timeout_during_enrichment

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Conformed to Federal Register version 

SECURITIES AND EXCHANGE COMMISSION  

17 CFR Parts 229, 232, 240, and 249 

[Release Nos. 33-11138; 34-96492; File No. S7-20-21] 

RIN 3235-AM86 

Insider Trading Arrangements and Related Disclosures 

AGENCY: Securities and Exchange Commission. 

ACTION: Final rule. 

SUMMARY: We are adopting amendments to the rule under the Securities Exchange Act of 

1934 (“Exchange Act”) that provides affirmative defenses to trading on the basis of material 

nonpublic information in insider trading cases. The amendments add new conditions to this rule 

that are designed to address concerns about abuse of the rule to trade securities opportunistically 

on the basis of material nonpublic information in ways that harm investors and undermine the 

integrity of the securities markets. We are also adopting new disclosure requirements regarding 

the insider trading policies and procedures of issuers, the adoption and termination (including 

modification) of plans that are intended to meet the rule’s conditions for establishing an 

affirmative defense, and certain other similar trading arrangements by directors and officers. In 

addition, we are adopting amendments to the disclosure requirements for director and executive 

compensation regarding equity compensation awards made close in time to the issuer’s 

disclosure of material nonpublic information. Finally, we are adopting amendments to Forms 4 

and 5 to require filers to identify transactions made pursuant to a plan intended to meet the 

rule’s conditions for establishing an affirmative defense, and to require disclosure of bona fide 

gifts of securities on Form 4. 



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DATES: Effective date: The final rules are effective on February 27, 2023.  

Compliance dates: See Section III for further information on transitioning to the final rules. 

FOR FURTHER INFORMATION CONTACT: Sean Harrison, Special Counsel,  Office of 

Rulemaking, at (202) 551-3430, Division of Corporation Finance, 100 F Street NE, Washington, 

DC 20549. 

SUPPLEMENTARY INFORMATION: We are amending: 

Commission Reference CFR Citation  

(17 CFR) 

Regulation S-K 

[17 CFR 229.10 through 229.1305] 

 

 Item 402 § 229.402 

 Item 408 § 229.408 

 Item 601  § 229.601 

Regulation S-T 

[17 CFR 232.11 through 232.903] 

 

 Item 405 § 232.405 

Securities Exchange Act of 1934 (Exchange Act) 

[15 U.S.C. 78a et seq.] 

 

 Rule 10b5-1 § 240.10b5-1 

 Schedule 14A § 240.14a-101 

 Rule 16a-3 §240.16a-3 

 Form 4 § 249.104 

 Form 5 § 249.105 

 Form 20-F §249.220f 

 Form 10-Q § 249.308a 

 Form 10-K § 249.310 

 

  



3 

Table of Contents 

 

I. Introduction ........................................................................................................................... 5 

II. Discussion of the Final Amendments ................................................................................. 12 
A. Amendments to Rule 10b5-1 ................................................................................................. 12 

1. Cooling-off Period.......................................................................................................... 15 
2. Director and Officer Certifications ................................................................................ 37 
3. Restricting Multiple Overlapping Rule 10b5-1 Trading Arrangements and    Single-

Trade Arrangements....................................................................................................... 47 
4. The Amended Good Faith Condition ............................................................................. 63 

B. Additional Disclosures Regarding Rule 10b5-1 Trading Arrangements .............................. 68 

1. Quarterly Reporting of Rule 10b5-1 and Non-Rule 10b5-1 Trading  Arrangements .... 70 
2. Disclosure of Insider Trading Policies and Procedures ................................................. 80 
3. Identification of Rule 10b5-1 and non-Rule 10b5-1 Transactions on Forms 4 and 5 .... 88 

C. Disclosure Regarding Option Grants and Similar Equity Instruments Made Close in Time to 

the Release of Material Nonpublic Information ............................................................... 93 
1. Proposed Amendments ................................................................................................... 93 

2. Comments on the Proposed Amendments ..................................................................... 98 
3. Final Amendments ....................................................................................................... 101 

D. Structured Data Requirements ............................................................................................. 105 
1. Proposed Amendments ................................................................................................. 105 
2. Comments on the Proposed Amendments ................................................................... 106 

3. Final Amendments ....................................................................................................... 106 

E. Reporting of Gifts on Form 4 .............................................................................................. 108 
1. Proposed Amendments ................................................................................................. 108 
2. Comments on the Proposed Amendments ................................................................... 109 

3. Final Amendments ....................................................................................................... 111 
III. Transition Matters ............................................................................................................ 114 

IV. Other Matters .................................................................................................................... 116 
V. Economic Analysis ............................................................................................................... 116 
A. Broad Economic Considerations ............................................................................................ 117 

B. Amendments to Rule 10b5-1(c)(1) ........................................................................................ 127 
1. Baseline and Affected Parties .......................................................................................... 128 

2. Benefits ............................................................................................................................ 140 
3. Costs ................................................................................................................................ 150 

4. Effects on Efficiency, Competition, and Capital Formation ........................................... 161 
5. Reasonable Alternatives .................................................................................................. 162 

C. Disclosure of Trading Arrangements and Policies and Procedures in New Item 408 of 

Regulation S-K and Mandatory Rule 10b5-1 Checkbox in Amended Forms 4 and 5 ... 169 
1. Baseline and Affected Parties .......................................................................................... 170 

2. Benefits ............................................................................................................................ 171 
3. Costs ................................................................................................................................ 176 
4. Effects on Efficiency, Competition, and Capital Formation ........................................... 181 
5. Reasonable Alternatives .................................................................................................. 184 

D. Additional Disclosure of the Timing of Option Grants and Related Company Policies and 



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Practices .......................................................................................................................... 189 
1. Baseline and Affected Parties .......................................................................................... 192 
2. Benefits ............................................................................................................................ 194 

3. Costs ................................................................................................................................ 201 
4. Effects on Efficiency, Competition, and Capital Formation ........................................... 205 
5. Reasonable Alternatives .................................................................................................. 207 

E. Additional Disclosure of Insider Gifts of Stock ..................................................................... 211 
1. Baseline and Affected Parties .......................................................................................... 211 

2. Benefits ............................................................................................................................ 211 
3. Costs ................................................................................................................................ 213 
4. Effects on Efficiency, Competition, and Capital Formation ........................................... 214 

5. Reasonable Alternatives .................................................................................................. 215 
VI. Paperwork Reduction Act ................................................................................................ 215 
A. Summary of the Collections of Information ........................................................................ 215 
B. Summary of Comment Letters ............................................................................................ 217 

C. Summary of Collections of Information Requirements ...................................................... 217 
D. Burden and Cost Estimates Related to the Amendments .................................................... 222 

VII. Final Regulatory Flexibility Act Analysis ....................................................................... 225 
A. Need for, and Objectives of, the Amendments ................................................................... 226 

B. Significant Issues Raised by Public Comments .................................................................. 226 
C. Small Entities Subject to the Amendments ......................................................................... 227 
D. Projected Reporting, Recordkeeping, and Other Compliance Requirements ..................... 228 

E. Agency Action to Minimize Effect on Small Entities ......................................................... 230 

Statutory Authority .................................................................................................................. 232 
 

 

  



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I. Introduction 

 Congress enacted the Federal securities laws to promote fair and transparent securities 

markets, “avoid[] frauds,” and “substitute a philosophy of full disclosure for the philosophy of 

caveat emptor and thus to achieve a high standard of business ethics in the securities industry.”1 

The securities laws’ antifraud prohibitions that proscribe certain insider trading, including 

Section 10(b) of the Exchange Act,2 play an essential role in maintaining the fairness and 

integrity of our securities markets. The Securities and Exchange Commission (the 

“Commission”) has long recognized that insider trading3 and the fraudulent misuse of material 

nonpublic information by corporate insiders4 harms not only individual investors but also 

undermines the foundations of our markets by eroding investor confidence.5 Congress has 

recognized the harmful impact of insider trading on multiple occasions, such as by providing for 

enhanced civil penalties specifically for insider trading.6 

                                                 

1  Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 151 (1972); accord Lorenzo v. SEC, 139 S. Ct. 

1094, 1103 (2019).  

2  15 U.S.C. 78j(b). 

3  “Insider trading” as used in this release refers to the purchase or sale of a security of any issuer, on the basis of 

material nonpublic information about that security or issuer, in breach of a duty of trust or confidence that is 

owed directly, indirectly, or derivatively, to the issuer of that security or the shareholders of that issuer, or to 

any other person who is the source of the material nonpublic information. See Rule 10b5-1(a). 

4  We use the terms “insider” and “corporate insider” in this release to refer to persons (other than issuers) for 

whom the purchase or sale of a security of any issuer, on the basis of material nonpublic information about that 

security or issuer, would represent a breach of a fiduciary duty or a duty of trust or confidence that is owed 

directly, indirectly, or derivatively, to the issuer of a security or the shareholders of that issuer, or to any other 

person who is the source of the material nonpublic information. See Rule 10b5-1(a). 

5  See In re Cady, Roberts & Co., 40 S.E.C. 907, 1961 WL 60638, at *4 n. 15 (1961) (“A significant purpose of 

the Exchange Act was to eliminate the idea that the use of inside information for personal advantage was a 

normal emolument of corporate office.”); see also United States v. O’Hagan, 521 U.S. 642, 658 (1997) (The 

insider trading prohibition is consistent with the “animating purpose” of the Federal securities laws: “to insure 

honest securities markets and thereby promote investor confidence.”) 

6  See Insider Trading Sanctions Act of 1984, Pub. L. No. 98-376, 98 Stat. 1264; Insider Trading and Securities 

Fraud Enforcement Act of 1988, Pub. L. No. 100-704, 102 Stat. 4677, codified at Section 21A of the Exchange 

Act, 15 U.S.C. 78u-1. Congress has enacted other laws that build on the insider trading prohibition. See, e.g., 

Section 20(d) of the Exchange Act, 15 U.S.C. 78t(d); Section 20A of the Exchange Act, 15 U.S.C. 78t-1; 

STOCK Act, Pub. L. No. 112-105, 126 Stat. 291 (2012). 



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 Section 10(b) is one of the securities laws’ primary antifraud provisions. This provision 

makes it unlawful “[t]o use or employ, in connection with the purchase or sale of any security. . . 

any manipulative or deceptive device or contrivance in contravention of such rules and 

regulations as the Commission may prescribe.”7 The Supreme Court has recognized that the 

“manipulative or deceptive device[s] or contrivance[s]” prohibited by Section 10(b) and Rule 

10b-5 include the purchase or sale of a security of any issuer on the basis of material nonpublic 

information about that security or its issuer, in breach of a duty owed directly, indirectly, or 

derivatively to the issuer of that security, to the shareholders of that issuer, or to any person who 

is the source of the material nonpublic information.8 

 The Commission adopted Rule 10b5-1 in 2000 to provide more clarity regarding the 

meaning of “manipulative or deceptive device[s] or contrivance[s]” prohibited by Section 10(b) 

and Rule 10b-5 with respect to trading on the basis of material nonpublic information.9 At the 

                                                 

7  Rule 10b-5, adopted pursuant to Section 10(b), prohibits the use of “any device, scheme, or artifice to defraud”; 

the making of “any untrue statement of a material fact” or the “omi[ssion]” of “a material fact necessary in 

order to make the statements made, in the light of the circumstances under which they were made, not 

misleading”; or “any act, practice, or course of business which operates or would operate as a fraud or deceit 

upon any person” [17 CFR 240.10b-5]. In addition to potential insider trading liability, issuers—and those 

acting on their behalf—are also subject to other prohibitions under the Federal securities laws.  

8  See Salman v. United States, 137 S.Ct. 420, 425 n. 2 (2016) (explaining that, under the classical theory of 

insider-trading liability, an insider who trades in the securities of his corporation on the basis of material 

nonpublic information “breaches a duty to, and takes advantage of, the shareholders of his corporation” while, 

under the misappropriation theory, “a person commits securities fraud ‘when he misappropriates confidential 

information for securities trading purposes, in breach of a duty owed to the source of the information,’ such as 

an employer or client”); O’Hagan, 521 U.S. at 651-53 (“Under the ‘traditional’ or ‘classical theory’ of insider 

trading liability, §10(b) and Rule 10b–5 are violated when a corporate insider trades in the securities of his 

corporation on the basis of material, nonpublic information,” and “the misappropriation theory outlaws trading 

on the basis of nonpublic information by a corporate ‘outsider’ in breach of a duty owed not to a trading party, 

but to the source of the information.”); Chiarella v. United States, 445 U.S. 222, 228-29 (1980); see also 15 

U.S.C. 78u-1(a)(1); 17 CFR 240.10b5-2 (setting forth a non-exclusive definition of circumstances in which a 

person has the requisite duty for purposes of the “misappropriation” theory of insider trading liability). Liability 

for insider trading under Section 10(b) and Rule 10b-5 requires “scienter,” i.e., “an intent on the part of the 

defendant to deceive, manipulate or defraud.” Aaron v. SEC, 446 U.S. 680, 686 & n. 5 (1980); see also 

Selective Disclosure and Insider Trading, Release No. 33-7881 (Aug. 15, 2000) [65 FR 51716 (Aug. 24, 2000)] 

(“2000 Adopting Release”) at 51727. 

9  See 2000 Adopting Release, supra note 8. 

https://advance.lexis.com/document/teaserdocument/?pdmfid=1000516&crid=4391a125-d04f-4c86-9896-e82bb282f826&pddocfullpath=%2Fshared%2Fdocument%2Fadministrative-codes%2Furn%3AcontentItem%3A5JKM-HSR0-006W-84MW-00000-00&pddocid=urn%3AcontentItem%3A5JKM-HSR0-006W-84MW-00000-00&pdcontentcomponentid=41356&pdteaserkey=h2&pditab=allpods&ecomp=yzt4k&earg=sr0&prid=f5e42f4d-625a-4e4d-8c2c-ad0145d35dc7


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time, Federal appellate courts diverged on the issue of what, if any, connection must be shown 

between a trader’s possession of material nonpublic information and his or her trading to 

establish liability under Section 10(b) and Rule 10b-5. The Commission addressed this issue by 

providing that a purchase or sale of an issuer’s security is on the basis of material nonpublic 

information about that security or issuer for purposes of Section 10(b) and Rule 10b-5 if the 

person making the purchase or sale was aware of the material nonpublic information when the 

person made the purchase or sale.10 In addition, Rule 10b5-1(c) established an affirmative 

defense to liability under Section 10(b) and Rule 10b-5 for insider trading, which the 

Commission intended “to cover situations in which a person can demonstrate that the material 

nonpublic information did not factor into the trading decision.”11 To that end, this defense 

provided that the trading was not made on the basis of material nonpublic information if the 

person can demonstrate, among other things, that the trade was made pursuant to a binding 

contract, an instruction to another person to execute the trade for the instructing person’s 

account, or a written plan for the trading of securities (each a “trading arrangement” and 

collectively “trading arrangements”) adopted at a time that the person was not aware of material 

                                                 

10  See Rule 10b5-1(b) (emphasis added). The final amendments do not alter the “awareness” standard, which 

courts have held is “entitled to deference.”  United States v. Royer, 549 F.3d 886, 899 (2d Cir. 2008) (applying 

Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843-44 (1984)), cert. denied, 558 U.S. 

934, and 558 U.S. 935 (2009); see also United States v. Rajaratnam, 719 F.3d 139, 157-61 (2d Cir. 2013), cert. 

denied, 134 S. Ct. 2820 (2014). Under that standard, a person is aware of material nonpublic information if they 

know, consciously avoid knowing, or are reckless in not knowing that the information is material and 

nonpublic.  See SEC v. Obus, 693 F.3d 276, 286-88, 293 (2d Cir. 2012); United States v. Gansman, 657 F.3d 

85, 91 n.7, 94 (2d Cir. 2011). The decision in Fried v. Stiefel Labs., Inc., 814 F.3d 1288, 1295 (11th Cir. 2016), 

which concerned a private action that did not involve Rule 10b5-1, erroneously suggests that a person must 

“use” the inside information to purchase or sell securities. See also infra at p. 45 n. 145.  

11  2000 Adopting Release, supra note 8 at 51728. 



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nonpublic information.12 The Commission believed that this defense would “provide appropriate 

flexibility to those who would like to plan securities transactions in advance, at a time when they 

are not aware of material nonpublic information, and then carry out those pre-planned 

transactions at a later time, even if they later become aware of material nonpublic information.”13 

Rule 10b5-1(c)(2) provides a separate affirmative defense designed solely for non-natural 

persons (e.g., entities) that trade.14  

 Since the adoption of the Rule 10b5-1(c)(1) affirmative defense, courts,15 commenters,16 

and members of Congress17 have expressed concern that traders have sought to benefit from its 

                                                 

12  Rule 10b5-1 does not modify or address any other aspect of insider trading law. It also does not provide an 

affirmative defense for other securities fraud claims, such as a claim under Rule 10b-5 for an “untrue statement 

of a material fact.” 17 CFR 240.10b-5(b).    

13  2000 Adopting Release, supra note 8 at 51728. 

14  See Rule 10b5–1(c)(2) [17 CFR 240.10b5–1(c)(2)]. This affirmative defense is available to a person other than 

a natural person that can demonstrate that the individual making the investment decision on behalf of the person 

was not aware of the material nonpublic information, and the person had implemented reasonable policies and 

procedures to prevent insider trading. 

15  District courts in private securities law actions have “acknowledge[d] the possibility that a clever insider might 

‘maximize’ their gain from knowledge of an impending [stock] price drop over an extended amount of time, 

and seek to disguise their conduct with a 10b5-1 plan.” In re Immucor Inc. Sec. Litig., 2006 WL 3000133, at 

*18 n.8 (N.D. Ga. Oct. 4, 2006); accord Nguyen v. New Link Genetics Corp., 297 F. Supp. 3d 472, 494–96 

(S.D.N.Y. 2018); Freudenberg v. E*Trade Fin. Corp., 712 F. Supp. 2d 171, 200 (S.D.N.Y. 2010); Malin v. XL 

Cap. Ltd., 499 F. Supp. 2d 117, 156 (D. Conn. 2007), aff’d, 312 F. App’x 400 (2d Cir. 2009).   

16  In Dec. 2020, the Commission proposed to amend Forms 4 and 5 to add a checkbox to permit filers to indicate 

that the reported transaction satisfied Rule 10b5-1. See Rule 144 Holding Period and Form 144 Filings, Release 

No. 33-10991 (Dec. 22, 2020) [85 FR 79936]. The Commission received several comment letters in response 

expressing concern about potential abuse of Rule 10b5-1. See, e.g., letter from David Larcker et al. (Mar. 10, 

2021), https://www.sec.gov/comments/s7-24-20/s72420-8488827-229970.pdf; letter from Council of 

Institutional Investors (“CII”) (Apr. 22, 2021), https://www.sec.gov/comments/s7-14-20/s71420-8709408-

236962.pdf; letter from CII (Mar. 18, 2021), https://www.sec.gov/comments/s7-24-20/s72420-8519687-

230183.pdf. In response to its Fall 2018 semiannual regulatory agenda, the Commission also received a letter 

requesting that the Commission amend Rule 10b5-1 to address potential abuses of Rule 10b5-1 plans. See letter 

from CII (Dec. 13, 2018), https://www.sec.gov/comments/s7-20-18/s72018-4766666-176839.pdf.  

17  See, e.g., “Waters and McHenry Introduce Bipartisan Legislation to Curb Illegal Insider Trading,” U.S. House 

Committee on Financial Services, (Jan. 18, 2019) 

https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=401725; letter from Senators 

Elizabeth Warren, Sherrod Brown and Chris Van Hollen (Feb. 10, 2021), 

https://www.warren.senate.gov/imo/media/doc/02.10.2021%20Letter%20from%20Senators%20Warren,%20Br

own,%20and%20Van%20Hollen%20to%20Acting%20Chair%20Lee.pdf. 

https://www.sec.gov/comments/s7-24-20/s72420-8488827-229970.pdf
https://www.sec.gov/comments/s7-24-20/s72420-8519687-230183.pdf
https://www.sec.gov/comments/s7-24-20/s72420-8519687-230183.pdf
https://www.sec.gov/comments/s7-20-18/s72018-4766666-176839.pdf
https://www.warren.senate.gov/imo/media/doc/02.10.2021%20Letter%20from%20Senators%20Warren,%20Brown,%20and%20Van%20Hollen%20to%20Acting%20Chair%20Lee.pdf
https://www.warren.senate.gov/imo/media/doc/02.10.2021%20Letter%20from%20Senators%20Warren,%20Brown,%20and%20Van%20Hollen%20to%20Acting%20Chair%20Lee.pdf


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liability protections while trading securities opportunistically on the basis of material nonpublic 

information. Furthermore, some academic studies have found that corporate insiders trading 

pursuant to Rule 10b5-1 plans18 consistently outperform the trading of corporate insiders that is 

not conducted under such plans. These studies raise concerns that corporate insiders may be 

trading under Rule 10b5-1 in ways that harm investors and undermine the integrity of the 

securities markets.19 Practices that have raised public concern include corporate insiders adopting 

multiple overlapping plans and subsequently selectively canceling certain trades under such 

plans while they are aware of material nonpublic information (allowing such insiders to buy or 

sell securities under the plans that provide the most advantageous price) or commencing trades 

pursuant to a new plan shortly after the adoption of such plan (in some cases on the same day as 

said adoption, which, when combined with comparatively larger trades made closer in time to 

adoption of a plan, suggests that those trades may be on the basis of material nonpublic 

information).20 In September 2021, the Commission’s Investor Advisory Committee (“IAC”)21 

                                                 

18  We use the terms “Rule 10b5-1 plan” and “Rule 10b5-1 trading arrangement” throughout this release to refer to 

a contract, instruction or written plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-

1(c)(1). 

19  See, e.g., Alan D. Jagolinzer, SEC Rule 10b5-1 and Insiders’ Strategic Trade, 55 MGMT. SCI. 224 (2009); M. 

Todd Henderson et al., Offensive Disclosure: How Voluntary Disclosure Can Increase Returns from Insider 

Trading, 103 GEO. L.J. 1275 (2015); Taylan Mavruk & H. Nejat Seyhun, Do SEC’s 10b5-1 Safe Harbor Rules 

Need to Be Rewritten?, 2016 COLUM. BUS. L. REV. 133 (2016); Artur Hugon & Yen-Jung Lee, SEC Rule 10b5-

1 Plans and Strategic Trade Around Earnings Announcements, (2016), https://ssrn.com/abstract=2880878. 

20   See, e.g., John P. Anderson, Anticipating a Sea Change for Insider Trading Law: From Trading Plan Crisis to 

Rational Reform, 2015 UTAH L. REV. 339 (2015); David Larcker et al., Gaming the System: Three “Red Flags” 

of Potential 10b5-1 Abuse, STAN. CLOSER LOOK SERIES (Jan. 2021) (“Gaming the System”) (noting from their 

analysis of a sample of sales transactions made pursuant to Rule 10b5-1 plans between Jan. 2016 and May 2020 

that trades occurring within 30 days of adoption of a Rule 10b5-1 plan are approximately 50 percent larger than 

trades made six or more months later); see also infra note 40 and accompanying text. 

21  The IAC was established in Apr. 2012 pursuant to Section 911 of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act [Pub. L. 111-203, sec. 911, 124 Stat. 1376, 1822 (2010)] to advise and make 

recommendations to the Commission on regulatory priorities, the regulation of securities products, trading 

strategies, fee structures, the effectiveness of disclosure, and initiatives to protect investor interests and to 

promote investor confidence and the integrity of the securities marketplace.  

https://ssrn.com/abstract=2880878


10 

recommended that we “take the necessary steps to establish meaningful guardrails around the 

adoption, modification, and cancellation of Rule 10b5-1 trading plans,” by addressing certain 

gaps in the rule that allow corporate insiders to unfairly exploit informational asymmetries.22  

 On January 13, 2022, the Commission proposed several rule and form amendments to 

address potentially abusive practices associated with Rule 10b5-1 plans, grants of options and 

other equity instruments with similar features, and the gifting of securities.23 We received over 

160 comment letters on the proposals, which we discuss in context below.24 Having considered 

these comments, we are adopting the following amendments, which include modifications from 

the proposal in response to the comments:  

 Amend the affirmative defense of Rule 10b5-1(c)(1) to: (1) include a cooling-off period 

applicable to directors and “officers” (as defined by 17 CFR 240.16a-1(f) (“Rule 16a-

1(f)”) and a shorter cooling off period applicable to all other persons other than the 

issuer; (2) include a certification condition for directors and officers; (3) limit the ability 

                                                 

22  See Recommendations of the Investor Advisory Committee Regarding Rule 10b5-1 Plans (Sept. 9, 2021) (“IAC 

Recommendations”), at https://www.sec.gov/spotlight/investor-advisory-committee-2012/20210916-10b5-1-

recommendation.pdf. The IAC also held a panel discussion regarding Rule 10b5-1 plans at its June 10, 2021 

meeting. See IAC, Meeting Minutes (June 10, 2021), https://www.sec.gov/spotlight/investor-advisory-

committee-2012/iac061021-minutes.pdf. 

23  See Rule 10b5-1 and Insider Trading, Release No. 33–11013 (Jan. 13, 2022) [87 FR 8686 (Feb. 15, 2022)] 

(“Proposing Release”). 

