Insiders and Companies: Reforms to SEC Rule 10b5-1 Trading Plans May Be On the Horizon [The Legal Intelligencer]

Kathy Jaffari, Naz Jalali, and Paul Hallgren co-authored an article on recommendations made by the Investor Advisory Committee (IAC) of the U.S. Securities and Exchange Commission (SEC) regarding changes to the rules with respect to Rule 10b5-1 trading plans in The Legal Intelligencer. The suggested recommendations highlight changes to how Rule 10b5-1 plans may be adopted, modified, and terminated or cancelled.

The SEC adopted Rule 10b5-1 provide company “insiders,” such as company directors, officers, and other individuals who may be in a position to possess material nonpublic information (MNPI) on an ongoing basis, the ability to trade in company securities without violating insider trading laws. This issue is especially prevalent for companies that provide insiders and certain employees with equity-based compensation. When an insider purchases or sells securities while aware of MNPI, they are considered to have traded “on the basis of” MNPI and will become subject to insider trading scrutiny. Adopting a valid Rule 10b5-1 plan allows insiders to establish an affirmative defense to insider trading.

The IAC recommendations would allow the SEC to take the necessary steps to establish meaningful guardrails around the adoption, modification, and cancellation of Rule 10b5-1 trading plans in an effort to seal some of the “cracks” perpetrating the SEC’s insider trading regime. Some possible areas for change are: Minimum Cooling-off Period of Four Months, Prohibiting Overlapping Rule 10b5-1 Plans, and Rule 10b5-1 Trading Plan Reporting and Disclosure.

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Paul D. Hallgren


(612) 260-9019

Katayun Jaffari

Chair, Corporate Governance
Co-Chair, Capital Markets & Securities
Chair, ESG

(215) 665-4622

Mehrnaz Jalali


(212) 453-3949

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