What is Rule 10b5-1 Plan?

Rule 10b5-1, adopted by the SEC in August 2000, provides an affirmative defense to insider-trading liability where a trade was made under a binding contract, an instruction to another person, or a written plan adopted when the trader was not aware of material nonpublic information.

On December 14, 2022 the SEC amended the rule (Release 33-11138, effective February 27, 2023). For directors and officers, trading under a new or modified plan cannot begin until a cooling-off period ends: the later of 90 days after adoption or modification, or two business days after the company discloses its financial results for the fiscal quarter in which the plan was adopted or modified, but no more than 120 days. For other persons except the issuer, the cooling-off period is 30 days.

The amendments also require directors and officers to certify, when adopting or modifying a plan, that they are not aware of material nonpublic information and are acting in good faith; limit overlapping plans; allow reliance on only one single-trade plan in any 12-month period; and require everyone using a plan to act in good faith with respect to it. Companies now disclose each quarter whether their directors and officers adopted or terminated such plans.

The same release added a checkbox to Forms 4 and 5: the filer indicates that a reported transaction was made under a plan intended to satisfy Rule 10b5-1(c) and gives the plan’s adoption date (Form 4 General Instruction 10). Section 16 filers must comply for reports filed on or after April 1, 2023.