24  The public comments we received are available at https://www.sec.gov/comments/s7-20-21/s72021.htm. Unless 

otherwise indicated, the comment letters cited herein are those received in response to the Proposing Release. 

One comment letter, dated Jan. 10, 2022, urged that the comment period for this proposal, among others, be 

extended to at least 60 days. See letter from Senator Pat Toomey and Representative Patrick McHenry. The 

Commission voted to issue the proposal at an open meeting on Dec. 15, 2021. The release was posted on the 

Commission website that day, and comment letters were received beginning that same date. On Jan. 13, 2022, 

the Commission voted to approve and issue a revised release that reflected certain, limited changes to the 

Paperwork Reduction Act and Initial Regulatory Flexibility Act Analysis sections.  This proposal was posted on 

the Commission’s website that same day, superseding the Dec. 15, 2021 release, and was published in the 

Federal Register on Feb. 15, 2022. The comment period closed on Apr. 1, 2022. We have considered all 

comments received since Dec. 15, 2021, and do not believe an extension of the comment period was necessary. 

Another comment letter raised concerns about the rulemaking process at the agency more broadly.  See letter 

from Senator Thom Tillis. The process followed in adopting these amendments has complied with the 

Administrative Procedure Act and other legal requirements. 

https://www.sec.gov/comments/s7-20-21/s72021.htm


11 

of persons other than the issuer to use multiple overlapping Rule 10b5-1 plans; (4) limit 

the ability of these persons to rely on the affirmative defense for a single-trade plan to 

one single-trade plan during any consecutive 12-month period; and (5) add a condition 

that all persons entering into a Rule 10b5-1 plan must act in good faith with respect to 

that plan;25  

 Require: (1) quarterly disclosure by registrants regarding the use of Rule 10b5-1 plans 

and certain other trading arrangements by a registrant’s directors and officers for the 

trading of its securities; and (2) annual disclosure regarding a registrant’s insider trading 

policies and procedures in new Item 408 of Regulation S-K and corresponding 

amendments to Forms 10-Q and 10-K; 

 Add a mandatory Rule 10b5-1(c) checkbox to Forms 4 and 5; 

 Require certain tabular and narrative disclosures regarding awards of options, stock 

appreciation rights (“SARs”), and/or similar option-like instruments granted to corporate 

insiders shortly before and immediately after the release of material nonpublic 

information in new paragraph (x) to Item 402 of Regulation S-K;  

 Require registrants to tag the information specified by new Items 402(x), 408(a), and 

408(b)(1) in Inline XBRL; and 

 Require reporting of dispositions of equity securities by bona fide gifts on Form 4, rather 

than on Form 5. 

These amendments are intended to improve investor confidence in the securities markets, and by 

extension enhance liquidity and capital formation, while continuing to provide appropriate 

                                                 

25  We use the term “the issuer” in this release to refer to the issuer of the particular security or securities that are 

the subject of trades for which a person seeks the benefit of the affirmative defense under Rule 10b5-1(c)(1).  



12 

flexibility to traders who would like to plan securities transactions in advance, when they are not 

aware of material nonpublic information. To achieve these goals, the amendments are designed 

to significantly reduce opportunities for corporate insiders to misuse Rule 10b5-1 to trade on 

material nonpublic information. Further, the amendments will increase transparency regarding 

the use of Rule 10b5-1 plans, issuers’ insider trading policies and procedures, and their policies 

and practices with respect to awards of options, SARs, and/or similar option-like instruments 

close in time to the release of material nonpublic information. 

II. Discussion of the Final Amendments 

A. Amendments to Rule 10b5-1 

 Rule 10b5-1(c)(1) provides an affirmative defense to Section 10(b) and Rule 10b-5 

liability if a person satisfies its conditions. First, the person must demonstrate that, before 

becoming aware of the material nonpublic information, they entered into a binding contract to 

purchase or sell the security, provided instruction to another person to execute the trade for the 

instructing person’s account, or adopted a written plan for trading the securities.26 Second, the 

person must demonstrate that the contract, instruction, or plan: 

 Specified the amount of securities to be purchased or sold and the price at which and the 

date on which the securities were to be purchased or sold;  

 Included a written formula or algorithm, or computer program, for determining the 

amount of securities to be purchased or sold and the price at which and the date on which 

the securities were to be purchased or sold; or  

 Did not permit the person to exercise any subsequent influence over how, when, or 

whether to effect purchases or sales; provided, in addition, that any other person who, 

                                                 

26  Rule 10b5-1(c)(1)(i)(A). 



13 

pursuant to the contract, instruction, or plan, did exercise such influence must not have 

been aware of the material nonpublic information when doing so.27 

Third, the person must demonstrate that the purchase or sale was pursuant to this contract, 

instruction, or plan.28 A purchase or sale is not pursuant to a contract, instruction, or plan if, 

among other things, the person who entered into the contract, instruction, or plan altered or 

deviated from the contract, instruction, or plan (whether by changing the amount, price, or timing 

of the purchase or sale), or entered into or altered a corresponding or hedging transaction or 

position with respect to the securities.29 Finally, this defense is only available if the contract, 

instruction, or plan “was given or entered into in good faith and not as part of a plan or scheme to 

evade the prohibitions” of Rule 10b-5.30  

 We are concerned that some corporate insiders use Rule 10b5-1 plans in ways that are not 

consistent with the objectives of the rule, and that harm investors and undermine the integrity of 

the securities markets. As the use of Rule 10b5-1 plans has become more widespread,31 

commentators have raised concerns that the design of Rule 10b5-1(c)(1) has enabled corporate 

insiders to trade on the basis of material nonpublic information while avoiding liability under 

                                                 

27  Rule 10b5-1(c)(1)(i)(B). 

28  Rule 10b5-1(c)(1)(i)(C). 

29  Id. 

30  Rule 10b5-1(c)(1)(ii). 

31   According to one survey, corporate insiders at 51% of S&P 500 companies used Rule 10b5-1 trading 

arrangements in 2015. See Morgan Stanley & Shearman & Sterling LLP, “Defining the Fine Line: Mitigating 

Risk with 10b5-1 Plans” (2018) https://advisor.morganstanley.com/austin.cornish/documents/field/a/au/austin-

cornish/Mitigating%20Risk%20with%2010b5-1%20Plans.pdf. Rule 10b5-1 plans are also used by issuers. See 

Skadden Insights: Share Repurchases 4-6 (Mar. 16, 2020) 

https://www.skadden.com/insights/publications/2020/03/share-repurchases (discussing the use of Rule 10b5-1 

plans for issuer share repurchases). 

https://advisor.morganstanley.com/austin.cornish/documents/field/a/au/austin-cornish/Mitigating%20Risk%20with%2010b5-1%20Plans.pdf
https://advisor.morganstanley.com/austin.cornish/documents/field/a/au/austin-cornish/Mitigating%20Risk%20with%2010b5-1%20Plans.pdf
https://www.skadden.com/insights/publications/2020/03/share-repurchases


14 

Section 10(b) and Rule 10b-5.32 Several commenters on the proposals reiterated those 

concerns.33 These concerns stem from, among other things, the ability of corporate insiders to 

adopt multiple Rule 10b5-1 plans at a time when they lack material nonpublic information, and 

subsequently terminate some of the plans based on later-obtained material nonpublic information 

(notwithstanding the provision of the current affirmative defense that it is applicable only when 

the contract, instruction, or plan was entered into in good faith). For example, such plans might 

take financial positions that authorize trades at price points above and/or below the issuer’s 

current stock price. When the insider becomes aware of material nonpublic information 

indicating likely future changes in the company’s stock price, the insider could cancel the less 

advantageous plan or plans. Corporate insiders also could adopt multiple Rule 10b5-1 plans that 

direct trades only at price points above the current share price, anticipating that they will 

subsequently learn material nonpublic information that would reveal which of the plans would be 

most profitable. Then, when they become aware of material non-public information, they might 

cancel the less profitable ones. We are concerned that, in these situations, an insider’s awareness 

of material nonpublic information may still “factor into the trading decision,” even if the 

insider’s plans appear to satisfy the requirements of Rule 10b5-1(c)(1).34  

 Furthermore, multiple studies examining Rule 10b5-1 plans have identified potentially 

abusive activity, including when trades occur shortly after adoption of a plan. Some of these 

                                                 

32  See Tom McGinty & Mark Maremont, CEO Stock Sales Raise Questions about Insider Trading, Wall St. J. 

(June 29, 2022) (retrieved from Factiva database); see also Jean Eaglesham & Rob Barry, Trading Plans Under 

Fire: Despite 2007 Warning, Experts Say Loopholes Remain for Corporate Insiders, WALL ST. J. (Dec. 13, 

2012) (retrieved from Factiva database). 

33  See, e.g., letters from American Federation of Labor and Congress of Industrial Organizations (“AFL-CIO”), 

Colorado Public Employees’ Retirement Association (“CO PERA”), Council of Institutional Investors (“CII”), 

International Corporate Governance Network (“ICGN”), Better Markets (“Better Markets”), Public Citizen 

(“Public Citizen”), and North American Securities Administrators Association, Inc. (“NASAA”). 

34  See 2000 Release, supra note 8, at 51728. 



15 

studies have observed, among other things, that trades that occur shortly after adoption of a Rule 

10b5-1 plan demonstrate abnormal profitability, which suggests that some corporate insiders 

may be aware of material nonpublic information at the time of adoption of a Rule 10b5-1 plan 

that otherwise appears to meet the existing requirements of Rule 10b5-1.35  

 To address all of these concerns, we are amending Rule 10b5-1(c)(1) to apply a cooling-

off period on persons other than the issuer, impose a certification requirement on directors and 

officers, limit the ability of persons other than the issuer to use multiple-overlapping Rule 10b5-1 

plans, limit the use of single-trade plans by persons other than the issuer to one such single-trade 

plan in any 12-month period, and add a condition that all persons entering into a Rule 10b5-1 

plan must act in good faith with respect to that plan.  

 1. Cooling-off Period 

 a. Proposed Amendments 

 Rule 10b5-1(c)(1) does not currently impose a waiting period between the date that a 

trading plan is adopted and the date of the first transaction to be executed under the plan. A 

trader can therefore adopt a Rule 10b5-1 plan and execute a trade under it as early as the day of 

adoption. Investors and other commentators have suggested that requiring a minimum waiting 

                                                 

35  See, e.g., Gaming the System, supra note 19 (observing that trades under Rule 10b5-1 plans systematically 

avoid losses and foreshadow considerable stock declines over the subsequent six months when: (1) trades 

executed under the plan occur as much as 60 days after plan adoption; or (2) a Rule 10b5-1 plan is adopted in a 

given quarter and begins trading before that quarter’s earnings announcement); Yen-Jun Lee, Insiders’ 

Foreknowledge of Earnings Results and Rule 10b5-1 Sales Trades, 38 J. ACCTG., AUDITING & FIN. 1, 9, 17, 19 

(2020) (finding that insiders utilizing 10b5-1 plans tend to sell before negative earnings results, and that insiders 

particularly apt to engage in this behavior are also more likely to begin trading within three months of 

establishing the plan); Mavruk & Seyhun, supra note 19, at 165 (observing that first trade pursuant to a Rule 

10b5-1 plan showed abnormal profitability, suggesting that insiders set up Rule 10b5-1 plans when in 

possession of material nonpublic information); McGinty & Maremont, supra note 32; see also Jagolinzer, supra 

note 19, at 234-35 (finding that Rule 10b5-1 plans appear to allow insiders to trade close in time to earnings 

releases, and that there is a statistical relationship between plan adoption and upcoming negative news events). 

We provide additional discussion of these sources, including potential caveats about the data they analyze, infra 

Section V.B.1. 



16 

period (a “cooling-off period”) between the adoption of a Rule 10b5-1 plan and the date on 

which trading can commence reduces the risk that corporate insiders could benefit from any 

material nonpublic information of which they may have been aware when adopting the plan.36 

The Commission proposed to amend Rule 10b5-1(c)(1) to add the following cooling-off periods 

as conditions of the affirmative defense: (1) a minimum 120-day cooling-off period after the date 

of adoption of any Rule 10b5-1 plan (including adoption of a modified trading arrangement) by a 

director or “officer” (as defined in Rule 16a-1(f))37 before any purchases or sales under the new 

or modified trading arrangement; and (2) a minimum 30-day cooling-off period after the date of 

adoption of any Rule 10b5-1 plan by an issuer before any purchases or sales under the new or 

modified trading arrangement.   

The Commission proposed the cooling-off periods to address concerns that some insiders 

may be adopting Rule 10b5-1 plans while aware of material nonpublic information, such as an 

issuer’s upcoming quarterly earnings results, and then shortly thereafter trading before the 

information becomes public. We understand that corporate insiders are often aware of material 

nonpublic information. Although Rule 10b5-1(c)(1) precludes reliance on the affirmative defense 

when a person is aware of such information at the time of adoption of a Rule 10b5-1 plan, in 

practice, it is difficult for an outside party to determine whether the insider satisfied this 

                                                 

36  See Rulemaking petition regarding Rule 10b5-1 Trading Plans, File No. 4-658 (Jan. 2, 2013) (“CII Rulemaking 

Petition”) at https://www.sec.gov/rules/petitions/2013/petn4-658.pdf; Alan D. Jagolinzer et al, How the SEC 

Can and Should Fix Insider Trading Rules, The Hill (Dec. 17, 2020), 

https://thehill.com/opinion/finance/530668-how-the-sec-can-and-should-fix-insider-trading-rules; IAC 

Recommendations, supra note 22. 

37  Exchange Act Rule 16a-1(f) provides that the term “officer” “shall mean an issuer’s president, principal 

financial officer, or 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. Officers of the issuer’s parent(s) or subsidiaries shall be 

deemed officers of the issuer if they perform such policy-making functions for the issuer.” 

https://www.sec.gov/rules/petitions/2013/petn4-658.pdf
https://thehill.com/opinion/finance/530668-how-the-sec-can-and-should-fix-insider-trading-rules


17 

condition.38 With cognizance of this difficulty, some corporate insiders may use Rule 10b5-1 

plans to execute trades on the basis of material nonpublic information and seek to assert the 

affirmative defense to avoid potential liability. The academic studies discussed above suggest 

that this may be the case as researchers have observed that trades made under Rule 10b5-1 plans 

that occur before the next earnings announcement are abnormally profitable.39 Some corporate 

insiders also undertake other actions, such as cancellation of sales scheduled under Rule 10b5-1 

plans ahead of favorable issuer disclosures, which appears consistent with an effort to exploit 

material nonpublic information.40 

 To address concerns that certain corporate insiders misuse Rule 10b5-1 by adopting and 

trading under trading arrangements despite their awareness of material nonpublic information, 

and in light of the evidence that suggests that trading arrangements that commence close in time 

to the plan’s adoption and prior to an earnings announcement are more likely to result in 

abnormal returns, the Commission proposed requiring insiders to wait a period of time before 

trading under a new (or modified) plan could commence. Although many companies already 

impose such a cooling-off period for their own insiders,41 not all do so, and, furthermore, among 

those that have a cooling-off period, there is little uniformity with respect to the duration of such 

                                                 

38  See Henderson et al., supra note 19, at 1289. 

39  See Gaming the System, supra note 19 (“[P]lans that execute a trade in the window between when the plan is 

adopted and that quarter’s earnings announcement anticipate large losses and  foreshadow considerable stock 

price declines”). 

40   See Jagolinzer, supra note 19, at 235 (observing that there is evidence “that participants terminate sales plans 

before positive shifts in firm returns”); Mavruk & Seyhun, supra note 19, at 120, 125 (noting patterns of trading 

consistent with cancellation of some planned trades are abnormally profitable). Based on our review of the data 

sources used in the sources cited, we understand them to use the term “earnings announcement” to refer to the 

earliest of quarterly or annual reporting or other earnings announcements for which the issuer furnishes a 

corresponding Form 8-K.   

41  This practice suggests that many companies have concluded that in general a cooling-off period, rather than 

individualized efforts to identify instances where an executive is aware of material nonpublic information, 

strikes an appropriate balance of precision, cost of implementation, and investor confidence. 



18 

periods. The Commission proposed a 120-day cooling-off period for officers and directors 

because such a period would extend beyond the fiscal quarter42 in which the trading arrangement 

is established, meaning that trading generally would not occur under a Rule 10b5-1 plan adopted 

during a particular quarter until after the registrant announced its financial results for that 

quarter. Although the cooling-off period proposed by the Commission for officers and directors 

may have been longer than the cooling-off period used by many issuers or recommended by 

certain financial advisors, the Commission believed that the proposed duration would deter 

insiders from exploiting material nonpublic information for the relevant quarter. In addition, the 

Commission noted that a 120-day cooling-off period would align with the recommendations of a 

wide range of commentators.43  

 Under the proposed amendments, the cooling-off periods would have applied to directors 

and “officers” (as defined in Rule 16a-1(f)) of the issuer, as well as to an issuer that structures a 

share repurchase plan as a Rule 10b5-1 plan, although in the latter case the Commission 

proposed a shorter, 30-day cooling-off period. This requirement would prevent directors, 

officers, and issuers who might be aware of material nonpublic information from adopting or 

modifying a trading arrangement and trading immediately pursuant to the arrangement. The 

proposed cooling-off period also was intended to discourage issuers, directors, and officers from 

selectively terminating or cancelling a planned trade under a Rule 10b5-1 plan because any 

                                                 

42  Quarters are about 90 days long and public reporting companies are required to disclose their quarterly results 

no later than 40 or 45 days after the end of their fiscal quarter, depending on their filing status. See 17 CFR 

249.308(a). Nevertheless, companies on average disclose their quarterly results within 30 days of the end of the 

fiscal quarter. See Morgan Stanley & Shearman & Sterling LLP, supra note 29.  

43  See IAC Recommendations, supra note 14 (recommending a cooling off period of four months); Gaming the 

System, supra note 12, at 3 (recommending a minimum cooling-off period and noting that “[a] cooling-off 

period of four to six months . . . is supported by the data in our sample”); letter from Senators Elizabeth Warren, 

Sherrod Brown and Chris Van Hollen supra note 17 (recommending a cooling off period of four to six months). 



19 

subsequent trades upon the adoption of a new or modified plan would also be subject to a new 

cooling-off period.  

 The Commission noted that applying a cooling-off period to directors and “officers” as 

defined in Rule 16a-1(f) was appropriate because such individuals are more likely than others to 

be aware of material nonpublic information in the general course of events, and also more likely 

to be involved in making or overseeing key corporate decisions that have the potential to affect 

the issuer’s stock price, including decisions about the timing of the disclosure of such 

information.44 The Commission also requested comment, however, on whether the Rule 16a-1(f) 

definition was the appropriate definition of “officer” for purposes of the proposed amendment 

and further inquired whether the cooling-off period should apply to all traders who rely on the 

Rule 10b5-1(c)(1) affirmative defense.45  

In addition, the Commission stated that applying a cooling-off period to issuers may help 

address the concern that issuers may conduct stock buybacks while aware of material nonpublic 

information. For example, corporate insiders who are aware of positive material nonpublic 

information can cause the issuer to buy its stock at a lower price from current shareholders who 

are unaware of this information because, once the information is publicly disclosed, the issuer’s 

share price may increase. The Commission proposed a 30-day cooling-off period for issuers to 

help reduce the likelihood of this potential abuse and promote investor confidence. 

 The Commission also proposed a note to Rule 10b5-1(c)(1) stating that any modification 

or amendment to a prior contract, instruction, or written plan would be deemed to be the 

                                                 

44  See O’Hagan, 521 U.S. at 651-52; Chiarella, 445 U.S. at 227; Steginsky v. Xcelera Inc., 741 F.3d 365, 370 n.5 

(2d Cir. 2014); see also Colby v. Klune, 178 F.2d 872 (2d Cir. 1949). 

45  Proposing Release, supra note 22, at 17. 



20 

termination of such prior contract, instruction, or written plan, and the adoption of a new 

contract, instruction, or written plan.46 

 b. Comments on the Proposed Amendments 

 Commenters expressed a range of views on the proposed cooling-off periods. Many 

commenters expressed general support for a cooling-off period for directors and officers.47 

Several of these commenters supported the proposed cooling-off period of 120 days.48 For 

example, one commenter agreed that the proposed 120-day cooling-off period would deter 

officers and directors from adopting or modifying a Rule 10b5-1 plan while aware of material 

nonpublic information and prevent insiders from gaming Rule 10b5-1 plans by opportunistically 

canceling trades or modifying plans.49 In addition, in expressing the view that this duration was 

appropriate, another commenter stated the concern that, given that directors and officers are 

more likely than other traders to be aware of material nonpublic information and involved in 

making or overseeing key corporate decisions that could affect the stock price, they could be 

involved with decisions regarding the timing of a range of issuer disclosures, including 

disclosures related to a merger or acquisition, departure of a named executive officer, or the 

                                                 

46  The proposed note would have codified prior Commission guidance on Rule 10b5-1(c)(1)(i)(C). See infra note 

122 and accompanying text. 

47  See, e.g., letters from American Federation of Labor and Congress of Industrial Organizations (“AFL-CIO”), 

Better Markets, Colorado Public Employees’ Retirement Association (“CO PERA”), Council of Institutional 

Investors (“CII”), Cravath, Swaine & Moore LLP (“Cravath”), Davis Polk & Wardwell LLP (“Davis Polk”), 

DLA Piper (“DLA”), Fenwick & West (“Fenwick”), International Corporate Governance Network (“ICGN”), 

Craig M. Lewis et al. (“Lewis”), Manulife Financial Corp. (“Manulife”), Committee on Securities Law of the 

Business Law Section of the Maryland State Bar (“MD Bar”), North American Securities Administrators 

Association, Inc. (“NASAA”), New York City Comptroller (“NYCC”), NYSE Group, Inc. (“NYSE”), PNC 

Financial Services Group, Inc. (“PNC”), Public Citizen, Anthony O'Reilly (“O’Reilly”), Securities Industry and 

Financial Markets Association (“SIFMA”) (letter dated Apr. 1, 2022, from Kevin Carroll, “SIFMA 3”), and 

Sullivan & Cromwell LLP (“Sullivan”). 

48  See, e.g., letters from AFL-CIO, CII, CO PERA, ICGN, Public Citizen, O’Reilly, and NASAA. 

49  See letter from CII.21 

financial statements.50 Finally, another commenter, who did not support the proposed duration of 

the cooling-off period, nonetheless asserted that a cooling-off period would increase investor 

confidence that insiders were not using Rule 10b5-1 plans to benefit from nonpublic material 

information.51  

 At the same time, many commenters, including several commenters that expressed 

support for a cooling-off period for directors and officers, contended that the duration of the 

proposed cooling-off period was unnecessarily long.52 For example, some of these commenters 

asserted that a 120-day cooling-off period would discourage insiders from adopting Rule 10b5-1 

plans53 and therefore result in larger, more concentrated volumes of insider-directed trades taking 

place during trading windows rather than being spread out under a Rule 10b5-1 plan, which 

                                                 

50  See letter from ICGN. 

51  See letter from Manulife. 

52  See, e.g., letters from Federal Regulation of Securities Committee of the Business Law Section of the American 

Bar Association (“ABA”); ACCO Brands Corp. (“ACCO”); Chevron Corp. (“Chevron”); Cravath; Davis Polk; 

DLA; Dow Inc. (“Dow”); Empire State Realty Trust (“Empire Trust”); FedEx Corporation (“FedEx”); Fenwick; 

HR Policy Association Center on Executive Compensation (“HRPA”); Jones Day; Kirkland & Ellis 

(“Kirkland”); Manulife, National Association of Manufacturers (“NAM”); National Venture Capital 

Association (“NVCA”); New York City Bar Association (“NYC Bar”); NYSE; Paul, Weiss, Rifkind, Wharton 

& Garrison LLP (“Paul Weiss”); PNC; Quest Diagnostics Inc. (“Quest”); William Quinn (“Quinn”); US 

Chamber of Commerce (letter dated Apr. 1, 2022) (“Chamber of Chamber 2”); American Property Casualty 

Insurance Association, American Securities Association, Center On Executive Compensation, U.S. Chamber of 

Commerce, Nareit, National Association of Manufacturers, and NIRI: The Association for Investor Relations 

(“Coalition Letter”); Shearman & Sterling LLP (“Shearman”); SIFMA 3; Simpson Thacher & Bartlett LLP 

(“Simpson”); Sullivan; and Wilson, Sonsini, Goodrich & Rosati (“Wilson Sonsini”).  

53  See letter from NYC Bar. This comment letter was initially submitted in Apr. 2022 and posted on the 

Commission website on Oct. 2022. The delayed posting of this comment letter to the website is unrelated to the 

technological error that resulted in the Oct. 2022 reopening of the comment files of certain other Commission 

releases.  See Resubmission of Comments and Reopening of Comment Periods for Several Rulemaking Releases 

Due to a Technological Error in Receiving Certain Comments, Release Nos. 33-11117, 34-96005, IA-6162, IC-

34724; File Nos. S7-32-10, S7-18-21, S7-21-21, S7-22-21, S7-03-22, S7-08-22, S7-09-22, S7-10-22, S7-13-22, 

S7-16-22, S7-17-22, S7-18-22 (Oct. 7, 2022). In Apr. 2022, the submitter of this comment letter withdrew the 

comment letters submitted on this rule and the proposing release for another rule and submitted replacement 

comment letters. Staff posted the replacement comment letter on the other rule, but inadvertently failed to post 

the replacement comment letter for the Proposing Release until the submitter of the comment letter again 

contacted Commission staff in Oct. 2022. 



