evade the prohibitions” on insider trading.7

Current SEC Chair Gary Gensler has expressed skepticism about Rule 10b5-1 trading plans. Earlier this year, he said the plans led to “real cracks” in the insider trading regime and announced that he asked the SEC Staff to consider “how we might freshen up Rule 10b5-1.”8

Proposed Amendments

The SEC’s effort at “freshen[ing] up Rule 10b5-1” became public last week, when the agency announced proposed amendments to the rule, including new requirements for those seeking to take advantage of the 10b5-1 safe harbor. Here are the most important changes:

  • “Cooling-Off Period”

    One concern voiced by Chair Gensler and other observers was that, in its current form, nothing prevents a corporate insider from entering into or modifying a 10b5-1 Plan that allows for trades to be executed almost immediately, and therefore, the Plan is not truly “pre-existing,” at least in the spirit of the Rule. The proposed amendments attempt to address this issue by imposing a 120-day cooling off period before trades can be executed pursuant to a new or changed plan. For issuers who set up a Rule 10b5-1 Plan as part of a share buyback arrangement, there would be a 30-day cooling off period. According to the SEC, this provides a greater distinction between the trading plan and actual trades.9

  • No Overlapping Trading Plans

    Another concern voiced by Chair Gensler and the SEC staff was that the current rule allows individuals to have multiple 10b5-1 Plans in place at once and allows them to cancel such plans at will. The proposed amendments prohibit overlapping plans for open-market trades in the same class of securities and limit the availability of the affirmative defense for a trading arrangement designed to cover a single trade, so that the affirmative defense would only be available for one single-trade plan during any 12-month period.

  • Certification and “Operated” in Good Faith Requirements

    As noted above, Rule 10b5-1(c)(ii) currently requires that the10b5-1 Plan “was given or entered into in good faith and not as part of a plan or scheme to evade the prohibitions” on insider trading.

    The proposed rules would also attempt to put more teeth in this good-faith requirement in two ways.

    First, the proposed Rule would require directors and officers certify, in writing, that they are not aware of any MNPI when they enter into a 10b5-1 Plan. The director or officer would need to retain a copy of the certification for ten years but would not need to file a copy of the certification with the Commission.

    Second, the proposed Rule would add to Rule 10b5-1(c)(ii) the requirement that the Plan be “operated”—not just “given or entered into”—in good faith. As noted below, at least one SEC Commissioner questioned whether this “operated” requirement would actually create unintended perverse incentives.

  • More Disclosures by Issuers

    The amendments further require issuers to disclose more information, including: (1) any trading plans adopted during the reporting quarter; (2) insider trading policies and procedures; and (3) the granting of spring-loaded options to executives. For example, issuers would have to report any options granted within 14 days of the release of material non-public information and the market price of the underlying securities the trading day before and the trading day after the disclosure of the information. The SEC believes these disclosures would enhance shareholders’ ability to assess issuers’ insider-trading policies.

  • Reporting Insider Gifts

    The proposed amendments also include changes to charitable gifts of securities. By changing the form in which gifts are reported from Form 5 to Form 4, the SEC hopes to bring greater transparency to such gifts.

    In sum, Chair Gensler believes these changes will create a more equitable marketplace, by filling in gaps purportedly in current Rule 10b5-1.

Reactions from SEC Commissioners

The notice of proposed rulemaking drew public comments from each of the four SEC Commissioners in addition to Chair Gensler.

Commissioners Allison Herren Lee and Caroline Crenshaw spoke approvingly of the proposed amendments, though both questioned and invited public comment on specific changes. Commissioner Lee wondered whether the agency had correctly calibrated the duration of the cooling off periods for individuals and issuers.11 Commissioner Crenshaw wondered whether particular changes, including those impacting single trade plans, go far enough or are as effective as other available alternatives.12

Commissioner Elad Roisman expressed reservations about the amendments. First, he objected to a fundamental premise of the amendments, i.e., that abuse of Rule 10b5-1 is prolific and not capable of being addressed under existing rules. Second, he supported the 120-day cooling off period for individuals, but none of the other amendments applicable to individuals, save the Form 4 and 5 reporting requirements for gifts. Finally, while he thought issuers should disclose their trading plans, he did not support the 30-day cooling off period for them.

In addition, Commissioner Hester Peirce expressed concerns about three aspects of the proposals. First, Commissioner Peirce questioned the purpose of requiring the director or officer to retain the certification for ten years. Second, Commissioner Peirce noted that the requirement that the Plan be “operated” in good faith could create perverse incentives. The purpose of a Rule 10b5-1 Plan, she noted, is for officers and directors “to ‘set it and forget’” but the “operate” requirement “may raise an unintended incentive for directors or officers to consider their Rule 10b5-1 plans in connection with corporate actions long after establishing their plans.” Finally, Commissioner Peirce asked whether “proposed disclosure requirements relating to insider trading policies and procedures [are] necessary” and specifically observed that “the proposed disclosure requirements relating to spring-loaded options seem designed to discourage the use of such equity-based compensation."14

What’s Next

The SEC invited public comment for 45 days after the proposed amendments are published in the Federal Register. If adopted, the amendments would be the first changes to the Rule 10b5-1 safe harbor since its enactment over 20 years ago. And even if the proposed amendments are not actually adopted in full, the discussion around the safe harbor provides insight into the SEC’s current concerns and, therefore, potential areas of focus in future examinations and enforcement investigations. We will be following this discussion closely and stand ready to assist issuers and others in evaluating their insider-trading policies and procedures in light of these proposed amendments. 

1 See Proposed rule: Rule 10b5-1 and Insider Trading, Dec. 15, 2021, available at

2 Press Release, U.S. Securities and Exchange Commission, SEC Proposes Amendments Regarding Rule 10b5-1 Insider Trading Plans and Related Disclosures (Dec. 15, 2021),

3 See, e.g., In re Cady Roberts & Co., 40 SEC 907 (1961); SEC v. Texas Gulf Sulphur, Co., 401 F.2d 833, 848 (2d Cir. 1968).

4 Rule 10b5-1(c)(1)(i)(A)(1)-(3).

5 Rule 10b5-1(c)(1)(i)(B)(1)-(3).

6 Rule 10b5-1(c)(1)(i)(C).

7  Rule 10b5-1(c)(1)(ii).

8 Speech, U.S. Securities and Exchange Commission, Prepared Remarks CFO Network Summit (June 7, 2021),

9 Speech, U.S. Securities and Exchange Commission, Statement on Rule 10b5-1 and Insider Trading (Dec. 15, 2021),

10 Id.

11 Allison Herren Lee, Statement, U.S. Securities and Exchange Commission, Stock Trading Plans Should Prevent – Not Enable – Insider Trading: Statement on Proposed Amendments to Rule 10b5-1 (Dec. 15, 2021),

12 Caroline A. Crenshaw, Statement, U.S. Securities and Exchange Commission, Statement on the Proposed Amendments to the Availability of the Affirmative Defense to Allegations of Insider Trading Provided by Exchange Act Rule 10b5-1 (Dec. 15, 2021),

13 Elad L. Roisman, Statement, U.S. Securities and Exchange Commission, Statement on the Proposed Rules Regarding 10b5-1 Plans (Dec. 15, 2021),

14 Hester M. Peirce, Statement, U.S. Securities and Exchange Commission, Statement on the Proposed Amendments to the Availability of the Affirmative Defense to Allegations of Insider Trading Provided by Exchange Act Rule 10b5-1 (Dec. 15, 2021),

Related Professionals