22 

could increase market volatility.54  

 Some of these commenters recommended alternative durations for the cooling-off period 

for directors and officers.55 Shorter alternatives ranged from a cooling-off period of 30 days from 

the date of adoption of a Rule 10b5-1 plan,56 which some commenters asserted is a common 

practice many issuers have implemented,57 to a maximum cooling-off period of 90 days after the 

adoption of a Rule 10b5-1 plan.58 Other commenters recommended shortening the cooling-off 

period, in part, by taking into account when the issuer publishes its earnings announcement or 

results. These commenters suggested that the cooling-off period last until: (1) the earlier of 60 

days or one business day after the earnings release for the fiscal quarter of adoption;59 (2) the 

earlier of 60 days or 48 hours after the next release of annual or quarterly results;60 (3) 90 days or 

fewer or, if the officer or director enters into the Rule 10b5-1 plan within five trading days of an 

earnings release, 30 days;61 (4) the earlier of 90 days or the publication of results for the quarter 

during which the plan was adopted;62 (5) one trading day after the next earnings announcement 

covering at least one fiscal quarter and filed or furnished with an Exchange Act report;63 and (6) 

                                                 

54  See, e.g., letters from Chamber of Commerce 2, Davis Polk, DLA, Fenwick, NYSE, SIFMA 3, Simpson, and 

Sullivan. 

55  See, e.g., letters from ACCO, Chamber of Commerce 2, Dow, DLA, Fenwick, NAM, NYSE, Paul Weiss, 

Quinn, Simpson, and Sullivan. 

56  See, e.g., letters from ACCO, Chamber of Commerce 2, DLA, Fenwick, NYC Bar, NYSE, Paul Weiss, Quinn, 

and Sullivan. 

57  See, e.g., letters from Chamber of Commerce 2, NYSE, Paul Weiss, and Simpson. 

58  See, e.g., letters from Chevron, Dow, and Cleary, Gottlieb, Steen & Hamilton LLP (“Cleary”). 

59 See letter from ABA.  

60  See letter from Manulife. 

61  See letter from Dow. 

62  See letter from Cleary. 

63  See letter from Davis Polk. 



23 

the earlier of 30 days or the release of quarterly earnings with an exception for plans entered into 

within five business days after an earnings release.64 Another commenter, however, urged the 

Commission to consider lengthening the cooling-off period to 180 days.65 

 Among commenters who recommended that we link the end of the cooling-off period to 

the release of earnings or other financial results, most did not specify whether the end of the 

cooling-off period should be tied to the publication of such results in the form of a quarterly 

report on Form 10-Q or annual report on Form 10-K, or instead to the announcement of such 

results in a Form 8-K, that is filed or furnished with the Commission.66 Some commenters 

suggested that the end of the cooling-off period should be tied to the “next” (relative to the 

adoption or modification of the Rule 10b5-1 plan) such release;67 we understand that if an 

earnings announcement accompanied by a Form 8-K is made, it typically precedes the filing of a 

Form 10-Q or Form 10-K. One commenter suggested that the end of the cooling-off period 

should be tied to the earlier of the release of financial results or the start of the issuer’s open 

trading window under the insider’s trading policy.68  

 Finally, some commenters asked the Commission to provide exceptions from the cooling-

off period. For example, one commenter asked that the cooling-off period not apply in cases of 

financial hardship for the officer or director, such as an unanticipated financial liability that is 

                                                 

64  See letter from NAM. 

65  See letter from Senators Elizabeth Warren, Chris Van Hollen, Tammy Baldwin, and Bernard Sanders (“Sen. 

Warren et al.”). 

66  See, e.g., letters from ABA, Cleary, and PNC.  

67  See, e.g., letters from Davis Polk, DLA, and Simpson.  

68  See letter from DLA; see also letter from Quest (suggesting that there is no incremental material nonpublic 

information disclosed in a Form 10-Q when an issuer has already released an earnings announcement).  



24 

unrelated to the trading of securities.69 Another commenter asked the Commission to exclude 

venture capital funds from the cooling-off period condition, or to provide a shorter cooling-off 

period for venture capital funds.70 

 Many commenters opposed a cooling-off period for issuers,71 largely due to issuers’ use 

of Rule 10b5-1 plans in connection with share repurchase plans under Exchange Act Rule 10b-

18.72 One of these commenters stated that Rule 10b5-1 plans allow issuers to more effectively 

coordinate and execute their share repurchases during open and closed trading windows.73 Given 

this practice, several commenters contended that the proposed cooling-off period would limit the 

usefulness of Rule 10b5-1 plans and impede the ability of issuers to effectively carry out share 

repurchases and other transactions used by issuers to manage their capital.74 Some of these 

commenters stated the concern that a cooling-off period for issuers could increase market 

volatility as issuer repurchase activity would be limited to much shorter trading windows.75 

                                                 

69  See letter from Wilson Sonsini. 

70   See letter from NVCA. 

71  See, e.g., letters from the Bank Policy Institute and the American Bankers Association (“BPI”), Home Depot, 

Inc. (“Home Depot”), Dow, Chevron, Empire Trust, FedEx, International Bancshares Corporation (“IBC”), 

Manulife, NYSE, HudsonWest LLC (“HudsonWest”), Guzman & Company (“Guzman”),Quest, Coalition 

Letter, Chamber of Commerce 2, HRPA, Lewis, NAM, NVCA, NYC Bar, Society for Corporate Governance 

(“SCG”), SIFMA (letter dated Apr. 1, 2022, from Joseph P. Corcoran) (“SIFMA 2”), ABA, Cravath, Davis 

Polk, Dorsey & Whitney LLP (“Dorsey”), Fenwick, Jones Day, Kirkland, Paul Weiss, Simpson, Shearman, 

Sullivan, Wilson Sonsini, and Vistra Corp. (“Vistra”). 

72  17 CFR 240.10b-18. Rule 10b-18 provides issuers with a safe harbor from liability for manipulation under 

Sections 9(a)(2) and 10(b) of the Exchange Act [15 U.S.C. 78i(a)(2) and 78j(b)] when they repurchase their 

common stock in the market in accordance with the Rule’s manner, timing, price, and volume conditions. 

73  See letter from Simpson. 

74  See, e.g., letters from BPI, Home Depot, Dow, Chevron, FedEx, Quest, Chamber of Commerce 2, Coalition 

Letter, NAM, SCG, SIFMA 2, ABA, Cravath, Davis Polk, Jones Day, Paul Weiss, Simpson, Shearman, and 

Wilson Sonsini. 

75   See, e.g., letters from NYSE and Sullivan. 



25 

In addition, several of these commenters asserted that a cooling-off period for issuers was 

unnecessary because existing safeguards under the Federal securities laws and market practices 

protect investors from issuer abuse of Rule 10b5-1 plans.76 Some commenters contended the 

Commission did not set forth any evidence of issuers abusing Rule 10b5-1 trading arrangements 

to justify this cooling-off period.77  

In contrast, other commenters supported a cooling-off period for issuers.78 One of these 

commenters contended that the proposed 30-day period was too short to address the concerns 

underlying the proposal and advocated for a 120-day cooling-off period for issuers, similar to the 

proposed cooling-off period for directors and officers.79 

 Several commenters urged the Commission to clarify that immaterial or administrative 

modifications to an existing Rule 10b5-1 trading arrangement would not constitute a 

modification that triggers a new cooling-off period.80 For example, some commenters asserted 

that modifications should not trigger the cooling-off period unless they address the pricing, 

amount of securities to be purchased or sold, and/or the timing of purchases or sales.81 In 

addition, another commenter urged the Commission not to trigger a new cooling-off period upon 

a modification of a Rule 10b5-1 plan.82 

                                                 

76  See, e.g., letters from Cravath, Davis Polk, Dow, FedEx, Fenwick, Lewis, NAM, Paul Weiss, Quest, SCG, 

SIFMA 2, and Wilson Sonsini. 

77  See, e.g., letters from BPI, Davis Polk, Cravath, and Wilson Sonsini. 

78  See, e.g., letters from CO PERA, CII, ICGN, NYCC, Better Markets, Public Citizen, Stern Tannenbaum Bell 

LLP (“Stern”), ACCO, PNC, NASAA, and Sen. Warren et al. 

79  See letter from NASAA. 

80  See, e.g., letters from Chamber of Commerce 2, NAM, SIFMA 2, ABA, Cleary, Cravath, Davis Polk, DLA, 

Fenwick, and Sullivan. 

81  See, e.g., letters from Cravath, Cleary, Davis Polk, and DLA. 

82  See letter from NAM. 



26 

We also received comment on whether some or all of the proposed amendments should 

apply only to directors and officers, as defined in Rule 16a-1(f), or whether they should also 

apply to other insiders or traders more broadly. Several commenters indicated that the proposed 

cooling-off period and limitations on overlapping and single-trade plans should apply to all 

traders or all natural persons.83 One of these commenters generally observed that the limitations 

should apply broadly because other officers and employees can potentially have access to and 

trade on material nonpublic information.84 Another commenter suggested that any individual 

involved in a company’s trading program or “corporate decisions” should be subject to the 

cooling-off requirement.85 Two commenters also suggested that we extend the new Item 408(a) 

reporting obligation to cover any employee who adopts a 10b5-1 plan.86  

 Other commenters opposed any expansion of the amendments beyond directors and Rule 

16a-1(f) officers.87 Some of these commenters agreed with our observation that these officers 

were those most likely to have access to material nonpublic information.88 Two commenters 

argued that trading by employees other than Rule 16a-1(f) officers is unlikely to adversely affect 

financial markets because of the limited authority of these employees over corporate decisions.89 

One of these commenters further observed that because other employees do not generally file 

Form 4, their trading activities are unlikely to affect public confidence in a company’s 

                                                 

83  See letters from Better Markets, NASAA; see also letter from Sen. Warren et al. (suggesting the limitation 

apply to “all employees”). 

84  See letter from NASAA.  

85  See letter from ICGN.  

86  See letters from BrilLiquid LLC (“BrilLiquid”) and NASAA.  

87  See letters from Chamber of Commerce 2, CII, Cravath, Davis Polk, NAM, SCG, and SIFMA.  

88  See letters from CII, Cravath, and SIFMA.  

89  See letters from Cravath and Davis Polk. 



27 

securities.90 Two other commenters suggested that non-executive employees are particularly 

likely to need to liquidate and diversify their company stock holdings, and so would be 

disproportionately harmed by limitations such as the cooling-off period.91 One commenter also 

stated that making the affirmative defense more difficult to establish would reduce the likelihood 

that companies would require their non-executive employees to use Rule 10b5-1 plans, reducing 

the benefits of the rule.92  

 c. Final Amendment 

 After consideration of the comments, we are adopting a modified cooling-off period that 

will apply to all persons other than the issuer, with directors and “officers” (as defined in Rule 

16a-1(f))93 of the issuer subject to a longer cooling-off period than applies to other persons (other 

than the issuer) who rely on the Rule 10b5-1(c)(1) affirmative defense.  

 Under the final rule, a director or “officer” (as defined in Rule 16a-1(f)) who adopts 

(including a modification of) a Rule 10b5-1 plan would not be able to rely on the Rule 10b5-1 

affirmative defense unless the plan provides that trading under the plan will not begin until the 

later of (1) 90 days after the adoption of the Rule 10b5-1 plan or (2) two business days following 

the disclosure of the issuer’s financial results in a Form 10-Q or Form 10-K for the fiscal quarter 

in which the plan was adopted or, for foreign private issuers, in a Form 20-F or Form 6-K that 

                                                 

90  See letter from Davis Polk.  

91  See letters from Chamber of Commerce 2 and NAM. 

92  See letter from Davis Polk.  

93  We are declining the request from one commenter to adopt a definition of “officer or director” that would 

expressly exclude certain venture capital funds whose partners may serve as a director on the board of an issuer. 

As we have noted, Rule 10b5-1 does not alter the law of insider trading and any potential liability under the 

circumstances described by the commenter would be determined according to established principles. We also 

are not convinced that the business circumstances of such a director are unique and thus warrant a distinctive set 

of affirmative defense requirements. We further note that Rule 10b5-1(c)(2) can provide an alternative 

affirmative defense for persons other than natural persons. 



28 

discloses the issuer’s financial results (but in any event, the required cooling-off period is subject 

to a maximum of 120 days after adoption of the plan).94   

 This cooling-off period is intended to deter opportunistic trading that may be occurring 

under the current rule and, by extension, as noted by commenters, it may increase investor 

confidence that directors and officers are not using Rule 10b5-1 plans for such purposes.95 The 

purpose of a cooling-off period is to provide a separation in time between the adoption of the 

plan and the commencement of trading under the plan so as to minimize the ability of an insider 

to benefit from any material nonpublic information. In addition, academic studies documenting 

abnormal trading results indicate that opportunistic trading may be occurring notwithstanding 

current Rule 10b5-1(c)(1) and that certain corporate insiders are earning profits unavailable to 

others.96 For example, directors, officers, and other corporate insiders commonly have access to 

preliminary quarterly financial data before it is released to the public. As academic commentary 

has observed, “[q]uarterly earnings announcements . . . offer the most important and frequent 

dates of material information disclosure by firms.”97 A cooling-off period could serve to avoid a 

situation in which, for example, an insider adopts a Rule 10b5-1 plan while aware of likely 

directional trends in quarterly results and trades under the plan before the disclosure of such 

information.  

 In addition, as the Proposing Release indicated, we are concerned that this type of 

opportunistic trading could occur in contexts other than in connection with quarterly results. For 

                                                 

94  The good faith requirement in Rule 10b5-1(c)(1)(ii) will continue to apply as a condition of the affirmative 

defense. 

95  See, e.g., letters from AFL-CIO, CII, and Manulife. 

96  See supra note 35 and accompanying text. 

97  See U. Ali & D. Hirshleifer, Opportunism as a Firm and Managerial Trait: Predicting Insider Trading Profits 

and Misconduct, 126 J. FIN. ECON. 490, 491 (2017). 



29 

example, as a commenter noted, corporate insiders may be aware of material nonpublic 

information related to other types of upcoming events, such as a potential merger, acquisition, or 

departure of a named executive officer, and, with such information, adopt a Rule 10b5-1 plan 

and trade under it before that information is made public.98 

 Accordingly, the cooling-off period for officers and directors that we are adopting 

includes both a fixed (90-day) and a variable (two business days after the disclosure of the 

issuer’s financial results) component. This cooling-off period is targeted at reducing information 

asymmetries in general as well as providing separation in time between adoption of the plan and 

trading under the plan so as to reduce the ability of corporate insiders to trade on material 

nonpublic information.  

 The approach we are adopting takes into account considerations raised by commenters. 

Some commenters observed that we could accomplish our goals by linking the end of the 

cooling-off period to the release of earnings results for the current quarter instead of a fixed 

period of days, and suggested that we adopt a variable cooling-off period that ends one or two 

business days following the issuer’s next reporting of quarterly results.99 Others suggested that 

we adopt a cooling-off period that would be the earlier of this date or some other fixed period, 

such as 60 days.100 In addition, while several commenters supported a 120-day cooling-off 

period,101 other commenters expressed concerns that this duration would discourage the use of 

                                                 

98  See letter from ICGN; see also Henderson et al., supra note 19, at 1301 (noting that 25% of the price changes 

observed in their data are the results of corporate news events other than earnings). 

99  See supra note 63. 

100  See supra note 59. 

101  See, e.g., letters from AFL-CIO, CII, CO PERA, ICGN, Public Citizen, O’Reilly, and NASAA. 



30 

Rule 10b5-1 plans.102 We agree that, in some cases, a full 120-day cooling-off period would be 

longer than needed to prevent the opportunistic trading with which we are concerned. Therefore, 

we have shortened the cooling off period for officers and directors from 120 days to the later of 

90 days or the second business day following disclosure of the issuer’s financial results for the 

fiscal quarter in which the plan was adopted.103 This will result in a shortened cooling-off period, 

relative to what was proposed, when such results are disclosed sooner than 120 days following 

adoption of the plan.  

In addition, to enhance clarity, the final rule provides 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, files a Form 20-F or furnishes a Form 6-K that discloses the financial 

results. We disagree with commenters who suggested that there cannot be material nonpublic 

information contained in a Form 10-Q or similar filing when the issuer has already announced its 

earnings results.104 For example, some academic researchers have found that information in 

periodic filings affects stock prices for issuers that also made an earlier earnings announcement 

for the same quarter.105  

                                                 

102  See, e.g., letters from Chamber of Commerce 2, Davis Polk, DLA, Fenwick, SIFMA 3, Simpson, and Sullivan. 

103  If financial results are disclosed more than 120 days after adoption of the plan, 120 days would be the maximum 

duration of the required cooling-off period. In those circumstances, we agree with commenters who asserted 

that a 120-day cooling-off period would be an appropriate duration to better ensure that a corporate insider 

would not benefit from material nonpublic information related to earnings. See, e.g., letters from AFL-CIO, and 

CII. The final rule would not foreclose issuers that may choose to impose a longer cooling-off period. 

104  See letters from DLA and Quest. 

105  See Erik R. Holzman et al., Is All Disaggregation Bad for Investors? Evidence from Earnings Announcements, 

26 REV. ACCTG. STUDIES 520, 540-41 (2021); Yifan Li et al., Opportunity Knocks But Once: Delayed 

Disclosure of Financial Items in Earnings Announcements and Neglect of Earnings News, 25 REV. ACCTG. 

STUDIES 159 (2020); Bin Miao et al., Limited Attention, Statement of Cash Flow Disclosure, and the Valuation 

of Accruals, 21 REV. ACCTG. STUDIES 473 (2016). Some earlier work finds that there are incremental market 

responses to Form 10-K filings but not to Form 10-Q filings. Edward Xuejun Li & K. Ramesh, Market Reaction 

Surrounding the Filing of Periodic SEC Reports, 84 ACCTG. REV. 1171 (2009). 



31 

 Further, the cooling-off period for officers and directors includes a two-business day 

period following the disclosure of the issuer’s financial results, which provides a short interval 

for investors and other market participants to analyze those results.106 Although some 

commenters suggested that the next business day after results are released would be adequate to 

ensure that market participants have access to the same information as the corporate insider, we 

have adopted a cooling-off period that extends to the second business day after results are 

released, as other commenters suggested.107 We disagree with those commenters who suggested 

that a next-day approach would provide all market participants with the same access as the 

corporate insider, as it may be challenging to obtain and analyze the full details of an issuer’s 

quarterly results within one day. In some cases, allowing trading such a short period after release 

would effectively authorize the director or officer to trade in the first minutes after that 

information’s availability to the market. 

 While some commenters suggested that the cooling-off period need only take into 

account the publication of an issuer’s quarterly results, we find that including a minimum 

duration of 90 days for the cooling-off period is necessary to deter the full scope of opportunistic 

trading that we intend to address and appropriately balances the comments, academic studies, 

and the purpose of an affirmative defense. This minimum period is a reduction from the 

proposed 120-day cooling-off period, in response to comments received stating that the length of 

the proposed cooling-off period could discourage corporate insiders from using Rule 10b5-1 

plans, although we acknowledge that some of these commenters requested a shorter period than 

                                                 

106  See SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 854 & n.18 (2d Cir. 1968) (noting that the “permissible 

timing of insider transactions after disclosures of various sorts is one of the many areas of expertise for 

appropriate exercise of the SEC’s rule-making power”). 

107  See supra note 63. 



32 

we are adopting.108 Given that directors and officers may be aware of material nonpublic 

information related to upcoming events other than quarterly results, a cooling-off period based 

solely on the timing of the publication of quarterly results would be too narrow to accomplish the 

objective of assuring that trading under these plans is not on the basis of material nonpublic 

information.109 For example, as noted above, directors and officers may be aware of material 

nonpublic information about a potential merger, acquisition, or departure of a named executive 

officer.110  

 Further, a cooling-off period that is linked only to the release of the next quarterly results 

(plus two business days) would in some cases cause the time between plan adoption and initial 

trading to be very short, such as two to three days, raising the risk that directors and officers 

could easily adopt and trade under a Rule 10b5-1 plan while aware of material nonpublic 

information that is unrelated to the earnings information that has been released. For all of these 

reasons, we are requiring a minimum cooling-off period of 90 days for officers and directors 

regardless of the date of the release of the subsequent quarter’s results.111  

 We acknowledge that the cooling-off period that we are adopting for directors and 

officers is longer than many of the cooling-off periods recommended by several commenters and 

that academic studies do not provide a precise estimate of the length of time a cooling-off period 

                                                 

108  See, e.g., letters from Fenwick, Simpson, and Sullivan. 

109  See letter from ICGN. 

110  See Jagolinzer, supra note 18, at 234 (finding that 10b5-1 plan adoption is associated with adverse news events 

occurring an average of 72.2 days after adoption). 

111  We also note that, consistent with this view, many commenters stated that a cooling-off period for a fixed 

period of days (i.e., one which in some cases would necessarily extend beyond release of the next quarter’s 

results) is a common industry practice. 



33 

should be to prevent insiders from realizing abnormal returns on their trades.112 However, we 

have tailored the cooling-off period to provide a greater separation in time between plan adoption 

and commencement of trading under the plan to better ensure that the affirmative defense is 

available only in situations in which material nonpublic information, including information other 

than earnings information, did not factor into the trading decision. Finally, although a commenter  

recommended increasing the length of the cooling-off period,113 we decline to do so to minimize 

the risk of excessively long cooling-off periods, which, as commenters stated, may discourage 

the use of Rule 10b5-1 plans.  

 Moreover, while we recognize that some issuers impose their own cooling-off periods, 

those cooling-off periods are voluntary and vary in duration. Including a cooling-off period as a 

condition of the affirmative defense will provide greater consistency for Rule 10b5-1 plans and 

thereby help address the investor protection concerns that motivated the adoption of Rule 10b5-

1.  

 In choosing an appropriate cooling-off period for officers and directors, we are mindful 

of some commenters’ concerns that a cooling-off period might reduce the appeal of Rule 10b5-1 

                                                 

112  One study found that abnormal returns persist on average among all observed Rule 10b5-1 plans for up to 60 

days after plan adoption, but that abnormal returns for single-trade plans, which represent about half of the 

observed Rule 10b5-1 plans, persist for 120 days or more. See Gaming the System, supra note 20, at 2-3. The 

authors conclude that a cooling-off period of four to six months would be “supported by our data,” id. at 3, 

although the study did not consider whether this would still be the case if there were also limits on single-trade 

plans. A second study consistently found abnormal returns for the 60-day period after a Rule 10b5-1 plan is 

adopted, and found such returns under two of the three statistical methods employed for the 90-day period after 

plan adoption. See McGinty & Maremont supra note 32. Another study reported evidence that insiders trade on 

information that on average has value for between three and six months, and the authors suggest that a cooling-

off period of that length would curtail these trades. See Mavruk & Seyhun, supra note 19 at 136, 163, 179. And 

another study found that insiders continue to earn abnormal returns after the fifth planned trade over a 350-day 

period, suggesting that Rule 10b5-1 plans do not on average involve very short-run information. See Jagolinzer, 

supra note 19, at 234-35. It also found that Rule 10b5-1 plans are statistically associated with negative news 

items occurring an average of 72.2 days after a plan is established. 

113  See supra note 65. 



34 

plans, which could have undesirable effects on investor confidence.114 We expect, however, that 

the period we are adopting will not have a significant impact on directors’ and officers’ desire to 

satisfy the requirements of the affirmative defense. Directors and officers have strong incentives 

to rely on a Rule 10b5-1 plan, due to the potential effects of the affirmative defense on the 

likelihood and outcome of any litigation. In addition, many issuers maintain trading windows 

that may restrict the trading activity of corporate insiders during an issuer’s “closed window” 

period except through the use of a Rule 10b5-1 plan, and such periods may cover significant 

portions of the year. Similarly, Section 306 of the Sarbanes-Oxley Act,115 and our implementing 

regulations,116 prohibit most trades during issuer pension blackout periods other than through the 

use of a plan that satisfies the affirmative defense conditions of Rule 10b5-1(c).117 Accordingly, 

for these reasons, we have selected a cooling-off period for officers and directors that we 

conclude strikes the proper balance in deterring insider trading without unduly discouraging the 

adoption of Rule 10b5-1 plans.  

 We are not imposing the same cooling-off period required for directors and officers to 

other persons, as some commenters suggested,118 Instead, we are requiring a cooling-off period 

of 30 days for persons other than directors, officers or the issuer. We generally agree that persons 

other than directors and officers often have access to material nonpublic information. At the 

same time, we recognize that each of the proposed requirements of the affirmative defense may 

                                                 

114  See, e.g., letters from Chamber of Commerce 2, NAM and SIFMA. 

115  15 U.S.C. 7244. 

116  See 17 CFR 245.100 et seq.  

117  See 17 CFR 245.101(c)(2). Our rules also provide trades made pursuant to a Rule 10b5-1 plan more flexibility 

with respect to when an insider must report the trade on Form 4. See 17 CFR 240.16a-3(g)(2); 17 CFR 240.16a-

3(g)(4). 

118  See letters from Better Markets, NASAA, and Senator Warren et al. 



35 

impose costs on such persons, whose needs for diversification and liquidity may differ from 

those of officers and directors, as some commenters noted.119  In particular, we recognize that 

some persons will experience meaningful delays in their ability to liquidate a stock position, 

which may cause some financial strain particularly for employees who may lack the resources 

and access to alternative liquidity sources available to directors and officers. Therefore, we 

disagree with commenters who urged us to impose the same cooling-off period required for 

directors and officers to all other traders. 

 The 30-day cooling-off period we are adopting for persons other than directors, officers, 

or the issuer reflects a balancing of the considerations we have outlined above. We believe that 

when any insider enters into a Rule 10b5-1 plan, a period of time should elapse before trading 

under the plan can commence to help ensure that a trade is not on the basis of material nonpublic 

information. At the same time, we recognize the heightened burdens a cooling-off period may 

impose on insiders who are not directors or officers, and who may have more limited financial 

resources. In light of these considerations, we have adopted a shorter cooling-off period for 

persons other than officers and directors that is still long enough to reduce the potential for some 

opportunistic trades.120 

 We are not implementing commenters’ suggestions to adopt a financial hardship 

exception from the cooling-off period due to the practical difficulties of administering this type 

                                                 

119  See letters from Chamber of Commerce 2 and NAM. 

120  We recognize that we have previously observed that the affirmative defense would be available to an employee 

who acquires company stock through an employee stock purchase plan or a Section 401(k) plan. See 2000 

Adopting Release, supra note8, at 51728. We do not believe that a 30-day cooling-off period will significantly 

affect non-officer employees’ use of such plans, as we think that employees employ these plans primarily to 

make relatively regular purchases over long periods of time, such that a waiting period of two biweekly pay 

periods before planned trades can begin will not appreciably affect the employees’ preferences.       



36 

of exception.121 Assessing financial hardship would require careful scrutiny and balancing of 

each insider’s assets, liabilities, and obligations, and this fact-intensive inquiry would undermine 

the predictability that the affirmative defense is intended to provide.  

 In addition, we agree with commenters that only certain types of modifications of an 

existing Rule 10b5-1 plan should trigger a new cooling-off period. We therefore are adopting a 

new paragraph to Rule 10b5-1(c)(1) that specifically provides that a modification or change to 

the amount, price, or timing of the purchase or sale of the securities (or a modification or change 

to a written formula or algorithm, or computer program that affects the amount, price, or timing 

of the purchase or sale of the securities) underlying a contract, instruction, or written plan as 

described in Rule 10b5-1(c)(1)(i)(A) is a termination of such contract, instruction, or written 

plan, and the adoption of a new contract, instruction, or written plan, and such new adoption will 

trigger a new cooling-off period. The final amendment codifies prior Commission guidance on 

existing Rule 10b5-1(c)(1)(i)(C) about the effect of modifications.122 Under the final amendment, 

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 Rule 10b5-1 plan (such as 

an adjustment for stock splits or a change in account information) will not trigger a new cooling-

off period. We disagree with the commenter that urged us to not trigger a new cooling-off period 

upon a modification, because a corporate insider could easily change the key terms of an existing 

plan at a time when they are aware of material nonpublic information, such as by increasing the 

sales price to take advantage of favorable news, allowing the insider to profit from such 

information.123  

                                                 

121  See supra note 69. 

122  See 2000 Adopting Release, supra note 8, at 51718 n 111. 

123  See letter from NAM. 



37 

 Finally, we are not adopting a cooling-off period for the issuer at this time. In light of the 

comments we received on this aspect of the proposed rules, we believe that further consideration 

of potential application of a cooling-off period to the issuer is warranted.124 Although we are 

aware that many issuers currently use cooling-off periods in connection with their securities 

transactions and that such cooling-off periods may significantly mitigate the risk of investor 

harm, we are also mindful that the use and length of such cooling off periods is not uniform and 

that the misuse of material nonpublic information by issuers when trading in their own securities 

can result in significant investor harm because transactions by issuers often involve substantial 

quantities of securities. We are continuing to consider whether regulatory action is needed to 

mitigate any risk of investor harm from the misuse of Rule 10b5-1 plans by the issuer, such as in 

the share repurchase context. We note that, in general, a corporation is considered an insider with 

regard to its duty to either disclose or abstain when purchasing its own shares on the basis of 

material, nonpublic information.125 

 2. Director and Officer Certifications 

 a. Proposed Amendments 

                                                 

124  See supra note 71 and accompanying text. 

125  See, e.g., McCormick v. Fund Am. Cos., 26 F.3d 896 (9th Cir. 1994) (“Numerous authorities have held or 

otherwise stated that the corporate issuer in possession of material nonpublic information must, like other 

insiders in the same situation, disclose that information to its shareholders or refrain from trading with them.”) 

(citations omitted); Shaw v. Digital Equip. Corp., 82 F.3d 1194, 1203-04 (1st Cir. 1996) (“Courts … have 

treated a corporation trading in its own securities as an ‘insider’ for purposes of the ‘disclose or abstain’ rule.”) 

(citations omitted); Rogen v. Ilikon Corp., 361 F.2d 260, 266-68 (1st Cir. 1966); Levinson v. Basic Inc., 786 

F.2d 741, 746 (6th Cir. 1986), vacated on other grounds, 485 U.S. 224, 108 S. Ct. 978 (1988) (“[c]ourts have 

held that a duty to disclose [merger] negotiations arises in situations, such as where the corporation is trading in 

its own stock”); Kohler v. Kohler Co., 319 F.2d 634, 638 (7th Cir. 1963) (the “underlying principles” regarding 

trading on inside information “apply not only to majority stockholders of corporations and corporate insiders, 

but equally to corporations themselves”). Other rules promulgated pursuant to Section 10(b) demonstrate that 

issuers trading in their own stock have a duty to disclose or abstain. For example, Exchange Act Rule 10b-18 

provides an issuer with a “‘safe harbor’ from liability” under Rule 10b-5 under certain circumstances when the 

issuer is repurchasing its own stock. [17 CFR 240.10b-18]. But, as the Commission has explained, Rule 10b-18 

“confers no immunity from possible Rule 10b-5 liability where the issuer engages in repurchases while in 

possession of favorable, material non-public information concerning its securities.” Purchases of Certain Equity 

Securities by the Issuer and Others, Release No. 33-6434, 1982 WL 33916 at *2, *16 n.5 (Nov. 17, 1982). 



38 

 The Commission proposed to amend Rule 10b5-1(c)(1)(ii) to impose a certification 

requirement as a condition to the affirmative defense. Under the proposed amendment, if a 

director or officer (as defined in Rule 16a-1(f)) of the issuer of the securities adopts a new 

written Rule 10b5-1 plan, such director or officer would be required, as a condition to the 

affirmative defense, to promptly furnish to the issuer a separate written certification, certifying 

that at the time of the adoption of the plan:  

 They are not aware of material nonpublic information about the issuer or its securities; 

and  

 They are adopting the plan in good faith and not as part of a plan or scheme to evade the 

prohibitions of Exchange Act Section 10(b) and Exchange Act Rule 10b-5.   

 In doing so, the Commission indicated that the use of the term “officer” as defined in 

Rule 16a-1(f) is appropriate for the reasons discussed above with respect to the cooling-off 

period (i.e., these individuals are more likely to be aware of material nonpublic information 

regarding the issuer and its securities, as well as more likely to be involved in making or 

overseeing corporate decisions about whether and when to disclose information).  

 The Commission intended the proposed certification requirement to reinforce directors’ 

and officers’ cognizance of their obligation not to trade or adopt a trading plan while aware of 

material nonpublic information, their responsibility to determine whether they are aware of 

material non-public information when adopting Rule 10b5-1 plans, and the fact that the 

affirmative defense under Rule 10b5-1 requires them to act in good faith and not to adopt such 

plans as part of a plan or scheme to evade the insider trading laws. The Commission noted in the 

Proposing Release that the proposed certification involves important considerations, especially 

because directors and officers are often aware of material nonpublic information.  



39 

 In addition, the Commission clarified that, subject to their confidentiality obligations, 

directors and officers can consult with experts to determine whether they can make this 

representation truthfully. Legal counsel can assist directors and officers in understanding the 

meaning of the terms “material” and “nonpublic information.”126 The Commission stated, 

however, that the issue of whether a director or officer has material nonpublic information is an 

inherently fact-specific analysis. Thus, a director’s or officer’s completion of the proposed 

certification would reflect their personal determination that they do not have material nonpublic 

information at the time of adoption of a Rule 10b5-1 plan.  

 The proposed amendment also included an instruction that a director or officer seeking to 

rely on the affirmative defense should retain a copy of the certification for a period of ten years. 

The proposed amendments would not require a director, officer, or the issuer to file the 

certification with the Commission, and the proposed certification would not be an independent 

basis of liability for directors or officers under Section 10(b) and Rule 10b-5. Rather, the 

Commission intended the proposed certification to underscore the certifiers’ awareness of their 

                                                 
126  As the Commission has stated previously, we rely on existing definitions of the terms “material” and 

“nonpublic” established in case law. Information is material if “there is a substantial likelihood” that its 

disclosure “would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of 

information made available.” See Basic v. Levinson, 485 U.S. 224, 231 (1988) (quoting and applying TSC 

Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976) to the Section 10(b) and Rule 10b-5 context); Rule 

405 [17 CFR 230.405] of the Securities Act of 1933 (the “Securities Act”) [15 U.S.C. 77a et seq.]; Exchange 

Act Rule 12b-2 [17 CFR 240.12b-2]. Information is nonpublic until the information is broadly disseminated in a 

manner sufficient to ensure its availability to the investing public generally, without favoring any special person 

or group. See Dirks v. SEC, 463 U.S. 646, 653-54 & n.12 (1983); SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 

854 (2d Cir. 1968), cert. denied, 394 U.S. 976 (1969); Regulation FD [17 CFR 243.101(e)]. For purposes of 

insider trading law, insiders must wait a “reasonable” time after disclosure before trading. What constitutes a 

reasonable time depends on the circumstances of the dissemination. In re Faberge, Inc., 45 S.E.C. 249, 255 

(1973) (citing Texas Gulf Sulphur, 401 F.2d at 854). Under the misappropriation doctrine, a recipient of inside 

information must make a “full disclosure” to the sources of the information that they plan to trade on or tip the 

information within a reasonable time before doing so. O’Hagan, 521 U.S. at 655, 659 n.9; see also SEC v. 

Rocklage, 470 F.3d 1, 11-12 (1st Cir. 2006). 



40 

legal obligations under the Federal securities law related to trading in the issuer’s securities.127   

 b. Comments on the Proposed Amendments 

 Commenters were divided on the certification requirement. Several commenters 

generally supported the proposed certification requirement for directors and officers.128 Some of 

these commenters agreed that the proposed certification could reinforce directors’ or officers’ 

awareness of their legal obligations under the Federal securities law.129 Another commenter 

noted that the certification should increase investor confidence.130 

 A number of commenters, however, did not support the proposed certification 

requirement.131 Many of these commenters contended that the certification was unnecessary 

because broker-dealers who execute Rule 10b5-1 plans usually require the director or officer to 

make similar representations.132 Several commenters stated that any final rules should clearly 

provide that the certification does not establish an independent basis of liability for directors or 

officers under Section 10(b) and Rule 10b-5.133 Another commenter expressed concern that the 

language included in the proposed certification indicating that the director or officer is “not 

aware of material nonpublic information about the issuer or its securities” at the time of adoption 

of a Rule 10b5-1 plan is inconsistent with Rule 10b-5 and insider trading jurisprudence.134 This 

commenter asserted that, for trading activity to be unlawful under Exchange Act Section 

                                                 
127  See, e.g., O’Hagan, 521, U.S. at 651-52; Chiarella, 445 U.S. at 227; Steginsky v. Xcelera Inc., 741 F.3d 365, 

370 n.5 (2d Cir. 2014).  

128  See, e.g., letters from CII, CO PERA, ICGN, NYSE, and O’Reilly. 

129 See letters from CII and O’Reilly. 

130  See letter from ICGN. 

131 See, e.g., letters from ACCO, Cravath, Davis Polk, DLA, Kirkland, MD Bar, NAM, Quinn, SGC, Shearman, 

Sullivan, and Wilson Sonsini.  

132  See, e.g., letters from ACCO, Cravath, DLA, Kirkland, Shearman, and Sullivan. 

133  See, e.g., letters from Cravath, DLA, Kirkland, Shearman, and Sullivan. 

134  See letter from MD Bar.41 

10(b)(5), the person trading must not have been aware of material nonpublic information at the 

time that they made the purchase or sale. This commenter claimed that the affirmative defense 

should be available if either: (1) the person trading was not aware of any material nonpublic 

information about the issuer or the security when they entered into the Rule 10b5-1 trading 

arrangement; or (2) any such material nonpublic information is either public or no longer 

material at the time of the trade. 

 Several commenters suggested alternatives to requiring a separate certification. A few 

commenters suggested that the proposed amendment should provide that the certification should 

instead be included in the documentation for the Rule 10b5-1 plan.135 Another commenter 

recommended that the Commission rely on the representations that traders make to the broker 

executing the Rule 10b5-1 plan.136 

 c. Final Amendment 

 We are adopting Rule 10b5-1(c)(1)(ii)(C) largely as proposed, but with certain 

modifications. Under the final rule, if a director or “officer” (as defined in Rule 16a-1(f)) of the 

issuer of the securities adopts a Rule 10b5-1 plan, as a condition to the availability of the 

affirmative defense, such director or officer will be required to include a representation in the 

plan certifying that at the time of the adoption of a new or modified Rule 10b5-1 plan:  (1) they 

are not aware of material nonpublic information about the issuer or its securities; and (2) they are 

adopting the contract, instruction, or plan in good faith and not as part of a plan or scheme to 

evade the prohibitions of Rule 10b-5.137  

                                                 

135  See, e.g., letters from Cravath and SIFMA 3. 

136  See letter from ACCO. 

137  The rule will not require these personal certifications where a director or officer terminates an existing Rule 

10b5-1 plan and does not adopt a new/modified trading arrangement for which the affirmative defense is 



42 

Since its adoption, Rule 10b5-1(c)(1) has required, as a condition of the affirmative 

defense, that a person “demonstrate[]” that they adopted their trading plan before becoming 

aware of material nonpublic information. The rule has also provided that the affirmative defense 

only applies when the trading arrangement was entered into in good faith. As discussed above, 

we are concerned that, notwithstanding these requirements, corporate insiders may be using Rule 

10b5-1 plans in ways that are not consistent with the affirmative defense and that harm investors 

and undermine the integrity of the securities markets.138  

 The certification condition is intended to reinforce directors’ and officers’ cognizance of 

their obligation not to trade or enter into a trading plan while aware of material nonpublic 

information about the issuer or its securities, that it is their responsibility to determine whether 

they are aware of material non-public information when adopting Rule 10b5-1 plans, and that the 

affirmative defense under Rule 10b5-1 requires them to act in good faith and not to adopt such 

plans as part of a plan or scheme to evade the insider trading laws. As noted in the Proposing 

Release, we recognize that this certification involves important considerations, especially 

because directors and officers are often aware of material nonpublic information. Subject to their 

confidentiality obligations, directors and officers can consult with experts to determine whether 

they can make this representation truthfully. Legal counsel can assist directors and officers in 

understanding the meaning of the terms “material” and “nonpublic information.”139 However, the 

                                                 
sought.  However, new Item 408 of Regulation S-K will require registrants to disclose whether any director or 

officer has terminated a Rule 10b5-1 plan or non-Rule 10b5-1 trading arrangement. See infra Section II.B.1.  

An issuer’s insider trading policies and procedures may otherwise govern such plan terminations.  See infra at 

Section II.B.2.  Finally, whether an inference can be drawn that an individual unlawfully traded on the basis of 

inside information may be informed by the manner in which they trade (see, e.g., SEC v. Warde, 151 F.3d, 42, 

47 (2d Cir.1998), including where termination of a Rule 10b5-1 trading arrangement is soon followed by non-

Rule 10b5-1 trades in the same security or issuer. 

138  See supra Section II.A. 

139  See supra note 126. 



43 

issue of whether a director or officer has material nonpublic information is an inherently fact-

specific analysis. Thus, a director or officer’s completion of the proposed certification would 

reflect their personal determination that they do not have material nonpublic information at the 

time of adoption of a Rule 10b5-1 plan.   

 As suggested by some commenters,140 however, we have modified the final amendment 

to require that the certification be included in the Rule 10b5-1 plan as representations, rather than 

prepared as a separate document to be presented to the issuer. Consistent with the intent behind 

the proposal, this approach will reinforce directors’ and officers’ cognizance of their obligations 

discussed above, but will eliminate any additional burden that separate documentation may 

create.  

 We are not persuaded, however, that any representations that corporate insiders may 

already make to broker-dealers obviate the need for a certification. While we note that broker-

dealers may require similar representations from directors and officers before executing a Rule 

10b5-1 plan, given that there is no requirement that they do so, such practices may not be 

universal, and the requirement may differ among the various broker-dealers that do require such 

representations. This rule therefore will better ensure that corporate insiders provide these 

representations. Further, because issuers must provide disclosure regarding the material terms 

(other than price) of their directors’ and officers’ Rule 10b5-1 plans under new Item 408(a) of 

Regulation S-K as described below, any representation made as part of such plans will also likely 

be requested by and made available to the issuer to facilitate its compliance with the disclosure 

requirement. To the extent that directors and officers provide issuers with these representations, 

they would likely have a greater effect on investor confidence that the officer or director in fact 

                                                 

140  See, e.g., letters from Cravath and SIFMA 3. 



44 

was not aware of material nonpublic information when making the representation due to the 

issuer’s close relationship to its officers and directors.  

 In addition, we are not adopting the proposed instruction that a director or officer seeking 

to rely on the affirmative defense should retain a copy of the certification for a period of ten 

years. The burden of establishing that the requirements of the affirmative defense have been met 

will fall on the corporate insider who wishes to rely on it. As a result, we find that the proposed 

instruction is unnecessary as directors and officers already have reason to keep accurate records, 

including the representations, to establish that they have satisfied the conditions of the 

affirmative defense. 

 Finally, we disagree with the commenter who argued that requiring directors or officers 

to certify that they lack material nonpublic information at the time of adopting a Rule 10b5-1 

plan would be inconsistent with insider trading jurisprudence.141 Specifically, the commenter 

argued that the certification should instead allow a trader to certify that any material nonpublic 

information the trader holds at the time the plan is entered into will be either public or no longer 

material at the time of the trade.142 We concur with this commenter that, in general, liability 

under Rule 10b-5 and Section 10(b) requires a showing that a covered individual was aware of 

material nonpublic information at the time that a trade was executed. Rule 10b5-1, however, is 

intended to provide an affirmative defense against liability under circumstances where it is 

                                                 

141  See letter from MD Bar. 

142  The Commission is not adopting this alternative because of the difficulties a trader would face in assessing at 

the time of certification whether the information will become nonpublic or no longer material at the time of 

their future trading.  For example, a trader may not be able to make a determination about whether and when 

other persons will disclose nonpublic information on behalf of an issuer by a certain time in the future. See 2000 

Adopting Release, supra note 8 (noting that public companies frequently “designat[e] a limited number of 

persons who are authorized to make disclosures” that can be considered as made “on behalf of an issuer” to 

comply with the securities laws); see also 17 CFR 243.100, 101(c). The certification condition that the 

Commission is adopting permits traders to make the relatively more straightforward determination whether they 

are aware of material nonpublic information at a given point in time.   



45 

relatively unlikely that a trader will be able to trade on material nonpublic information. As noted 

earlier, this defense is designed to cover situations where a person can demonstrate that a trade 

was not based on material nonpublic information. Requiring a representation that a director or 

officer was not aware of material nonpublic information when adopting a Rule 10b5-1 plan as a 

condition of the affirmative defense better ensures that the defense is available only in those 

circumstances. Moreover, by its nature, an affirmative defense does not affect the substance of 

the underlying prohibition. Individuals who cannot satisfy this condition because they are aware 

of material nonpublic information at the time that they enter into a Rule 10b5-1 plan may still be 

able to trade without liability if they lack material nonpublic information at the time that their 

trade is actually executed. In such circumstances, however, they would not be able to benefit 

from the affirmative defense provided by Rule 10b5-1(c)(1). We also disagree with the 

commenter’s suggestion that the representation condition we are adopting is a substantive change 

in what knowledge an individual may possess when adopting a plan that satisfies the conditions 

of Rule 10b5-1(c)(1).143 The representation condition rather adds a requirement about how that 

knowledge is documented for purposes of the affirmative defense.  

 Finally, the Commission also proposed a technical change to incorporate the Preliminary 

Note to Rule 10b5-1 into Rule 10b5-1(b).144 The Preliminary Note to Rule 10b5-1 states that the 

rule defines when a purchase or sale constitutes trading “on the basis of” material nonpublic 

information in insider trading cases brought under Section 10(b) of the Exchange Act and Rule 

                                                 
143  The 2000 adopting release made clear that a person could adopt a plan “while the person was not aware of any 

inside information.” 2000 Adopting Release at 51737 (emphasis added); accord Selective Disclosure and 

Insider Trading, Release No. 33-7787 (Dec. 20, 1999) [64 FR 72590 (Dec. 28, 1999)] at 72601 (“If the insider 

provides the instructions without awareness of any material nonpublic information, the Rule would permit him 

or her to complete the previously instructed sales plan even if he or she later became aware of inside 

information.”) (emphasis added).  

144   See Proposing Release at 8689.  

https://advance.lexis.com/document/teaserdocument/?pdmfid=1000516&crid=4391a125-d04f-4c86-9896-e82bb282f826&pddocfullpath=%2Fshared%2Fdocument%2Fadministrative-codes%2Furn%3AcontentItem%3A5JKM-HSR0-006W-84MW-00000-00&pddocid=urn%3AcontentItem%3A5JKM-HSR0-006W-84MW-00000-00&pdcontentcomponentid=41356&pdteaserkey=h2&pditab=allpods&ecomp=yzt4k&earg=sr0&prid=f5e42f4d-625a-4e4d-8c2c-ad0145d35dc7


46 

10b-5 thereunder, that the law of insider trading is otherwise defined by judicial opinions 

construing Rule 10b-5, and that Rule 10b5-1 does not modify the scope of insider trading law in 

any other respect.145 We are adopting this change as proposed.  

 The existing law of insider trading provides an established legal framework that makes 

directors and officers liable if they fraudulently purchase or sell securities on the basis of 

material nonpublic information in breach of a duty of trust or confidence. Rule 10b5-1 provides 

that a purchase or sale of a security of an issuer is on the basis of material nonpublic information 

for purposes of Section 10(b) and Rule 10b-5 if the person making the purchase or sale was 

aware of the material nonpublic information when the person made the purchase or sale. Rule 

10b5-1 expressly “does not modify the scope of insider trading law in any other respect.” We 

think it is sufficiently clear that the certification would not create an independent basis of 

liability for insider trading and do not believe it is necessary to amend the rule in this regard, as 

                                                 

145  See 2000 Adopting Release supra note 8 at 51727. The Commission adopted an “awareness” standard in 2000 

that provides that a purchase or sale of a security of an issuer is on the basis of material nonpublic information 

about that security or issuer “if the person making the purchase or sale was aware of the material nonpublic 

information when the person made the purchase or sale.” 17 CFR 240.10b5-1(b) (2000). The Commission 

explained at that time that one view was that a trader may be liable for trading while in “knowing possession of 

information,” while a contrary view was that a trader is not liable unless it is shown that the trader “used” the 

information for trading. Selective Disclosure and Insider Trading, 65 FR 51716-01, 51726-27 (Aug. 24, 2000).  

The Commission ultimately adopted the “awareness” standard that balanced considerations of both views while 

being “closer” to the “knowing possession” standard than to the “use” standard. Id. One commenter suggested 

that the Commission lacked authority “in the year 2000” to adopt Rule 10b5-1(b)’s awareness standard. See 

letter from Pacific Legal Foundation. However, none of the modifications the Commission is adopting in this 

Release would alter the “awareness” standard that the Commission adopted in 2000. See supra at p.8 n. 9. In 

any event, by prohibiting any manipulative or deceptive device or contrivance “in contravention of such rules 

and regulations as the Commission may prescribe as necessary or appropriate in the public interest or the 

protection of investors” (Exchange Act Section 10(b)), Congress thereby authorized the Commission to 

“prescribe legislative rules” like Rule 10b5-1, and courts must accord Rule 10b5-1 “controlling weight.”  

O’Hagan, 521 U.S. at 673 (quoting Chevron, 467 U.S. at 844). Since its adoption in 2000, courts have 

appropriately deferred to the Commission’s “awareness” standard, holding that the Commission’s determination 

is “entitled to deference.”  Royer, 549 F.3d at 899 (applying Chevron); see also United States v. Rajaratnam, 

719 F.3d 139, 157-61 (2d Cir. 2013), cert. denied, 134 S. Ct. 2820 (2014).  Furthermore, Congress has 

expressly authorized the Commission to seek and district courts to impose civil monetary penalties where a 

person has violated the securities laws by purchasing or selling a security “while in possession of” material 

nonpublic information.  Exchange Act Section 21A(a)(1) [15 U.S.C. 78u–1(a)(1)]; see also Exchange Act 

Section 20(d) (liability for trading “while in possession of” material nonpublic information) [15 U.S.C. 78t(d)]. 



47 

suggested by several commenters.146  

3. Restricting Multiple Overlapping Rule 10b5-1 Trading Arrangements and 

Single-Trade Arrangements 

 

 a. Proposed Amendments 

 Currently, a person is not entitled to the Rule 10b5-1(c)(1) affirmative defense for a trade 

if they enter into or alter a “corresponding or hedging transaction or position” with respect to the 

planned transactions.147 In proposing this requirement, the Commission explained that it was 

designed to prevent persons from devising schemes to exploit material nonpublic information by 

setting up pre-existing hedged trading programs, and then canceling execution of the unfavorable 

side of the hedge, while permitting execution of the favorable transaction.148  

 In the Proposing Release, the Commission recognized that multiple overlapping plans can 

be used for these hedging purposes and in other ways that might allow material nonpublic 

information to “factor into the trading decision” of an insider who had complied with the other 

provisions of Rule 10b5-1. In particular, currently, a person can adopt and employ multiple 

overlapping Rule 10b5-1 trading arrangements and exploit material nonpublic information by 

setting up trades timed to occur around dates on which they expect that the issuer will likely 

release material nonpublic information (such as earnings releases) and then selectively cancel 

trades or terminate plans on the basis of material nonpublic information before the information is 

publicly disclosed. In this same vein, the Commission noted its concern that a person could 

circumvent the proposed cooling-off period by setting up multiple overlapping Rule 10b5-1 

                                                 

146  See, e.g., letters from Cravath, DLA, Kirkland, Shearman, and Sullivan. 

147  See Rule 10b5-1(c)(1). 

148   See Selective Disclosure and Insider Trading, Release No. 33-7787 (Dec. 20, 1999) [64 FR 72590 (Dec. 28, 

1999)]. 



48 

trading arrangements, and deciding later which trades to execute and which to cancel after they 

become aware of material nonpublic information, but before its release.  

 To address these concerns, the Commission proposed to amend Rule 10b5-1(c)(1) to 

provide as a condition of the affirmative defense that the person who has entered the plan has no  

outstanding (and does not subsequently enter into another) Rule 10b5-1 plan for open market 

purchases or sales of the same class of securities. The Commission also requested comment on 

whether it was appropriate to exclude multiple trading arrangements for open market purchases 

or sales of the same class of securities, and specifically asked commenters to weigh in on 

whether allowing a concurrent trading arrangement for each class of securities would “create 

incentives for corporate insiders to own different classes of stock.”149 

 This proposed limitation was designed to eliminate the ability of traders to use multiple 

plans to strategically execute trades based on material nonpublic information and still claim the 

protection of the affirmative defense for such trades. 

 The proposed amendment would not apply to transactions where a person acquires (or 

sells) securities through participation in employee stock ownership plans (“ESOPs”) or dividend 

reinvestment plans (“DRIPs”), which are not executed by the person on the open market. 

Participation in these programs is sometimes effected through Rule 10b5-1 plans, and because 

these transactions are directly with the issuer, the Commission concluded they were less likely to 

give rise to insider trading concerns.150 Thus, the Commission proposed this exception to 

                                                 

149  Proposing Release, supra note 22, at 8692 (request for comment number 13).  

150  However, the Supreme Court has explained that lower courts “should consider the extent to which an ERISA-

based obligation either to refrain on the basis of inside information from making a planned trade or to disclose 

inside information to the public could conflict with the complex insider trading and corporate disclosure 

requirements imposed by the federal securities laws or with the objectives of those laws.”  Fifth Third Bancorp 

v. Dudenhoeffer, 573 U.S. 409, 429 (2014). Officers and directors also need to follow Regulation Blackout 

Trading Restrictions, see 17 CFR 245.100 through 245.104.  



49 

preserve the benefits of flexibility for plan participants with respect to such plans.  

 In addition to restricting the use of multiple overlapping trading arrangements, the 

Commission proposed to amend Rule 10b5-1(c)(1)(ii) to limit the availability of the affirmative 

defense for a trading arrangement designed to cover a single trade, by providing that the 

affirmative defense would only be available for one single-trade plan during any 12-month 

period. Under the proposed amendment, the affirmative defense would not be available for a 

single-trade plan if the trader had purchased or sold securities pursuant to another single-trade 

plan within the preceding 12-month period. In proposing this amendment, the Commission noted 

that some recent research indicated that single-trade plans are consistently loss-avoiding and 

their adoption often precedes stock price declines.151 At the same time, the Commission 

recognized the use of single–trade plans to address one-time liquidity needs. The proposed 

limitation on single-trade plans was intended to balance accommodating the use of single-trade 

plans for one-time liquidity needs against the potential for abuse of such plans.  

 b. Comments on the Proposed Amendments 

 Several commenters generally supported both the proposed restriction on multiple 

overlapping trading arrangements, and the limitation on single-trade plans.152 One commenter 

expressed support for the prohibition on multiple overlapping trading arrangements, but did not 

address single-trade plans.153 A few commenters supported the proposed prohibition on multiple 

overlapping trading arrangements but asked the Commission to limit the prohibition to directors 

and officers, noting that individuals have many legitimate reasons to have overlapping plans, 

                                                 

151  See Gaming the System, supra note 20; see also infra Section V.B. 

152  See, e.g., letters from AFL-CIO, Better Markets, CO PERA, MD Bar, NYCC, NASAA, and Public Citizen. 

153  See letter from Kirkland. 



50 

such as gifts and estate-planning transactions, and that directors and officers are the group most 

likely to have material nonpublic information.154  

 With respect to single-trade plans specifically, commenters had mixed responses. One 

commenter expressed support for the limitation on single-trade plans,155 while another 

commenter recommended that the Commission eliminate the availability of the Rule 10b5-1 

affirmative defense for all single-trade plans.156 On the other hand, some commenters noted that 

single-trade plans often have legitimate uses.157 For example, one commenter maintained that, if 

adopted, the Commission should provide exceptions for derivative transactions, gifts, estate-

planning transactions, and employee benefit plan transactions.158 Other commenters indicated 

that the proposed restriction could be evaded by splitting one trade that would be authorized 

under such a plan into two trades.159 

 In addition, several commenters expressed concern that the proposed restrictions on 

multiple overlapping and single-trade Rule 10b5-1 plans would negatively impact certain 

employee compensation plan transactions that are structured as Rule 10b5-1 plans, such as sales 

of securities used to generate funds to cover the withholding taxes associated with equity vesting 

and elections under 401(k) plans or employee stock purchase plans that may be structured as 

Rule 10b5-1 plans (“sell-to-cover transactions”).160 Some of these commenters asserted that 

                                                 

154  See, e.g., letters from SIFMA 3 and Sullivan. 

155  See letter from NYSE. 

156  See letter from Sen. Warren et al. 

157  See, e.g., letters from Monday.com Ltd (“Monday.com”), BioNJ, SCG, SIFMA 3, Davis Polk, Fenwick, Jones 

Day, Shearman, and Wilson Sonsini 

158  See letter from Sullivan. 

159  See letter from Cravath and Davis Polk. 

160  See, e.g., letters from Fenwick, HP, Monday.com, SCG, Sullivan, and Wilson Sonsini. 



51 

these transactions do not implicate the concerns that the proposed amendment is intended to 

address because a corporate insider has limited discretion as to the timing or the number of 

shares sold to cover the tax liability.161 Other commenters generally stated that under the 

proposed limitations, insiders could not maintain both a traditional Rule 10b5-1 plan and a plan 

designed to execute sell-to-cover transactions.162  

With respect to the aspect of the proposed definition of “multiple concurrent trading 

arrangements” under which an insider could establish a separate arrangement for each “class of 

securities,” several commenters generally supported the limitation on multiple overlapping plans 

as proposed.163 One commenter, however, argued that the proposed definition would encourage 

insiders to establish parallel trading arrangements for common stock, preferred stock, and 

options.164 Because the values of these instruments are all highly correlated, the commenter 

stated, the proposed rule would still allow insiders to opportunistically use material nonpublic 

information by establishing such parallel arrangements and then cancelling one or more of them. 

 Many commenters did not support the proposed restriction on multiple overlapping Rule 

10b5-1 plans.165 Some commenters asserted that this limitation was unnecessary, because, given 

that the affirmative defense already does not permit adoption of hedged plans in which a person 

takes offsetting financial positions, there is no additional abusive conduct to address.166  

                                                 

161  See, e.g., letters from BioNJ, Monday.com, and Simpson Thatcher. 

162  See, e.g., Sullivan and Wilson Sonsini. 

163  See letters from Better Markets, CII, and CO PERA. 

164  See letter from NASAA. 

165  See, e.g., letters from ABA, ACCO, BioNJ, Chamber of Commerce 2, Chevron, Coalition Letter, Cravath, 

Davis Polk, DLA, Dow, FedEx, Fenwick, HP, HRPA, HudsonWest, Jones Day, K&L Gates, Kirkland, 

Manulife, Monday.com, NAM, NVCA, NYC Bar, Paul Weiss, PNC, Quest, Quinn, SCG, Shearman, Simpson, 

and Wilson Sonsini. 

166  See, e.g., letters from Davis Polk and Shearman. 



52 

 As with single-trade plans, a number of commenters indicated that there are legitimate, 

common uses of multiple, overlapping Rule 10b5-1 plans.167 Some commenters noted, for 

example, that issuers often use multiple concurrent Rule 10b5-1 plans with different brokers to 

execute share repurchase transactions.168 Other commenters indicated that directors and officers 

often employ multiple Rule 10b5-1 plans because they hold shares in different accounts with 

multiple financial institutions.169 They noted, for example, that a corporate insider may hold 

shares received upon the exercise of stock options in an account with the financial institution that 

is the administrator of the issuer’s incentive equity plan, and hold shares acquired through open 

market transactions or other means in a separate account with a different financial institution.  

 A number of commenters expressed concern that the wording of the proposed 

amendment regarding multiple overlapping plans was overly broad as it could encompass every 

open market transaction, including transactions that are not executed under a Rule 10b5-1 

plan.170 Several commenters urged the Commission to clarify that this provision would not 

prohibit the adoption of a new Rule 10b5-1 plan while an existing plan is in effect as long as no 

trades could commence under the new plan until the existing plan has expired.171 

Finally, several commenters contended that the proposed cooling-off period for Rule 

10b5-1 plans was a more effective method to address the concerns over potential abusive uses of 

multiple overlapping and single-trade Rule 10b5-1 plans.172 

                                                 

167  See, e.g., letters from Chamber of Commerce 2, Cravath, Davis Polk, Dow, FedEx, HP, Jones Day, Manulife, 

Monday.com, NVCA, NYC Bar, Quest, Shearman, Sullivan, and Wilson Sonsini. 

168  See, e.g., letters from Cravath, Davis Polk, Dow, FedEx, Quest, Shearman, and Sullivan. 

169  See, e.g., letters from Quest, and Wilson Sonsini. 

170  See, e.g., letters from Dow, SCG, ABA, Cleary, Paul Weiss, Shearman, Sullivan, and Wilson Sonsini. 

171  See, e.g., letters from Jones Day, Kirkland, Paul Weiss, Simpson, Shearman, and Wilson Sonsini. 

172  See, e.g., letters from Manulife, Cravath, NAM, and Cleary. 



53 

 c. Final Amendments 

After considering the comments, we are adopting the proposed amendment addressing 

multiple overlapping Rule 10b5-1 plans with certain modifications. With respect to multiple 

overlapping Rule 10b5-1 contracts, instructions or plans, the final amendment will add a 

condition to the Rule 10b5-1(c)(1) affirmative defense that persons, other than issuers, may not 

have another outstanding (and may not subsequently enter into any additional) contract, 

instruction or plan that would qualify for the affirmative defense under the amended Rule 10b5-1 

for purchases or sales of any class of securities of the issuer on the open market during the same 

period. We disagree with commenters who urged us to limit these provisions only to directors 

and officers.173 While it is true, as commenters note and as we observed in the Proposing 

Release, that officers and directors are most likely to have access to material nonpublic 

information,174 other traders may at times also have such access. Trading by these other persons 

can impact investors and investor confidence in much the same ways as trading by officers and 

directors. For example, we think it could undermine investor confidence to learn that insiders 

who are not Section 16 officers were able to opportunistically manipulate their trading after 

receiving material nonpublic information, so that the insider could profit at the expense of 

uninformed investors. As we explain below, we think that any financial impact on insiders other 

than officers and directors resulting from these limitations will be more limited than in the case 

of the cooling-off period.  

 Accordingly, we disagree with those commenters who suggested that trades by 

individuals other than officers and directors would not affect the integrity of securities 

                                                 

173  See letters from Sullivan and SIFMA 3. 

174  See Proposing Release at 17; letters from CII, Cravath, and SIFMA. 



54 

markets.175 While other traders may not necessarily control corporate trading or disclosure 

decisions, they still may stand to profit substantially from trading on any material nonpublic 

information to which they have access. Further, because Form 4 may reveal potentially 

opportunistic trades to the public, we think the fact that most persons, other than Section 16 

officers, do not file Form 4 is a reason for more safeguards with respect to their trading, not 

fewer.   

In reaching our determination, we are mindful that some traders, such as rank-and-file 

employees, may have liquidity and diversification needs that are greater than those of more 

highly compensated officers, as commenters noted.176 In recognition of these needs, we are 

adopting a modification to the proposed limitations, described in more detail below, under which 

traders may employ multiple plans to satisfy certain tax obligations incident to equity 

compensation. For insiders who are already trading under an existing plan when such liquidity 

needs arise, meeting those needs will typically require the insider to modify the existing plan, as 

our limitation on multiple plans will prevent the insider from adopting an additional plan to 

cover the newly planned transactions. This modification will in turn likely require the insider to 

pause trading under the preexisting plan for the duration of the insider's cooling-off period. 

Because the cooling-off period for insiders other than officers and directors is 30 days, however, 

we believe that any resulting impact on the insider should be limited. While we agree that it is 

possible this cost, or other barriers, may reduce the appeal of requiring non-officers to make use 

of a Rule 10b5-1 plan, as one commenter noted,177 we think on balance that it is better to ensure 

that any Rule 10b5-1 plans that are adopted in fact impose meaningful limits on opportunistic 

                                                 

175  See letters from Cravath and Davis Polk. 

176  See letters from Chamber of Commerce 2 and NAM. 

177  See letter from Davis Polk. 



55 

trading. More widespread adoption of Rule 10b5-1 plans is unlikely to be helpful to investors or 

markets if such plans do not constrain many opportunistic trades. 

We are modifying the original proposal by removing the reference to “same class of 

securities,” so that the multiple overlapping plans restriction will apply to contracts, instructions 

or plans for any class of securities of the issuer. We agree with the commenter who argued that, 

given the strong likelihood that the values of different classes of securities of a given issuer are 

highly correlated, allowing the use of multiple plans for trading in the securities of one issuer 

would allow for significant possibility of opportunistic behavior.178 As a result, persons (other 

than the issuer) may only have one such contract, instruction or plan, rather than one contract, 

instruction or plan for each class of securities. 

 This condition is intended to address the concerns discussed above about an insider’s use 

of multiple overlapping plans in ways that could allow material nonpublic information to factor 

into the trading decision. Because these concerns are not limited to hedged plans where a trader 

takes offsetting financial positions, we disagree with those commenters who asserted that the 

existing hedging restriction of the Rule 10b5-1 affirmative defense renders this limitation 

unnecessary. With a sufficient number of different plans, an insider could achieve a desired 

trading outcome. For example, an insider could adopt several plans to sell their company stock at 

varying prices in excess of the current share price, and then cancel the plans authorizing trades at 

the lowest of these prices upon learning nonpublic information that the insider expects to 

substantially increase the share price. For similar reasons, we disagree with commenters that the 

cooling-off period sufficiently addresses our concerns given that an insider could maintain 

multiple overlapping plans that satisfy the cooling-off period and then cancel plans based on 

                                                 

178  See letter from NASAA.  



56 

later-obtained material nonpublic information. 

 In light of comments received, we are making three further modifications to this 

condition. The first addresses an insider’s use of multiple brokers to execute trades pursuant to a 

single Rule 10b5-1 plan that covers securities held in different accounts. Specifically, a series of 

separate contracts with different broker-dealers or other agents acting on behalf of the person 

(other than the issuer) to execute trades thereunder may be treated as a single “plan,” provided 

that the contracts with each broker-dealer or other agent, when taken together as a whole, meet 

all of the applicable conditions of and remain collectively subject to the provisions of Rule 10b5-

1(c)(1). A modification of any such contract will be a modification of each other contract or 

instruction such single plan. We agree with commenters that in circumstances where a corporate 

insider holds securities in separate accounts with different financial institutions, the execution of 

trades by multiple brokers under a Rule 10b5-1 plan is less likely to raise the concerns 

underlying this condition of the rule. We recognize that a trader will typically enter into a 

formally distinct contract or agreement with each agent authorized to conduct trades. Thus, for 

purposes of the multiple overlapping plans restriction, a series of formally distinct such contracts 

may be treated as a single “plan” where taken together the contracts otherwise satisfy the 

conditions of the rule. As we have described, the overlapping-plans condition is intended to 

prevent selective alteration or cancellation of Rule 10b5-1 plans to achieve a particular trading 

outcome when an insider is aware of material nonpublic information, and for that reason, we are 

providing that modification (as defined in the Rule) of a contract with any given agent will also 

be treated as a modification of the other contracts making up the plan.  

 In addition, the final amendment provides that a broker-dealer or other agent executing 

trades on behalf of the insider pursuant to the Rule 10b5-1 plan may be substituted by a different 



57 

broker-dealer or other agent as long as the purchase or sales instructions applicable to the 

substituted broker and the substitute are identical, including with respect to the prices of 

securities to be purchased or sold, dates of the purchases or sales to be executed, and amount of 

securities to be purchased or sold. Under this provision, an insider will not lose the benefit of the 

affirmative defense where the insider closes a securities account with a financial institution and 

transfers the securities to a different financial institution. If an insider provides instructions to the 

new broker-dealer in accordance with this provision, there is more limited possibility for 

selective cancellation because substituting a broker authorized to trade under a Rule 10b5-1 plan 

would not change the remaining trades in ways that likely would allow the insider to profit on 

material nonpublic information. We note, however, that a plan modification, such as the 

substitution or removal of a broker that is executing trades pursuant to a Rule 10b5-1 

arrangement on behalf of the insider that changes the purchase or sale amount, price or date on 

which purchases or sales are to be executed is a termination of such plan and the adoption of a 

new plan. This will further limit opportunities for opportunistic manipulation of broker-dealers 

executing trades on behalf of the insider.  

 The second change permits persons (other than the issuer) to maintain two separate Rule 

10b5-1 plans at the same time so long as trading under the later-commencing plan is not 

authorized to begin until after all trades under the earlier-commencing plan are completed or 

expire without execution.179 This provision would not be available for the later-commencing 

                                                 

179  See Rule 10b5-1(c)(1)(ii)(D) which provides that a contract, instruction, or plan that would meet the other 

requirements of Rule 10b5-1(c)(1)(i) may still qualify for the affirmative defense where the director or officer 

has one other contract, instruction, or plan that would qualify for the affirmative defense for purchases or sales 

of the same class of securities on the open market and trading under one contract, instruction, or plan (“later-

commencing plan”) is not authorized to begin until after all trades under the other contract, instruction, or plan 

(“earlier-commencing plan”) are completed. 



58 

plan, however, if the first trade under the later-commencing plan is scheduled to begin during the 

“effective cooling-off period”—namely, the cooling-off period that would be applicable under 

paragraph (c)(1)(ii)(B) to the later-commencing plan if the date of adoption of the later-

commencing plan were deemed to be the date of termination of the earlier-commencing plan.180 

Absent this qualification, an insider might cancel the earlier-commencing plan before its 

scheduled completion but still trade under the later-commencing plan in fewer than the minimum 

90 days (or 30 days) that would otherwise be required for a new plan that is established after a 

plan termination. Both plans must meet all other conditions of the affirmative defense, including 

the cooling-off period. Under these circumstances, we agree with commenters that there would 

be a much lower risk of a corporate insider who is aware of material nonpublic information 

profiting by opportunistically canceling a trading plan as the Rule 10b5-1 plans would not 

authorize trading during the same period of time.   

 Third, we are adopting a modification for plans authorizing certain “sell-to-cover” 

transactions in which an insider instructs their agent to sell securities in order to satisfy tax 

withholding obligations at the time an award vests. Under this modification, an insider will not 

lose the benefit of the affirmative defense with respect to an otherwise eligible Rule 10b5-1 plan 

if the insider has in place another plan that would qualify for the affirmative defense, so long as 

the additional plan or plans only authorize qualified sell-to-cover transactions. Such plans that 

authorize only such qualified sell-to-cover transactions are eligible for the affirmative defense 

                                                 

180  For example, an insider who is not an officer or director has in place an existing Rule 10b5-1 plan with a 

scheduled date for the latest authorized trade of May 31, 2023. On May 1, 2023, that insider adopts a later-

commencing plan, intended to qualify for the affirmative defense under Rule 10b5-1, with a scheduled date for 

the first authorized trade of June 1, 2023. If the insider terminates the earlier-commencing plan on May 15, the 

later-commencing plan will not receive the benefit of the affirmative defense, because June 1 is within 30 days 

of May 15, the date of termination of the earlier-commencing plan, and thus June 1 is during the “effective 

cooling-off period.” However, if the later-commencing plan were scheduled to begin trading on July 1, 2023, it 

could still receive the benefit of the affirmative defense because July 1, 2023 is more than 30 days after May 15 

and thus is outside the “effective cooling-off period.”   



59 

notwithstanding the fact that the insider may have another plan eligible for the affirmative 

defense in place. A plan authorizing sell-to-cover transactions is qualified for this provision 

where the plan authorizes an agent to sell only such securities as are necessary to satisfy tax 

withholding obligations incident to the vesting of a compensatory award, such as restricted stock 

or stock appreciation rights, and the insider does not otherwise exercise control over the timing 

of such sales.181   

 We are providing this modification because we agree with commenters who contended 

that under these limited circumstances, there is little danger of opportunistic trading. Because 

vesting schedules are generally set in advance by the issuer, the amount of securities to be sold 

would be determined by the value of the award and the taxes due on that value. We are further 

stipulating that eligible plans cannot provide the insider with control over the timing of any sales.  

For these reasons, we think it is highly unlikely that insiders would be able to make opportunistic 

use of such additional plans.  

 We are not extending this modification to include sales incident to the exercise of option 

awards because it could create a risk of opportunistic trading. Option exercises occur at the 

discretion of the insider, and such decisions could occur when the insider later obtains material 

nonpublic information. To the extent that commenters have suggested that an insider with a sell-

to-cover plan tied to an option exercise could not use the revised Rule 10b5-1 affirmative 

defense, we disagree.182 The revised affirmative defense would not prevent a corporate insider 

from entering into a Rule 10b5-1 plan that includes instructions directing a broker to sell 

                                                 

181  In our view, a plan that authorizes an agent to sell only such securities as are necessary to satisfy tax 

withholding obligations incident to the vesting of a compensatory award meets the requirement that the plan 

does “not permit the person to exercise any subsequent influence over how, when, or whether to effect …sales,” 

Rule 10b5-1(c)(1)(B)(3) [17 CFR 240.10b5-1(c)(1)(B)(3)]. 

182  See supra note 161. 



60 

securities sufficient to meet the tax withholding obligations incident to an option or similar 

award exercise. For example, the insider might provide that a designated agent is authorized to 

sell sufficient securities to cover any tax withholding obligations incident to an option exercise. 

Such instructions can be included in a single Rule 10b5-1 plan along with instructions to sell 

based on other financial variables. Accordingly, an officer or director may take advantage of the 

affirmative defense both for sell-to-cover transactions and other planned trades, provided that the 

conditions of the affirmative defense are met, including the cooling-off period.   

 In addition, we are not adopting the proposed limitation on multiple plans and single-

trade plans for the issuer at this time. As with the cooling-off period, we believe that further 

consideration of potential application to the issuer is warranted.  

 Finally, we are adopting the proposed limitation on single-trade plans with modifications. 

Consistent with the approach to multiple overlapping plans, the limitation will apply to the Rule 

10b5-1 plans of all persons, other than the issuer. As a result, the final rule provides that if the 

contract, instruction, or plan is designed to effect the open-market purchase or sale of the total 

amount of securities as a single transaction, the contract, instruction or plan will not receive the 

benefit of the affirmative defense unless: (1) the person who entered into the contract, 

instruction, or plan has not, during the prior 12-month period, adopted another contract, 

instruction, or plan that was designed to effect the open-market purchase or sale of the total 

amount of securities subject to that plan in a single transaction; and (2) such other contract, 

instruction, or plan in fact was eligible to receive the affirmative defense. A person (other than 

the issuer) will be able to rely on the Rule 10b5-1(c)(1)(ii) affirmative defense for only one 

single-trade plan during any 12-month period. The defense will only be available for a single-

trade plan if the person had not, during the preceding 12-month period, adopted another single-61 

trade plan, where the other plan qualified for the affirmative defense under Rule 10b5-1.183 We 

disagree with the commenter who argued that, due to the possibility that an insider might divide 

their planned single trade into multiple trades, any limit on single-trade plans would be 

ineffective.184 For example, certain insiders who divide a planned trade over several days are 

likely to realize reduced profits from trading after a Form 4 is filed, which at least in part, will 

reduce an insider’s incentives to engage in trading while aware of material nonpublic 

information. 

 For this purpose, a plan is “designed to effect” the purchase or sale of securities as a 

single transaction when the contract, instruction, or plan has the practical effect of requiring such 

a result. In contrast, a plan is not designed to effect a single transaction where the plan leaves the 

person’s agent discretion over whether to execute the contract, instruction, or plan as a single 

transaction. Similarly, a plan is also not designed to effect the purchase or sale of securities as a 

single transaction when (1) the contract, instruction, or plan does not leave discretion to the 

agent, but instead provides that the agent’s future acts will depend on events or data not known at 

the time the plan is entered into, such as a plan providing for the agent to conduct a certain 

volume of sales or purchases at each of several given future stock prices; and (2) it is reasonably 

foreseeable at the time the plan is entered into that the contract, plan, or instruction might result 

in multiple transactions. 

We are adopting the limitation on single-trade plans because we are concerned that trades 

under such plans may provide particularly profitable opportunities for insiders who are trading 

                                                 

183  We have added this qualification because we do not intend for a plan that is ineligible for the affirmative 

defense to preclude the affirmative defense for another plan, even if both trades are single-trade plans.  

184  See letter from Davis Polk. 



62 

while aware of material nonpublic information. As we described in the Proposing Release, a 

recent study found that trades under a single-trade plan avoid losses that appear statistically 

unlikely to be avoided by uninformed traders.185 This pattern persisted even when the first such 

trade occurred more than 120 days after adoption of the plan, suggesting that a cooling-off period 

alone may not be sufficient to prevent opportunistic single-trade plans.186 For these reasons, we 

disagree with the commenters who suggested that the cooling-off period would be sufficient to 

address the problem addressed by the single-trade limitation.187  

 Several commenters expressed concern about potential ambiguity or uncertainty around 

the concept of a single-trade plan and asked us to clarify the scope of this provision, such as its 

potential application to block trades of venture capital funds.188 We agree with those commenters 

who indicated that an insider should not be at risk of losing the benefit of the affirmative defense 

due to decisions outside the insider’s control when the insider did not design the Rule 10b5-1 

plan to effect the authorized purchases or sales in a single transaction, such as in the case where 

the insider’s agent exercises their own discretion to complete all authorized trading in a single 

transaction. For that reason, we have added the “designed to effect” provision discussed above. 

We are concerned, however, that further delineating what constitutes a single transaction for 

purposes of this rule could create incentives to design Rule 10b5-1 plans that avoid application 

of the single-trade plan limitation.  

 For reasons similar to those we have explained with respect to multiple overlapping 

trades, in response to comments, we are modifying the proposed single-trade limitation with 

                                                 

185  See Gaming the System, supra note 20 at 2, 14 (observing that “trades of single-trade plans are consistently 

loss-avoiding regardless of cooling-off period”). But see infra note 400. 

186  See id. 

187  See letters from Manulife, Cravath, NAM, and Cleary. 

188  See letters from Sullivan, SIFMA 3 and NVCA.  



63 

respect to qualified sell-to-cover transactions. This modification applies to the same plans 

eligible for the sell-to-cover provision of the overlapping trade limitation. Again, we think that 

such plans present little, if any risk, of opportunistic trading. 

Also for reasons similar to those we have explained with respect to multiple overlapping 

trades, we are applying the single-trade limitation to all persons other than the issuer. The single-

trade limitation helps to ensure that the affirmative defense provides meaningful constraints on 

the extent to which material nonpublic information affects an insider’s decision to trade. While 

we recognize that the limitation also may impose some moderate limitations on insiders’ ability 

to obtain liquidity and diversification, as noted, we think that there are alternative means for such 

insiders to achieve these goals.  

Because single-trade plans may have legitimate uses to address one-time liquidity needs, 

we also disagree with the commenter who suggested that the affirmative defense should not be 

available for any single-trade plan.189 Overall, the limitation we are adopting is intended to 

balance legitimate uses of single-trade plans against the potential for abuse. 

 4. The Amended Good Faith Condition  

 

 a. Proposed Amendments 

 The Rule 10b5-1(c)(1) affirmative defense is only available if a trading arrangement was 

entered into in good faith and not as part of a plan or scheme to evade the prohibitions of the 

rule. The Commission proposed to amend this condition to require that the contract, instruction, 

or plan also be “operated” in good faith.  

 In proposing this amendment, the Commission noted its concern that some corporate 

insiders may try to improperly influence the timing of corporate disclosures to benefit their 

                                                 

189  See letter from NASAA. 



64 

trades under a Rule 10b5-1 trading arrangement, such as by delaying or accelerating the release 

of material nonpublic information.190 The Commission also noted its concern that a Rule 10b5-1 

plan may be canceled or modified in an attempt to evade the prohibitions of the rule without 

affecting the availability of the affirmative defense. Moreover, the Commission stated that 

requiring that a trader both enter into and operate a Rule 10b5-1 plan in good faith would help 

deter fraudulent and manipulative conduct and enhance investor protection throughout the 

duration of the trading arrangement. Thus the Commission intended the proposed amendment to 

make clear that the affirmative defense would not be available to a trader who, for example, 

modifies their plan in an effort to evade the prohibitions of the rule or uses their influence to 

affect the timing of corporate disclosure to occur before or after a planned trade to make it more 

profitable or to avoid or reduce a loss.  

 b. Comments on the Proposed Amendments 

 Several commenters generally supported the proposed amendment.191 Some of these 

commenters indicated that the proposed amendment would deter opportunistic trading in 

connection with Rule 10b5-1 plans and increase investor confidence.192 One of these 

commenters also expressed the view that, among other things, this requirement would ensure that 

there is liability where persons attempt to manipulate the timing of corporate announcements to 

benefit trades made pursuant to a Rule 10b5-1 plan.193 Another commenter asserted that adding 

the “operate in good faith” requirement would be helpful in improving the insider trading 

                                                 

190  See Proposing Release, supra note 23, at 8693. 

191  See, e.g., letters from CII, AFL-CIO, Better Markets, CO PERA, NYCC, NASAA, NYSE, and O’Reilly. 

192  See, e.g., letters from AFL-CIO, Better Markets, CII, and NASAA. 

193  See letter from Better Markets. 



65 

compliance programs of issuers.194 

 A number of commenters, however, opposed adding the condition that a Rule 10b5-1 

plan be “operated” in good faith.195 Many of these commenters indicated that the concept of 

“operated in good faith” was not sufficiently clear and would lead to uncertainty surrounding the 

availability of the affirmative defense.196 Similarly, another commenter asked the Commission to 

clarify the extent to which a failure to operate a Rule 10b5-1 plan in good faith would invalidate 

the affirmative defense for transactions that were executed under the plan.197 Some commenters 

contended that, given that the scope of conduct or activity covered by the phrase was potentially 

extensive, this condition could inhibit the use of Rule 10b5-1 plans.198 Finally, another 

commenter suggested requiring that a Rule 10b5-1 plan be “modified in good faith” as an 

alternative.199 This commenter contended that “modified” is a clearer term and would cover 

circumstances where a trader amends or terminates a Rule 10b5-1 plan based on material 

nonpublic information.  

 c. Final Amendment 

 Having considered the comments received, we are adopting the amendment to Rule 

10b5-1(c)(1)(ii) with a modification in response to comments concerning the term “operated in 

good faith.” The final rules add the condition that the person who entered into the Rule 10b5-1 

                                                 

194  See letter from O’Reilly. 

195  See, e.g., letters from Dow, Quest, HRPA, Cleary, Cravath, Davis Polk, DLA, Fenwick, Shearman, Wilson 

Sonsini, PNC, SIFMA 2, and SIFMA 3. 

196  See, e.g., letters from Quest, Cleary, Cravath, Davis Polk, DLA, Fenwick, Shearman, Wilson Sonsini, and PNC, 

SIFMA 2, SIFMA 3 and Chamber of Commerce 2. 

197  See letter from PNC. 

198  See, e.g., letters from Dow, Quest, HRPA, Cleary, Cravath, Davis Polk, DLA, Fenwick, Shearman, Wilson 

Sonsini, PNC, SIFMA 2, and SIFMA 3. 

199  See letter from Fenwick. 



66 

contract, instruction, or plan “has acted in good faith with respect to” the contract, instruction, or 

plan. As discussed above, since the time that Rule 10b5-1 was adopted, we have become 

concerned that corporate insiders may take actions after adopting a Rule 10b5-1 plan to benefit 

from material nonpublic information the insider acquires after establishment of the plan. We 

therefore agree with commenters that this requirement will help ensure that traders do not engage 

in opportunistic trading in connection with Rule 10b5-1 plans, and will help deter corporate 

insiders from improperly influencing the timing of corporate disclosures to benefit their trades 

under such a plan.200  

Many commenters appeared to understand that the proposed “operated in good faith” 

language was intended to govern the behavior of the trader.201 Some commenters, however, 

expressed concern that the term “operated” could be ambiguous or cause confusion because it 

could be read to apply, or might apply only, to the insider’s agents, such as brokers who executed 

the trades authorized by the insider.202 To make clear that the good faith obligation applies to the 

activities of the insider (including the insider’s efforts to direct the activities of others), we have 

modified this language to state that the trader must “act[] in good faith with respect to the 

contract, instruction, or plan.” 

In adopting this amendment, we disagree with commenters that the expanded good faith 

requirement is not sufficiently clear. The concept of “good faith” should be familiar to corporate 

insiders as it has been a component of Rule 10b5-1 since its adoption two decades ago.203 This 

                                                 

200  See, e.g., letters from AFL-CIO, Better Markets, CII, and NASAA. 

201  See letters from Davis Polk, DLA Piper, Dow, Home Depot, and Shearman & Sterling. 

202  See letters from Cravath, Fenwick, and PNC. 

203  See 2000 Adopting Release, supra note 8. 



67 

amendment extends this familiar concept from the time of adoption through the duration of the 

Rule 10b5-1 plan to better ensure that material nonpublic information does not factor into the 

decision to trade under such plans, as it would when, for example, a corporate insider materially 

modifies a planned trade at their own direction and to their own benefit,204 based on material 

nonpublic information acquired after the plan was entered into. Indeed, a corporate insider would 

not be operating a Rule 10b5-1 plan in good faith if the corporate insider, while aware of 

material nonpublic information, directly or indirectly induces the issuer to publicly disclose that 

information in a manner that makes their trades under a Rule 10b5-1 plan more profitable (or less 

unprofitable). In such a scenario, notwithstanding that the Rule 10b5-1 plan may have been 

adopted or entered into in good faith, the corporate insider would not be entitled to the 

affirmative defense. Moreover, we disagree with commenters who argue that this requirement 

will deter adoption of Rule 10b5-1 plans by individuals who do not intend to misuse material 

nonpublic information. 

 Commenters also asked us to clarify whether the obligation to act in good faith would not 

be met in other factual settings, such as in the event an issuer halts any trading by insiders under 

Rule 10b5-1 plans due to a possible merger, or where it similarly blocks sales transactions after 

learning of material nonpublic information that it expects will lead to a decline in the market 

price of its securities.205 As we have stated, this amendment relates to activities within the 

control of the insider. Accordingly, we agree with the commenter that cancellations directed by 

                                                 

204  A modification of a Rule 10b5-1 plan in an effort to allow the individual to trade on the basis of material 

nonpublic information would not constitute acting in good faith. In light of our adoption of a limitation on 

multiple plans, however, we anticipate that an individual will generally not be able to engage in any trade under 

a Rule 10b5-1 plan following a cancellation of such a plan, and therefore the applicability of the affirmative 

defense will not be at issue in that situation. 

205  See, e.g., letters from Davis Polk, Shearman (requesting that we clarify that cancellations for legitimate reasons 

are not bad faith); and Wilson Sonsini (requesting we clarify that cancellations are not per se bad faith). 



68 

the issuer where such cancellations are outside the control or influence of the insider may not, by 

themselves, implicate the good faith condition.   

 Finally, we disagree with the commenter who recommended that we instead require good 

faith “modification” of a plan as this narrower condition would not address all of our concerns. 

For example, as we have noted, efforts to manipulate the timing of releases of corporate 

information to benefit an officer’s or a director’s planned trades may not involve a modification 

of a plan but would be inconsistent with established notions of good faith. While the condition 

that we are adopting would cover such efforts, the commenter’s alternative might not do so.   

B. Additional Disclosures Regarding Rule 10b5-1 Trading Arrangements 

 Currently, there are no mandatory disclosure requirements concerning the use of Rule 

10b5-1 trading arrangements or other trading arrangements by issuers or corporate insiders.206 

The lack of comprehensive public information about the use of these arrangements—whether 

pursuant to a Rule 10b5-1 plan or otherwise—creates an environment in which it is more 

difficult for investors to assess whether those parties may be misusing their access to material 

nonpublic information. This lack of transparency may allow improper trading to go undetected 

and thereby undermine the deterrent impact of our insider trading laws. In addition, the lack of 

public information about the use of these arrangements by corporate insiders limits investors’ 

ability to assess potential incentive conflicts and information asymmetries when making 

investment and voting decisions. Requiring more robust disclosure of particular trading 

                                                 

206  Form 144 (17 CFR 239.144) under the Securities Act contains a representation that is used by a filer of the form 

to indicate whether such person has adopted a written trading plan or given trading instructions to satisfy Rule 

10b5-1. Form 144 is a notice form that must be filed with the Commission by an affiliate of an issuer who 

intends to resell restricted or “control” securities of that issuer in reliance upon Securities Act Rule 144 (17 CFR 

230.144). In 2002, the Commission proposed amendments to Form 8-K that, among other things, would have 

required registrants to report on the form any adoption, modification or termination of a Rule 10b5-1 trading 

arrangement by any director and certain officers of the registrant. See Form 8-K Disclosure of Certain 

Management Transactions, Release No. 33-8090 (Apr. 12, 2002) [67 FR 19914 (Apr. 23, 2002)]. The 

Commission did not adopt this proposal. 



69 

arrangements should reduce potential abuse of the rule, and inform investors and the 

Commission regarding potential violations of Rule 10b-5. 

 In addition, issuers are currently not required to disclose their insider trading policies or 

procedures. In the Proposing Release, the Commission stated that information about insider 

trading policies and procedures is important, and would help investors to understand and assess 

how the registrant protects material nonpublic information from misuse. While the codes of 

ethics that registrants are required to disclose pursuant to Item 406 of Regulation S-K may 

address insider trading issues, they may lack the detail necessary for investors to assess actual 

practices surrounding potential insider trading. General statements such as that an issuer “has a 

policy regarding insider trading” or “prohibits insider trading” do not meaningfully assist 

investors in their assessments of whether an issuer’s efforts to prevent insider trading are likely 

to be effective. While not every individual component of an insider trading policy is necessarily 

material on its own, together, a comprehensive description of an insider trading policy can help 

investors to assess the thoroughness and seriousness with which the issuer addresses the 

prohibition of trading on the basis of material nonpublic information by its officers, directors and 

employees. More detailed disclosure about these policies and procedures could therefore 

improve investor confidence, and in turn, potentially contribute to market liquidity and capital 

formation. 

 To address these information gaps, the Commission proposed new Item 408 under 

Regulation S-K and corresponding amendments to Forms 10-Q and 10-K to require: (1) 

quarterly disclosure of the use of Rule 10b5-1 and other trading arrangements by a registrant, and 

its directors and officers for the trading of the issuer’s securities; and (2) annual disclosure of a 

registrant’s insider trading policies and procedures. The Commission also proposed new Item 



70 

16J to Form 20-F to require similar annual disclosure of a foreign private issuer’s insider trading 

policies and procedures. In addition, the Commission proposed amendments to Forms 4 and 5 to 

require insiders to identify whether a reported transaction was executed pursuant to a Rule 10b5-

1(c) trading arrangement.  

1. Quarterly Reporting of Rule 10b5-1 and Non-Rule 10b5-1 Trading Arrangements  

 

 a. Proposed Amendments 

 Proposed new Item 408(a) of Regulation S-K would require registrants to disclose: 

 Whether, during the registrant’s most recently completed fiscal quarter (the 

registrant’s fourth fiscal quarter in the case of an annual report), the registrant adopted 

or terminated any contract, instruction or written plan to purchase or sell securities of 

the registrant, whether or not intended to satisfy the affirmative defense conditions of 

Rule 10b5-1(c), and provide a description of the material terms of the contract, 

instruction or written plan, including: 

o The date of adoption or termination;207  

o The duration of the contract, instruction or written plan; and  

o The aggregate amount of securities to be sold or purchased pursuant to the 

contract, instruction or written plan. 

 Whether, during the registrant’s last fiscal quarter, any director or “officer” (as 

defined in Rule 16a-1(f)) has adopted or terminated any contract, instruction or 

written plan for the purchase or sale of securities of the registrant, whether or not 

intended to satisfy the affirmative defense conditions of Rule 10b5-1(c), and provide 

                                                 

207  As discussed above, the Commission also proposed to state explicitly in the rule that any modification or 

amendment of an existing Rule 10b5-1 trading arrangement would be the equivalent of terminating the existing 

arrangement and adopting a new arrangement. See supra note 46.  



71 

a description of the material terms of the contract, instruction or written plan, 

including: 

o The name and title of the director or officer; 

o The date on which the director or officer adopted or terminated the contract, 

instruction or written plan;  

o The duration of the contract, instruction or written plan; and 

o The aggregate number of securities to be sold or purchased pursuant to the 

contract, instruction or written plan. 

 Under the proposed rule, the disclosures would be required in Forms 10-Q and 10-K, as 

applicable. Registrants would be required to provide this information if, during the quarterly 

period covered by the report, the registrant, or any director or officer who is required to file 

reports under Section 16 of the Exchange Act,208 adopted or terminated a Rule 10b5-1 plan. Such 

disclosures would allow investors to assess whether, and if so, how, issuers monitor trading by 

their directors and officers for compliance with insider trading laws and whether their 

compliance programs are effective at preventing the misuse of material nonpublic information.  

 The Commission stated that the proposed rule would provide material information that 

would better allow investors, the Commission, and other market participants to observe how 

directors, officers and issuers use Rule 10b5-1 plans. For example, disclosure of the termination 

(including a modification) of a trading arrangement by an officer, even in the absence of 

subsequent trading by the officer, could provide investors or the Commission with important 

information about the potential misuse of inside information such as, for example, if the 

termination occurs close in time to the release of material nonpublic information by the issuer. 

                                                 

208  15 U.S.C. 78p. 



72 

Making information about these arrangements public may also serve as a deterrent against 

potential abuses of Rule 10b5-1 plans or other trading arrangements by making those who use 

these arrangements more likely to focus on following the requirements applicable to such 

arrangements and compliance with Rule 10b-5. In addition, requiring disclosure of these events 

on a quarterly basis would present this disclosure to investors in a consolidated manner in a 

single document. The Commission also proposed to require similar disclosure with respect to the 

adoption or termination of other pre-planned trading contracts, instructions, or plans (“non-Rule 

10b5-1 trading arrangements”) through which the issuer, officer or director seeks to transact in 

the issuer’s securities. 

 b. Comments on the Proposed Amendments 

 Many commenters generally supported the proposed reporting requirements.209 For 

example, one of these commenters stated that the proposed disclosures would provide important 

information regarding insider stock trades and useful information to investors to inform their 

own investment decisions.210 Another commenter asserted that the proposed disclosures would 

provide long-term shareholders with information about insider trades that complete the partial 

picture provided by Form 144 and Section 16 reports.211 A few commenters supported the 

proposed requirements, but asked that issuers also report plans with respect not only to officers 

and directors, but also more generally any employee of the issuer.212 

                                                 

209  See, e.g., letters from AFL-CIO, Better Markets, CII, CO PERA, DLA, ICGN, NASAA, O’Reilly, and 

Simpson. 

210  See letter from AFL-CIO. 

211  See letter from CII. 

212  See, e.g., letters from BrilLiquid and NASAA. 



73 

 Several commenters, however, did not support the proposed reporting requirements.213 

Some of these commenters contended that the proposed disclosures are unnecessary because they 

would be duplicative of the disclosures that would be required under the proposed amendments 

to Forms 4 and 5.214 One of these commenters also asserted that it would be a significant burden 

on issuers to provide the proposed disclosures concerning all of the trading actions of their 

directors and officers.215  

 A number of commenters expressed concern regarding the requirement for registrants to 

provide a description of the “material terms” of the Rule 10b5-1 trading arrangement.216 Several 

commenters indicated that the proposal could be interpreted as requiring registrants to disclose 

specific details of a trading arrangement, such as pricing information.217 Many commenters 

stated that the disclosure of pricing information and other details of a Rule 10b5-1 plan could 

facilitate the front-running of transactions under the plan by other traders.218  

Due to these concerns, commenters were divided in their recommendations of what 

information about trading arrangements should be disclosed. Some commenters stated that the 

final rule should not require disclosure of the number of shares covered by a trading arrangement 

or the duration of the arrangement.219 Other commenters recommended that the Commission 

limit disclosures to the name of the person adopting the plan, the date of adoption or termination 

                                                 

213  See, e.g., letters from ACCO, IBC, MD Bar, NVCA, NAM, SCG, Sullivan and Wilson Sonsini. 

214  See, e.g., letters from Sullivan and Wilson Sonsini. 

215  See letter from Sullivan. 

216  See, e.g., letters from ABA, Davis Polk, Cleary, DLA, FedEx, Fenwick, Kirkland, NVCA, NAM, Quest, SCG, 

SIFMA 2, Sullivan and Wilson Sonsini. 

217  See, e.g., letters from ABA, Cleary, Davis Polk, DLA, Fenwick, Quest, SCG, SIFMA 2, and Wilson Sonsini. 

218  See, e.g., letters from Davis Polk, DLA, Fenwick, NVCA, SCG, SIFMA 2, and Wilson Sonsini. 

219  See, e.g., letters from Quest and Simpson. 



74 

of the plan, and the plan’s duration.220 In contrast, other commenters opposed requiring 

disclosure of the termination of a plan, contending that this information could signal to the 

market that there has been a material development concerning the issuer, such as an impending 

merger agreement.221  

 In addition, a number of commenters recommended that the Commission should not 

require disclosure regarding non-Rule-10b5-1 trading arrangements.222 Several commenters 

asserted that this term was confusing and overly broad.223 One commenter indicated that this 

term would raise a number of interpretive issues as it potentially encompasses a wide range of 

transactions, such as transactions related to open market purchases, derivative securities and 

employee benefit plans.224 Other commenters claimed that this disclosure would not provide 

valuable information to investors, the Commission, or other market participants.225 For example, 

some of these commenters stated that the details of trades executed under a non-Rule 10b5-1 

trading arrangement are already required to be disclosed in Section 16 filings.226 

 A few commenters recommended that the disclosure requirements regarding registrant 

trading arrangements should be removed from proposed Item 408(a) and included with the 

pending proposed rulemaking227 to update the disclosure requirements for purchases of equity 

                                                 

220  See, e.g., letters from Fenwick and Shearman. 

221  See letters from Sullivan and SIFMA 3.  

222  See, e.g., letters from Cleary, Cravath, Davis Polk, Shearman, Sullivan, and Simpson. 

223  See, e.g., letters from Cleary, Cravath, SIFMA 3, and Sullivan. 

224  See letter from Sullivan. 

225  See, e.g., letters from Cleary, Cravath, Shearman, and Simpson. 

226  See, e.g., letters from Cravath and Shearman. 

227  See Share Repurchase Disclosure Modernization, Release No. 34-93783 (Dec. 15, 2021) [87 FR 8443 (Feb. 15, 

2022)]. 



75 

securities by an issuer and affiliated purchasers under Item 703 of Regulation S-K.228 

 Another commenter suggested the Commission exempt smaller reporting companies 

(“SRCs”)229 from the proposed disclosure requirement.230 This commenter claimed SRCs and 

their insiders are less likely to engage in the kinds of trading in the securities of their companies 

that would cause concern, but that the reporting burden could disproportionately impact these 

issuers. 

 Finally, one commenter suggested that it would be more appropriate to include proposed 

Item 408(a) disclosure in Part II, Item 9(B) of Form 10-K, and Item 408(b) disclosure in Part III, 

Item 10 of Form 10-K.231 This commenter claimed that requiring Item 408(a) disclosure in Item 

9(B) rather than Item 10 of Form 10-K would align with the Commission’s proposal to require 

Item 408(a) disclosure in Item 5 of Form 10-Q because both Items cover similar types of 

information. Further, this commenter posited that this approach would ensure that Item 408(a) 

disclosure, which relates to the last fiscal quarter, appears in each periodic report. 

 c. Final Rule 

 We are adopting new Item 408(a) with several modifications in response to comments. 

Specifically, we are not adopting the proposed requirement regarding contracts, instructions, or 

plans of registrants; we are providing that the description of material terms need not address 

pricing terms; and we are adding a definition of “non-Rule 10b5-1 trading arrangement.” As 

                                                 

228  See, e.g., letters from Cravath and Simpson. 

229  “Smaller reporting company” is defined in Securities Act Rule 405 and Exchange Act Rule 12b-2 as an issuer 

that is not an investment company, an asset-backed issuer (as defined in 17 CFR 229.1101), or a majority-

owned subsidiary of a parent that is not a smaller reporting company and that had: (1) a public float of less than 

$250 million; or (2) annual revenues of less than $100 million and either: (a) no public float; or (b) a public 

float of less than $700 million. 

230  See letter from MD Bar. 

231  See letter from ABA. 



76 

proposed, these disclosures will be required in Forms 10-Q and 10-K.232 

 The final rule will require registrants to (1) disclose whether, during the registrant’s last 

fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report), any director 

or “officer” (as defined in Rule 16a-1(f)) has adopted or terminated (i) any contract, instruction 

or written plan for the purchase or sale of securities of the registrant that is intended to satisfy the 

affirmative defense conditions of Rule 10b5-1(c) (a “Rule 10b5-1(c) trading arrangement”), 

and/or (ii) any written trading arrangement for the purchase or sale of securities of the registrant 

that meets the requirements of a non-Rule 10b5-1 trading arrangement as defined in Item 408(c) 

(a “non-Rule 10b5-1 trading arrangement”); and (2) provide a description of the material terms 

of the Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement  other than 

terms with respect to the price at which the individual executing the respective trading 

arrangement is authorized to trade, such as: 

 The name and title of the director or officer; 

 The date of adoption or termination of the trading arrangement;  

 The duration of the trading arrangement; and 

 The aggregate number of securities to be sold or purchased under the trading 

arrangement. 

With respect to any given trading arrangement subject to disclosure under Item 408(a), the 

registrant must indicate whether such trading arrangement is a Rule 10b5-1 trading arrangement 

or is a non-Rule 10b5-1 trading arrangement. 

 In addition, any modification or change to a Rule 10b5-1 plan by a director or officer that 

                                                 

232  In a slight modification, we are adopting the approach suggested by a commenter to include new Item 408(a) in 

Part II, Item 9(B) of Form 10-K. See letter from ABA. 



77 

falls within the meaning of new Rule 10b5-1(c)(1)(iv) would also be required to be disclosed 

under Item 408(a) as it constitutes the termination of an existing plan and the adoption of a new 

contract, instruction, or written plan.  

 Having considered comments received, we view this information as necessary to better 

allow investors, the Commission, and other market participants to observe how directors and 

officers use Rule 10b5-1 plans and other non-Rule 10b5-1 trading arrangements. The 

information also will add important context to other disclosures of trades by directors and 

officers, such as in Forms 4 and 5, and may aid investors in obtaining a more accurate valuation 

of the issuer’s shares and making more informed investment decisions.233 Furthermore, this 

information will provide investors with valuable information about the specific uses of such 

arrangements, which could bring focus to the particular arrangements and deter potential abuses. 

While it is true, as commenters observed, that Forms 4 and 5 may already include some of this 

information, we expect it will be more useful and time-saving for investors to have information 

regarding all of the trading arrangements for directors and officers of a given issuer in a single 

location. We are also requiring disclosure of details about the content of such arrangements that 

is not mandated on Form 4 or Form 5, which, pursuant to the amendments that we are adopting 

as described below, will require only the date of adoption of the Rule 10b5-1 plan.  

 In response to the concerns expressed by some commenters that the proposal could 

require the disclosure of pricing information,234 however, we have revised the final rules to 

clarify that new Item 408(a) does not require disclosure of the price at which the individual 

                                                 

233  See infra Section V.C.2. The mandatory Rule 10b5-1 plan checkbox disclosures on Forms 4 and 5, in 

combination with this disclosure will provide greater transparency to investors regarding the use of Rule 10b5-1 

plans for trading. All of this information will provide investors with valuable context for interpreting other 

corporate disclosure, which should help them value the companies’ shares and make informed voting and 

investment decisions. 

234  See, e.g., letters from ABA, Cleary, Davis Polk, DLA, Fenwick, Quest, SIFMA 2, SCG, and Wilson Sonsini. 



78 

executing the trading arrangement is authorized to trade. We agree with these commenters that 

disclosing this information could allow other persons to trade strategically in anticipation of an 

officer’s or a director’s planned trades, increasing the costs or reducing the profitability of that 

officer’s or director’s trading. Although we recognize that some commenters urged us to not 

require disclosure of the trading arrangement’s duration or the aggregate number of securities 

that could be purchased and sold under it, we view this information as necessary context for a 

trading arrangement that does not raise similar concerns because, in most cases, general 

information about the volume and duration of an officer’s or director’s Rule 10b5-1 plan or non-

Rule 10b5-1 trading arrangement will not be sufficient to permit strategic trades by other market 

participants. We also disagree with commenters that we should not require disclosure related to 

terminations because, first, Rule 10b5-1 plans or non-Rule 10b5-1 trading arrangements may be 

terminated for many reasons, making it unlikely that a termination would be interpreted as an 

indication of a pending material event (such as a merger announcement), and second, because the 

interval between a termination and the filing of the Form 10-Q or Form 10-K disclosing the 

termination should mitigate any such potential strategic trading. 

 In addition, the final rule will also require disclosure regarding the adoption or 

termination of non-Rule 10b5-1 trading arrangements. In response to the concerns expressed by 

some commenters that the term “non-Rule 10b5-1 trading arrangements” was confusing and 

overly broad,235 we are adopting a definition of this term to clarify the types of pre-planned 

trading arrangements that should be disclosed under Item 408(a). To ensure that market 

participants are familiar with how to apply this concept, the definition we adopt accords with the 

requirements of the Rule 10b5-1 affirmative defense that the Commission adopted in 2000. 

                                                 

235  See, e.g., letter from Sullivan. 



79 

Under the final rule, a trading arrangement with respect to a director or “officer” (as defined in 

Rule 16a-1(f)) would be a “non-Rule 10b5-1 trading arrangement” where the director or officer 

asserts that, at a time when they were not aware of material nonpublic information about the 

security or the issuer of the security, they  

 adopted a written arrangement for trading the securities; and 

 The  trading arrangement: 

o Specified the amount of securities to be purchased or sold and the price at which 

and the date on which the securities were to be subsequently purchased or sold; 

o Included a written formula or algorithm, or computer program, for determining 

the amount of securities to be purchased or sold and the price at which the 

securities were to be purchased or sold; or 

o Did not permit the covered person to exercise any subsequent influence over how, 

when, or whether to effect purchases or sales; provided, in addition, that any other 

person who, pursuant to the trading arrangement did exercise such influence must 

not have been aware of material nonpublic information when doing so. 

  In adopting this requirement, we recognize that Rule 10b5-1 provides affirmative 

defenses, but that corporate insiders may assert other defenses to liability under Section 10(b). 

Absent this disclosure requirement, directors and officers may be more likely to choose to trade 

in reliance on alternative defenses to liability other than this affirmative defense in order to avoid 

the disclosure requirements for Rule 10b5-1 plans, as well as avoiding the other requirements of 

the affirmative defense. Further, we believe these disclosures would be useful to investors for 

largely the same reasons that disclosure of plans that fully satisfy Rule 10b5-1 is useful: they 

provide important context about how insiders use their trading plans, such as in the case where 



80 

an insider cancels a plan close in time to the release of material nonpublic information. We 

therefore disagree with commenters who assert this information would not be useful to investors.  

 At this time, we are not adopting the proposal to require corresponding disclosure 

regarding the use of trading arrangements by the issuer. In light of the various comments we 

received on this proposal,236 we believe that further consideration of potential application of the 

disclosure requirement for purchases of equity securities by an issuer is warranted. We are also 

declining to extend disclosure obligations to plans adopted by insiders other than officers and 

directors, as suggested by some commenters, because we have concluded that collecting such 

information could be significantly burdensome for issuers, and because we think that granular 

disclosure about the adoption, termination, modification, and material terms of such plans is 

likely to be less important to investors than plans adopted by directors and officers. 

 Finally, we are not exempting SRCs from the disclosure requirements, as recommended 

by a commenter.237 While we are aware of the potential for a disproportionate impact on SRCs, 

we disagree that corporate insiders at SRCs are less likely to engage in the types of trading with 

which we are concerned. In our view, stock ownership by corporate insiders is common at SRCs, 

and exempting SRCs from this disclosure requirement would deprive investors in those issuers 

of material information about the use, and potential abuse, of Rule 10b5-1 plans and non-Rule 

10b5-1 trading arrangements by an SRC’s officers or directors. 

2. Disclosure of Insider Trading Policies and Procedures  

 a. Proposed Amendments 

 The Commission proposed new Item 408(b) of Regulation S-K, which would require 

                                                 

236  See, e.g., letters from Cravath and Simpson. 

237  See supra note 230.81 

registrants to: 

 Disclose whether the registrant has adopted insider trading policies and procedures 

governing the purchase, sale, and other dispositions of the registrant’s securities by 

directors, officers, and employees or the registrant itself that are reasonably designed 

to promote compliance with insider trading laws, rules, and regulations, and any 

listing standards applicable to the registrant. If the registrant has not adopted such 

insider trading policies and procedures, explain why it has not done so; and  

 If the registrant has adopted insider trading policies and procedures, disclose such 

policies and procedures.  

These disclosures would be required in a registrant’s annual reports on Form 10-K and proxy and 

information statements on Schedules 14A and 14C.238 Foreign private issuers (“FPIs”) would 

also be required to provide analogous disclosure in their annual reports pursuant to a new Item 

16J in Form 20-F.  

 In the Proposing Release, the Commission stated that well-designed policies and 

procedures that address the potential misuse of material nonpublic information can play an 

important role in deterring and preventing trading on the basis of material nonpublic information. 

Specific disclosures concerning registrants’ insider trading policies and procedures would benefit 

investors by enabling them to assess registrants’ corporate governance practices and to evaluate 

the extent to which those policies and procedures protect investors from the misuse of material 

nonpublic information.  

                                                 

238  Item 1 of Schedule 14C requires that a registrant furnish the information called for by all of the items of 

Schedule 14A (other than Items 1(c), 2, 4 and 5) which would be applicable to any matter to be acted upon at 

the meeting if proxies were to be solicited in connection with the meeting. 



82 

 Item 406 of Regulation S-K requires a registrant to disclose whether it has adopted a code 

of ethics that applies to its principal executive officer, chief financial officer, and other 

appropriate executives and, if it has not adopted such a code, to state why it has not done so.239 

Many registrants also are required to maintain codes of ethics or conduct under exchange listing 

standards.240 These codes may contain specific policies and restrictions that address insider 

trading.241 Apart from these codes of ethics or conduct, some registrants have other policies and 

procedures specifically addressing insider trading. The Commission structured the proposed 

amendments to provide investors with comprehensive information regarding a registrant’s 

insider trading policies and procedures to enable investors to better assess the manner in which 

the registrant promotes compliance with insider trading laws and protects material nonpublic 

information from misuse.  

 The Commission recognized that insider trading policies and procedures may vary from 

issuer to issuer and that decisions as to specific provisions of the policies and procedures are best 

left to the issuer. Therefore, the proposed amendments did not specify the information that a 

registrant would be required to provide regarding its insider trading policies and procedures.  

 b. Comments on the Proposed Amendments 

                                                 

239  17 CFR 229.406; see also Section 406 of the Sarbanes-Oxley Act of 2002 (“SOX”) [15 U.S.C. 7264]. 

240  See, e.g., NYSE Listed Company Manual Section 303A.10 (stating in relevant part that every NYSE “listed 

company should proactively promote compliance with laws, rules and regulations, including insider trading 

laws” and that “[i]nsider trading is both unethical and illegal, and should be dealt with decisively”); see also 

NASDAQ Listing Rule 5610 (requiring every Nasdaq listed company to adopt a code of conduct that complies 

with the definition of a “code of ethics” set out in SOX Section 406 (c) and that applies to all directors, officers, 

and employees). 

241  Insider trading policies and procedures may be part of the standards that are reasonably necessary to promote:  

honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between 

personal and professional relationships; full, fair, accurate, timely, and understandable disclosure in the periodic 

reports required to be filed by the issuer; and compliance with applicable governmental rules and regulations.  

See 15 U.S.C. 7264(c); see also supra Section I. 



83 

 Commenters were divided over disclosure of a registrant’s insider trading policies and 

procedures. Several commenters generally supported the proposed disclosure.242 One of these 

commenters asserted that this disclosure would improve transparency for investors and 

potentially create incentives for corporate boards and management teams to scrutinize the 

issuer’s “corporate hygiene” regarding material nonpublic information and insider trading.243 

Other commenters, however, asserted that the proposed disclosures would not meaningfully 

benefit investors, or that they would not be material.244 Another commenter expressed concern 

that requiring this disclosure in both annual reports and proxy statements would create 

administrative burdens on issuers by requiring them to craft additional disclosure for two 

separate compliance documents.245 

 Several commenters recommended modifications to the proposal. For example, several 

commenters recommended that the Commission should provide flexibility and allow issuers to 

post their insider trading policies and procedures on their website and direct readers to the 

posting in their annual report on Form 10-K rather than disclosing such policies in the Form 10-

K, similar to the existing disclosure requirements for an issuer’s code of ethics under Item 

406(c)(2) of Regulation S-K.246 Another commenter similarly recommended that the final rules 

should allow issuers to post their insider trading policies and procedures on their website or file 

their insider trading policy as an exhibit to the annual report to satisfy this disclosure 

                                                 

242  See, e.g., letters from Better Markets, BrilLiquid, CO PERA, CII, ICGN, NASAA, O’Reilly, and Sullivan. 

243  See letter from NASAA. 

244  See, e.g., letters from Davis Polk, Home Depot, NAM, and Simpson. 

245  See letter from Dow. 

246  See, e.g., letters from Cravath, Fenwick, Home Depot, and Shearman. 



84 

requirement.247 A few commenters suggested that the final rule should use the word “describe” 

rather than “disclose” to elicit disclosure that is consistent in tone and detail with the other 

Regulation S-K disclosure requirements of the proxy statement or the annual report.248 

 Finally, several commenters recommended that the Commission exempt FPIs from these 

disclosure requirements.249 These commenters contended that FPIs are already subject to home 

country corporate governance disclosure requirements, and that the disclosure requirement could 

function as an implicit requirement that FPIs adopt insider trading policies. 

 c. Final Rule 

We are adopting new Item 408(b) and new Item 16J with certain modifications in 

response to comments. Under the final rule,250 registrants will be required to disclose whether 

they have adopted insider trading policies and procedures governing the purchase, sale, and other 

dispositions of their securities by directors, officers, and employees, or the registrant itself that 

are reasonably designed to promote compliance with insider trading laws, rules, and regulations, 

and any listing standards applicable to the registrant. If a registrant has not adopted such insider 

trading policies and procedures, it must explain why it has not done so. These disclosures will be 

required in annual reports on Form 10-K and proxy and information statements on Schedules 

14A and 14C. Pursuant to new Item 16J in Form 20-F, FPIs will be required to provide 

                                                 

247  See letter from Dow. 

248  See, e.g., letters from Davis Polk, and SIFMA 2. 

249  See, e.g., letters from Cravath, Jones Day, SIFMA 2, and Sullivan. 

250  While the Proposing Release stated that proposed Item 408(b)(1) would include insider trading policies and 

procedures governing the purchase, sale, and/or other dispositions of the registrant’s securities by directors, 

officers and employees or the registrant itself, the language “or the registrant itself” was inadvertently omitted 

from the proposed regulatory text. See Proposing Release, supra note 22, at 8695, 8712, and 8728. We have 

corrected this omission in the final rules, which now include the language “or the registrant itself.” See Item 

408(b)(1). 



85 

analogous disclosure in their annual reports on that form. We disagree that requiring this 

disclosure in both annual reports and proxy or information statements would impose an 

unreasonable burden on registrants by requiring them to prepare additional disclosures for two 

documents as suggested by a commenter.251 In this regard, we note that under General 

Instruction G to Form 10-K, a registrant can incorporate by reference the information required by 

Item 408(b) from a definitive proxy or information statement involving the election of directors, 

if the proxy or information statement is filed within 120 days of the end of the fiscal year.252 

 In a modification of the proposal and in response to comments,253 the final rules do not 

require disclosure of the registrant’s policies and procedures within the body of the annual report 

or proxy/information statement. Instead, we are adopting amendments to Item 601 of Regulation 

S-K and Form 20-F to require issuers to file a copy of their insider trading policies and 

procedures as an exhibit to Forms 10-K and 20-F, respectively. We considered permitting 

registrants to post their policies and procedures on their website in lieu of providing disclosure in 

the filing, as suggested by some commenters,254 similar to Item 406(c)(2), which allows a 

registrant to post its codes of ethics on its website and disclose the internet address in its annual 

report to satisfy the code of ethics disclosure requirement. Requiring registrants to file their 

insider trading policies and procedures as an exhibit would make the document available online 

through our Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) system. Documents 

that are filed as exhibits to registration statements and periodic reports must be hyperlinked from 

                                                 

251  See supra note 245. 

252  See Note 2 to General Instruction G(2) to Form 10-K.  

253  See, e.g., letters from Davis Polk, Dow, and SIFMA 2 (all recommending that the final rule not require full 

disclosure of the policies and procedures within the body of the filing). 

254  See supra note 246. 



86 

the exhibit index of the document,255 which facilitates investor access to the exhibit.   

EDGAR allows active hyperlinks to documents that are filed on EDGAR but does not 

allow hyperlinks to non-EDGAR documents.256 We therefore believe that the approach of 

hyperlinking to an exhibit filed on EDGAR would facilitate better access for investors as 

compared to permitting registrants to post their insider trading policies and procedures on their 

website and provide a web address (without a hyperlink) in their annual report. If all of the 

registrant’s insider trading policies and procedures are included in its code of ethics (as defined 

in Item 406(b)) and the code of ethics is filed as an exhibit pursuant to Item 406(c)(1), a 

hyperlink to that exhibit accompanying the registrant’s disclosure as to whether it has insider 

trading policies and procedures would satisfy this component of the disclosure requirement. 

We disagree with commenters who suggested that the disclosure regarding these policies 

and procedures would not be material and useful information to investors. The thoroughness and 

precision of such policies and procedures may help investors to understand whether they will be 

successfully implemented, even if any single detail taken on its own may not otherwise be 

material. An investor might reasonably conclude that an issuer adopting a policy generally 

prohibiting insider trading, but without disclosing how it prevents the unlawful communication 

of and trading on material nonpublic information, provides fewer such assurances to investors 

than an issuer that has developed and disclosed more particular and thorough policies and 

procedures. As noted in the Proposing Release, investors may find useful, to the extent it is 

included in the issuer’s relevant policies and procedures, information on the issuer’s process for 

analyzing whether directors, officers, employees, or the issuer itself when conducting an open-

                                                 

255  See 17 CFR 229.601(a)(2) and 17 CFR 232.102(d). 

256  See 17 CFR 232.105(b). 



87 

market share repurchase have material nonpublic information; the issuer’s process for 

documenting such analyses and approving requests to purchase or sell its securities whether 

through Rule 10b5-1 plans or otherwise; and/or how the issuer enforces compliance with any 

such policies and procedures it may have. Investors may also use this information to assess the 

strengths and weaknesses of particular elements of these policies and procedures, which would 

help show how well the issuer protects its material nonpublic information from being misused in 

unlawful communications and securities trading, and how its protections compare with its 

competitors. Furthermore, the disclosure under Item 408 and Item 16J would address not only 

policies and procedures that apply to the purchase and sale of the registrant’s securities, but also 

other dispositions of the registrant’s securities where material nonpublic information could be 

misused, such as through gifts of such securities.257 

 In extending this disclosure requirement to FPIs, we are cognizant of the concerns raised 

by commenters, such as the concern that some issuers may already be subject to home-country 

governance disclosure and that additional disclosure may pressure an FPI to adopt additional 

measures not required by its home jurisdiction. To the extent that an FPI already discloses 

similar information under its home country rules, the additional burden imposed by the final rule 

may be minimal. As we have discussed, information about the efforts an issuer undertakes to 

prevent misuse of its material nonpublic information is likely to be important to investors, 

regardless of whether it is a domestic issuer or an FPI. Indeed, we are aware that one reason FPIs 

                                                 

257  The Exchange Act does not require that a “sale” of securities be for value, and instead provides that the “terms 

‘sale’ or ‘sell’ each include any contract to sell or otherwise dispose of.”  Compare Exchange Act Section 

3(a)(14) [15 U.S.C. 78c(a)(14)], with Securities Act Section 2(a)(3) [15 U.S.C. 77b(a)(3)] (“[T]he terms ‘sale’ 

or ‘sell’ shall include every contract of sale or disposition of a security or interest in a security, for value.”). For 

example, a donor of securities violates Section 10(b) if the donor gifts a security of an issuer in fraudulent 

breach of a duty of trust and confidence when the donor was aware of material nonpublic information about the 

security or issuer, and knew or was reckless in not knowing that the donee would sell the securities prior to the 

disclosure of such information. The affirmative defense under Rule 10b5-1(c)(1) is available for planned 

securities gifts. 



88 

register in the United States is to provide greater transparency and assurances of the reliability of 

their disclosures to investors.  

 Finally, the disclosures that are required in Forms 10-K and 20-F discussed in this section 

as well as those discussed in Section II.B.1 will be subject to the certifications required by 

Section 302 of the Sarbanes-Oxley Act of 2002.258 Section 302 requires an issuer’s principal 

executive officer and principal financial officer to certify, among other things, that based on their 

knowledge, the Form 10-K or Form 20-F that they have signed does not contain untrue 

statements of material facts or omit to state material facts necessary to make the statements 

made, in light of the circumstances under which such statements were made, not misleading with 

respect to the periods covered by the reports.259 In making these certifications, principal 

executive and principal financial officers attest to the accuracy of the statements in their Form 

10-K or Form 20-F.260 Thus, principal executive and principal financial officers may be liable 

under Rule 13a-14 if they certify as to a fact “about which [they are] ignorant or which [they] 

know[] is false.”261   

3. Identification of Rule 10b5-1 and non-Rule 10b5-1 Transactions on Forms 4 and 5 

 

 a. Proposed Amendments 

 Section 16(a) of the Exchange Act provides that every person who beneficially owns, 

                                                 

258  Pub. L. 107-204, 116 Stat. 745 (2002). 

259  In effectuating this statutory responsibility, the principal executive and financial officers of an issuer may be 

aided by a written representation (such as a sub-certification) from the issuer’s principal legal or compliance 

officer (or person performing similar functions) that, based on a reasonable review, they have determined the 

issuer’s insider trading practices and procedures comport with what the issuer is disclosing about them in its 

periodic reports. However, it would not be reasonable for a principal executive or financial officer to rely on 

such a representation if they are aware of information that is inconsistent with, or raises doubts about the 

reliability of, the representation. 

260  See, e.g., SEC v. Jensen, 835 F.3d 1100, 1112-13 (9th Cir. 2016); see also GAF Corp. v. Milstein, 453 F.2d 709, 

720 (2d Cir. 1971) (“the obligation to file truthful statements implicit in the obligation to file”) ((emphasis in 

original)). 

261  Id. at 1113. 



89 

directly or indirectly, more than 10 percent of any class of equity security (other than an 

exempted security) registered pursuant to Exchange Act Section 12, or who is an officer or 

director of the issuer of such security, shall file with the Commission an initial report disclosing 

the amount of all equity securities of such issuer of which the insider is the beneficial owner, and 

a subsequent transaction report to disclose any changes in beneficial ownership. Section 16 was 

designed to provide the public with information on securities transactions and holdings of 

corporate officers, directors, and principal shareholders, and to deter those individuals from 

seeking to profit from short-term trading in the securities of their corporations while in 

possession of material nonpublic information.262  

 Persons subject to Section 16 reporting must disclose changes in their beneficial 

ownership on Form 4263 or 5,264 which are publicly available on EDGAR. In December 2020, the 

Commission proposed, among other things, amendments to Form 4 and Form 5265 to add a 

checkbox to these forms that would permit filers, at their option, to indicate whether a 

transaction reported on the form was made pursuant to a contract, instruction, or written trading 

plan for the purchase or sale of equity securities of the issuer that satisfies the conditions of Rule 

10b5-1(c).266 In response to this proposal, the Commission received feedback from several 

                                                 

262  See Ownership Reports and Trading By Officers, Directors and Principal Security Holders, Release No. 34-

28869 (Feb. 8, 1991) [56 FR 7242 (Feb. 21, 1991)]. 

263  A person subject to Section 16 must report specified changes in beneficial ownership on Form 4 before the end 

of the second business day following the date of execution of the transaction. See 17 CFR 240.16a-3(g). 

264  Form 5 is a year-end report to be used by a person subject to Section 16 to disclose certain transactions that 

were exempt from Section 16(b), and transactions and holdings that were required to be reported during the 

fiscal year, but were not. See 17 CFR 240.16a-3(f). 

265  Form 5 is a year-end report to be used by any person who was an officer, director or a 10% beneficial owner 

during any portion of the issuer’s fiscal year to disclose transactions and holdings that are exempt from Section 

16(b) or that were required to be reported during the fiscal year, but were not. 

266  See Rule 144 Holding Period and Form 144 Filings, Release No. 33-10911 (Dec. 22, 2020) [86 FR 5063 (Jan. 

19, 2021)] (“December 2020 Proposing Release”).  



90 

commenters who asserted, based on analyses of sales of securities executed under Rule 10b5-1 

plans, that many of the surveyed transactions may have been made on the basis of material 

nonpublic information.267 These commenters recommended that the proposed Rule 10b5-1 

checkbox disclosure be mandatory on Forms 4 and 5 because such disclosure would help 

investors and the public better discern whether Rule 10b5-1 plans are being used to engage in 

opportunistic trading on the basis of material nonpublic information.268  

 In consideration of this feedback, the Commission proposed to add a Rule 10b5-1(c) 

checkbox as a mandatory disclosure requirement on Forms 4 and 5. A Form 4 or 5 filer would be 

required to indicate via the checkbox whether a transaction reported on that form was made 

pursuant to Rule 10b5-1(c). Filers would also be required to provide the date of adoption of the 

Rule 10b5-1 plan, and would have the option to provide additional relevant information about 

the reported transaction. Requiring this disclosure on Forms 4 and 5 would provide greater 

transparency around the use of Rule 10b5-1 plans and would be consistent with the primary 

purpose of Section 16.269 It also would provide information that could be used by registrants to 

comply with their Item 408 disclosure obligations. 

 In addition, the Commission proposed to add a second, optional checkbox to both of 

Forms 4 and 5. This optional checkbox would allow a filer to indicate whether a transaction 

reported on the form was made pursuant to a pre-planned contract, instruction, or written plan for 

the purchase or sale of equity securities of the issuer that does not satisfy the conditions of Rule 

10b5-1(c).  

                                                 

267  See letters from Council of Institutional Investors (dated Mar. 18, 2021), Alan Jagolinzer (dated Mar. 10, 2021), 

and David Larcker et al. (dated Mar. 10, 2021), available at https://www.sec.gov/comments/s7-24-

20/s72420.htm. 

268  Id.  

269  See S. Rep. No. 1455, 73d Cong., 2d Sess. 55 (1934). 

https://www.sec.gov/comments/s7-24-20/s72420.htm
https://www.sec.gov/comments/s7-24-20/s72420.htm


91 

 b. Comments on the Proposed Amendments 

 Most of the commenters who discussed this matter generally supported the proposal to 

add a mandatory checkbox on Forms 4 and 5 for the disclosure of trades under a Rule 10b5-1 

trading arrangement.270 For example, some of these commenters indicated that these checkboxes 

would provide useful information to investors and other market participants and may help 

prevent misuse of Rule 10b5-1 plans.271 Another commenter, however, expressed the view that 

these checkboxes likely would not provide useful information if the Commission adopted the 

proposed cooling-off period.272  

 In addition, one of the commenters that generally supported the proposal did so subject to 

a recommended change. This commenter urged the Commission to amend the Rule 10b5-1 

checkbox to state “whether a transaction was intended to satisfy” the Rule 10b5-1 affirmative 

defense rather than whether a transaction “was made” pursuant to the affirmative defense.273 This 

commenter was concerned that, for a number of reasons, it could be difficult for a reporting 

person to definitively affirm whether a transaction was in fact made pursuant to the Rule 10b5-1 

affirmative defense. This commenter also stated that using “intended to satisfy” would be 

consistent with the Commission’s approach in other proposed rules, such as proposed Item 

703(c)(2)(iii) of Regulation S-K.274 

                                                 

270  See, e.g., letters from ACCO, CII, Cravath, and Quinn.  

271  See letters from CII and Quinn. 

272  See letter from Cravath. 

273  See letter from Sullivan. 

274  In a separate release, the Commission proposed amendments to Item 703(c)(2)(iii) of Regulation S-K to require 

disclosure of a plan that “is intended to satisfy” the conditions of Rule 10b5-1(c). See Share Repurchase 

Disclosure Modernization, Release No 34-93783 (Dec. 15, 2021) [87 FR 8443 (Feb. 1, 2022)] (proposing 

amendments to modernize and improve disclosures about repurchases of an issuer’s equity securities that are 

registered under the Exchange Act). 



92 

 A few commenters opposed the optional non-Rule 10b5-1 checkbox on Forms 4 and 5.275 

These commenters indicated that this checkbox would not provide any valuable information to 

investors, the Commission or other market participants because the details of such transactions 

are already provided in Forms 4 and 5. 

 c. Final Amendment 

 After considering these comments, we are adopting the mandatory Rule 10b5-1 

checkboxes to Forms 4 and 5 as proposed with one modification. In response to the concerns 

expressed by a commenter that the proposed checkbox language would have required a filer to 

definitively state that the reported transaction was in fact made pursuant to the Rule 10b5-1 

affirmative defense,276 we have revised the text accompanying the checkboxes to state that a 

reported transaction is pursuant to a plan that is “intended to satisfy the affirmative defense 

conditions” of Rule 10b5-1(c).  

 This checkbox will help investors and the public better understand how trading plans that 

rely on the revised Rule 10b5-1(c) affirmative defense are being used by corporate insiders, 

including whether they are being used to engage in opportunistic trading. We disagree with the 

commenter who indicated that the checkbox would not provide useful information to investors in 

light of the cooling-off period that we are adopting for officers and directors. The checkbox 

provides transparency into the use of Rule 10b5-1 plans to help deter potential misuse of those 

plans, which would complement the cooling-off period. For example, the checkbox might be 

useful to investors in combination with disclosures regarding the adoption and termination of 

Rule 10b5-1 plans as it may help them to identify instances in which an officer or director may 

                                                 

275  See, e.g., letters from Cravath and Cleary. 

276  See letter from Sullivan. 



93 

have opportunistically cancelled a trade or terminated a plan. Moreover, the potential effects of 

such a disclosure could discourage such opportunistic cancellations. 

 Finally, we are not adopting the optional checkbox that would allow a filer to indicate 

whether a transaction reported on the form was made pursuant to a non-Rule 10b5-1 trading 

arrangement. We are persuaded by commenters who stated that this checkbox would not provide 

investors and other market participants with useful information because the details of the 

transaction will already be disclosed in the form. 

C. Disclosure Regarding Option Grants and Similar Equity Instruments Made 

Close in Time to the Release of Material Nonpublic Information 

 

 1. Proposed Amendments 

 Since the enactment of the Securities Act and the Exchange Act, the Commission has 

sought to enhance its rules regarding the disclosure of executive and director compensation and 

to improve the presentation of this information to investors.277 One area of focus for the 

Commission has been disclosure related to equity-based compensation. Many companies use 

stock options as a form of compensation for their employees and executives.278 In a simple stock 

option award, a company may grant an employee the right to purchase a specified number of 

shares of the company’s stock at a specified price, called the exercise price, which is typically set 

as the fair market value of the company’s stock on the grant date. Stock options with exercise 

prices at or above the fair market value of the underlying stock are designed to motivate the 

recipient to work to increase company value, because the option holder would only benefit if the 

                                                 

277  See, e.g., Executive Compensation and Related Person Disclosure, Release No. 33-8732A (Aug. 29, 2006) [71 

FR 53158 (Sept. 8, 2006)] (hereinafter “2006 Executive Compensation Release”) at 53160 at n. 45; Proxy 

Disclosure Enhancements, Release No. 33-9089 (Dec. 16, 2009) [74 FR 68334 (Dec. 24, 2009)]. 

278  The term “option” includes stock options, SARs and similar instruments with option-like features. See 17 CFR 

229.402(a)(6). 



94 

company’s stock price exceeds the exercise price at the time of exercise.279 Alternatively, if a 

company is aware of material nonpublic information that is likely to decrease its stock price, it 

may decide to delay a planned option award until after the release of such information (a practice 

commonly referred to as “bullet-dodging”).280  

 In 2006, the Commission revised its executive compensation disclosure rules to, among 

other things, provide investors with a more complete picture of compensation paid to principal 

executive officers, principal financial officers, and the other highest paid executive officers and 

directors.281 In the 2006 Executive Compensation Release, the Commission stated that under the 

principles-based compensation disclosure requirements of Item 402 of Regulation S-K, 

registrants may be required to disclose in their Compensation Discussion and Analysis 

(“CD&A”) information about the timing of option grants in close proximity to the release of 

material nonpublic information by the company.282 Such disclosure should include, for example, 

whether a company is aware of material nonpublic information that is likely to result in an 

increase of its stock price, such as a product development announcement or positive earnings, 

and grants stock options immediately before the release of this information. Timing option grants 

to occur immediately before the release of positive material nonpublic information (a practice 

commonly referred to as “spring-loading”) can benefit executives with an option award that will 

                                                 

279  When the exercise price for an option is less than the fair market value of the underlying security, the option is 

“in the money.” If the exercise price and fair market value are the same, the option is “at the money.” If the 

exercise price is greater than the fair market value, the option is “out of the money.”  

280  See Allan Horwich, The Legality of Opportunistically Timing Public Company Disclosures in the Context of 

SEC Rule 10b5-1, 71 Bus. Law. 1113, 1143 (2016) (noting that “bullet-dodging” occurs when a board delays 

the grant of an option until adverse material nonpublic information known to the board is disclosed, which 

reduces the market price and the option exercise price that is set at the time of the grant). 

281  2006 Executive Compensation Release, supra note 277. 

282  See 17 CFR 229.402(b)(2)(iv) and 2006 Executive Compensation Release, supra note 277, at 53163-4. 



95 

likely be in-the-money as soon as the material nonpublic information is made public.283  

 In the 2006 Executive Compensation Release, the Commission noted that the existence of 

a program, plan, or practice to select option grant dates for executive officers in coordination 

with the release of material nonpublic information would be material to investors and should be 

fully disclosed.284  

 In the Proposing Release, the Commission expressed concern that our existing disclosure 

requirements do not provide investors with adequate information regarding an issuer’s policies 

and practices on stock option awards timed to precede or follow the release of material nonpublic 

information. The Commission noted that, under the current executive compensation disclosure 

rules, compensation-related equity interests (including options, restricted stock, and similar 

grants) are required to be presented in a tabular format and accompanied by appropriate narrative 

disclosure necessary for an understanding of the information presented in a table. Option grants 

that are spring-loaded or bullet-dodging are not required to be separately identified in these 

tables. Investors therefore may not have a clear picture of the effect of an option award that is 

made close in time to the release of material nonpublic information on the executives’ or 

directors’ compensation and on the company’s financial statements.  Understanding that issuers 

may have reasons for granting these types of options, but that increased transparency may be 

warranted, the Commission proposed amendments that would require registrants to disclose in a 

new table any option awards to a “named executive officer”285 (“NEO”) or director that is made 

                                                 

283 See Lucian A. Bebchuk & Jesse M. Fried, Paying for Long-Term Performance, 158 U. PA. L. REV. 1915, 1937-

39 & n. 63 (2010) (noting that the practice of spring-loading may also disguise an in-the-money option award as 

having been granted at-the-money).  

284  2006 Executive Compensation Release, supra note 277, at 53163. 

285  Named executive officers include all individuals serving as the registrant’s Principal Executive Officer (“PEO”) 

or Principal Financial Officer (“PFO”) during the last completed fiscal year, the registrant’s three most highly 



96 

close in time to the release of material nonpublic information such as an earnings announcement.  

Specifically, to identify if any such timed options are granted, the Commission proposed 

adding a new paragraph to Item 402 of Regulation S-K that would require: (1) tabular disclosure 

of each award of stock options, SARs, or similar option-like instruments (i.e. the grant date, 

number of securities underlying the award, the exercise price of the award, and the grant date fair 

value of the award) granted within 14 calendar days before or after the filing of a periodic report, 

an issuer share repurchase, or the filing or furnishing of a current report on Form 8-K that 

discloses material nonpublic information (including earnings information); (2) the market value 

of the underlying securities the trading day before disclosure of the material nonpublic 

information; and (3) the market value of the underlying securities one trading day after 

disclosure of material nonpublic information.  

 The proposed 14-day window was designed to cover the period that an issuer would be 

aware of material nonpublic information at the time that its board of directors grants these 

awards. The Commission noted that many issuers also voluntarily communicate material 

nonpublic information regarding their results of operations or financial condition for a completed 

fiscal quarter or annual period through an earnings release.286 After completion of a fiscal 

quarter, a company’s board of directors will usually meet a week or two before the earnings 

release.287 During this period, the board would likely be aware of material nonpublic information 

that could affect the price of the company’s stock.  

                                                 
compensated officers other than the PEO and PFO who were serving as executive officers at the end of the last 

completed fiscal year, and up to two additional individuals for whom disclosure would have been provided but 

for the fact that the individual was not serving as an executive officer at fiscal year-end. See Item 402(a)(3) of 

Regulation S-K. 

286  The staff estimates that approximately 63% of the Form 10-Qs filed with the Commission in calendar year 2017 

were accompanied by a prior or concurrent earnings release by the issuer. 

287  While some companies provide earnings releases in advance of the corresponding Form 10-Q filings, many 

companies also issue earnings releases concurrently with their Form 10-Q filings. 



97 

 To further address these concerns, the Commission also proposed to require narrative 

disclosure about an issuer’s policies and practices regarding the timing of grants of these awards 

in relation to the disclosure of material nonpublic information by the issuer, including how the 

board determines when to grant such awards and whether, and if so, how, the board or 

compensation committee takes material nonpublic information into account when determining 

the timing and terms of an award; and whether the issuer has timed the disclosure of material 

nonpublic information for the purpose of affecting the value of executive compensation. For 

issuers that are subject to the CD&A, the proposed narrative disclosure could be included in the 

CD&A.  

 Overall, the Commission intended the proposed amendments to provide shareholders 

with a full and complete picture of any spring-loaded or bullet-dodging option grants during the 

fiscal year. The Commission found it important for shareholders to understand company 

practices with respect to these types of grants as they consider their say-on-pay votes, and 

director elections. Accordingly, the Commission proposed to require this disclosure in annual 

reports on Form 10-K,288 as well as in proxy statements and information statements related to the 

election of directors, shareholder approval of new compensation plans, and solicitations of 

advisory votes to approve executive compensation.289  

 Under the proposal, SRCs and emerging growth companies (“EGCs”)290 would be subject 

                                                 

288  The executive compensation disclosure requirements in Part III of Form 10-K may be incorporated by reference 

from a proxy or information statement involving the election of directors, if filed within 120 days of the end of 

the fiscal year. See Note 3 to General Instruction G(3) to Form 10-K. 

289  Exchange Act Rule 14a-21 [17 CFR 240.14a-21] requires, among other things, that companies soliciting 

proxies for an annual or other meeting of shareholders at which directors will be elected include a separate 

resolution subject to a shareholder advisory vote to approve the compensation of named executive officers. 

290  An EGC is defined as a company that has total annual gross revenues of less than $1.235 billion during its most 

recently completed fiscal year and, as of Dec. 8, 2011, had not sold common equity securities under a 

registration statement. A company continues to be an EGC for the first five fiscal years after it completes an 



98 

to the new disclosure requirement. However, consistent with the scaled approach to their 

executive compensation disclosure,291 they would be permitted to limit their disclosures about 

specific option awards to the PEO, the two most highly compensated executive officers other 

than the PEO at fiscal year-end, and up to two additional individuals who would have been the 

most highly compensated but for not serving as executive officers at fiscal year-end.292  

 2. Comments on the Proposed Amendments 

 Many commenters supported the proposed tabular and narrative disclosures.293 Some of 

these commenters generally indicated that the proposed disclosures would increase investor 

confidence and might deter or discourage the use of spring-loaded and bullet-dodging option 

grants.294 For example, they agreed that these disclosures would help investors make informed 

choices when voting on director elections and on executive pay and other compensation matters. 

Commenters also expressed the view that the proposed disclosures would improve investor 

confidence by indicating that such awards are appropriately tied to long-term performance 

targets295 and, similarly, giving insight into practices that could appear similar to insider trading, 

which would undermine the perceived fairness and integrity of the markets.296 

 A number of commenters, however, did not support this proposal.297 Many of these 

                                                 
IPO, unless one of the following occurs: Its total annual gross revenues are $1.235 billion or more; it has issued 

more than $1 billion in non-convertible debt in the past three years; or it becomes a “large accelerated filer,” as 

defined in Exchange Act Rule 12b-2. See Securities Act Rule 405; Exchange Act Rule 12b-2. 

291 See Item 402(l) of Regulation S-K. 

292  See Item 402(m)(2) of Regulation S-K. 

293  See, e.g., letters from ACCO, AFL-CIO, ICGN, NASAA, O’Reilly, and Public Citizen. 

294  See, e.g., letters from ICGN and NASAA. 

295  See letter from ICGN. 

296  See letter from NASAA. 

297  See, e.g., letters from ABA, Chevron, Cleary, Cravath, Davis Polk, DLA, Dow, Home Depot, FedEx, Fenwick, 

Jones Day, MD Bar, NAM, Paul Weiss, Quest, SCG, Shearman, Sullivan, and Wilson Sonsini, . 



99 

commenters contended that the proposed disclosure requirements were unnecessary because the 

information is already available to the public through current executive compensation disclosure 

requirements and Section 16 reports, such as Form 4.298 Several commenters contended that the 

proposed disclosures could be misleading as they could suggest a causal link between these 

awards and the release of material nonpublic information where none exists.299 

 In particular, many commenters were opposed to the proposed tabular disclosure of each 

option award granted within 14-calendar days before or after a triggering event.300 Several 

commenters contended that the proposed disclosure would capture a large number of ordinary-

course equity award grants and would not help investors distinguish spring-loaded or bullet-

dodging grants from routine option grants.301 Some of these commenters asserted that the timing 

of equity award grants is typically based on a meeting schedule for directors that is established 

several months in advance without consideration of disclosure of material information.302 

 A few commenters that opposed the tabular disclosure suggested modifying the 

requirements if adopted, to better ensure that the disclosure does not unduly encompass routine 

awards. A few commenters suggested shortening the disclosure window from 14 days,303 to a 

shorter period, such as to three or five days.304 Other commenters recommended that the 

Commission narrow the triggering events for this disclosure. Some of these commenters 

suggested that the Commission remove the Form 8-K disclosure trigger or limit it to Forms 8-K 

                                                 

298  See, e.g., letters from Cleary, Cravath, Dow, Fenwick, Home Depot, SCG, Shearman, and Wilson Sonsini. 

299  See, e.g., letters from Dow, FedEx, Home Depot, PNC. 

300  See, e.g., letters from ABA, Davis Polk Cleary, Cravath, Dow, Fenwick, Home Depot, SCG, and Shearman. 

301  See, e.g., letters from Cleary, Cravath, Dow, Fenwick, Home Depot, SCG, Shearman, and Wilson Sonsini. 

302  See, e.g., letters from Cleary, Cravath, Dow, FedEx, Home Depot, and SCG. 

303  See, e.g., letters from Cravath and Davis Polk. 

304  See letter from Cravath. 



100 

reporting an event under Item 1.01305 or Item 2.02306 of the form rather than using a materiality 

standard.307 These commenters argued, among other things, that these reports are more likely to 

impact the price or trading in an issuer’s securities308 and that a more bright-line approach would 

benefit investors by providing them with more consistent and material information while 

removing the potential burden on issuers that making a materiality assessment for each Form 8-K 

may impose.309 One of these commenters also urged the Commission to remove the share 

repurchase trigger or change it to trigger disclosure upon the adoption or announcement of a new 

share repurchase program, rather than any share repurchase transaction.310 This commenter 

asserted that the proposed requirement could pose a substantial burden on issuers without any 

potential benefit to investors as many issuers engage in share repurchases activity regularly and, 

in some instances, daily. 

 In addition, another commenter asserted that the proposed narrative disclosure 

sufficiently addressed the Commission’s concerns regarding spring-loading and bullet-

dodging.311 This commenter expressed the view that disclosure regarding the compensation 

committee’s consideration of whether the issuer has material nonpublic information at the time 

of the grant and how the compensation committee considers the impact of timing and nature of 

corporate disclosures, share buyback announcements, and similar events would sufficiently 

                                                 

305  Item 1.01 requires disclosure of the entry into a material definitive agreement by the registrant. 

306  Item 2.02 requires disclosure of, among other things, a public announcement or release (including any update of 

an earlier announcement or release) disclosing material nonpublic information regarding the registrant’s results 

of operations or financial condition for a completed quarterly or annual fiscal period. 

307  See, e.g., letters from Fenwick and Sullivan. 

308  See letter from Fenwick. 

309  See letter from Sullivan. 

310  Id. 

311  See letter from Dow.101 

address the concerns. 

 Finally, a few commenters contended that these rules are unnecessary because the staff 

guidance of Staff Accounting Bulletin 120312 mitigates disclosure concerns regarding spring-

loaded options.313  

 3. Final Amendments 

 Having considered the comments received, we are adopting Item 402(x) as proposed with 

respect to the narrative disclosure and with several modifications to the tabular disclosure.  

 With respect to the narrative disclosure, as proposed, the final rule will require registrants 

to discuss the registrant’s policies and practices on the timing of awards of stock options, SARs 

and/or similar option-like instruments in relation to the disclosure of material nonpublic 

information by the registrant, including how the board determines when to grant such awards 

(for example, whether such awards are granted on a predetermined schedule); whether, and if so, 

how, the board or compensation committee takes material nonpublic information into account 

when determining the timing and terms of an award, and whether the registrant has timed the 

disclosure of material nonpublic information for the purpose of affecting the value of executive 

compensation.314  

 We disagree with commenters who suggested this narrative disclosure would not provide 

                                                 

312  See Staff Accounting Bulletin No. 120, Release No. SAB 120 (Nov. 24, 2021) [86 FR 68111 (Dec. 1, 2021)] 

(“SAB 120”). In SAB 120, among other topics, the staff provided interpretative guidance for public companies 

to consider regarding the accounting treatment of option awards made when the company possessed material 

nonpublic information. All staff statements, including SAB 120 and any other staff statement cited in this 

release, represent the views of the staff. They are not a rule, regulation, or statement of the Commission. The 

Commission has neither approved nor disapproved their content. These staff statements, like all staff 

statements, have no legal force or effect: they do not alter or amend applicable law, and they create no new or 

additional obligations for any person. 

313  See, e.g., letters from SCG, Cravath, and Jones Day. 

314  Item 402(x)(1) does not require a registrant to adopt policies and practices on the timing of awards of stock 

options, SARs and/or similar option-like instruments if it has not already done so, or to modify any such 

existing policies.  



102 

useful information to investors. While it is true that investors can with some effort identify the 

timing both of awards and earnings announcements, this information would not reveal the extent 

to which a board considered the effects of such timing on its executive compensation practices, 

and may have modified other aspects of the executive’s total compensation to reflect any impact 

that the timing of the award may have had. For similar reasons, we do not agree that the staff 

guidance in SAB 120 sufficiently mitigates disclosure concerns regarding the timing of options 

and similar awards as contended by some commenters. To the contrary, the narrative disclosures 

required by the final rule will increase the mix of information available to investors and better 

inform them of the appropriateness of any adjustments made by the board. 

 In addition, we are adopting the tabular disclosure requirement with several modifications 

in light of comments received. To address concerns that this disclosure may be misleading or 

otherwise overly broad, we have narrowed the disclosure window, with the result that disclosure 

would be required for awards made in the four business days before the filing of a periodic report 

or the filing or furnishing of a current report on Form 8-K that discloses material nonpublic 

information (including earnings information) and ending one business day after a triggering 

event. We have also removed the share repurchase disclosure trigger. In addition, the final rule 

provides that a Form 8-K reporting only the grant of a material new option award under Item 

5.02(e) does not trigger this disclosure. We also combined the last two columns of the proposed 

table that would have required disclosure of the market value of the securities underlying the 

award one trading day before and one trading day after disclosure of material nonpublic 

information into a single column that discloses the percentage change in the market value of the 

securities underlying the award between those dates.  

 The final rules provide that, if, during the last completed fiscal year, stock options, SARs, 



103 

and/or similar option-like instruments were awarded to an NEO within a period starting four 

business days before the filing of a periodic report on Form 10-Q or Form 10-K, or the filing or 

furnishing of a current report on Form 8-K that discloses material nonpublic information 

(including earnings information), other than a current report on Form 8-K disclosing a material 

new option award grant under Item 5.02(e), and ending one business day after a triggering event, 

the issuer must provide the following information concerning each such award for the NEO on 

an aggregated basis in the tabular format set forth in the rule: 

 The name of the NEO; 

 The grant date of the award; 

 The number of securities underlying the award; 

 The per-share exercise price; 

 The grant date fair value of each award computed using the same methodology as 

used for the registrant’s financial statements under generally accepted accounting 

principles; and 

 The percentage change in the market price of the underlying securities between the 

closing market price of the security one trading day prior to and one trading day 

following the disclosure of material nonpublic information. 

The purpose of the new table is to highlight for investors options award grants that may be more 

likely than most to have been made at a time that the board of directors was aware of material 

nonpublic information affecting the value of the award. 

 In a modification from the proposing release, we are requiring that the table include only 

option awards granted in the period beginning four business days preceding a triggering event 

and ending one business day after a triggering event. We agree with commenters that the 



104 

proposed 14-day disclosure window may result in disclosure of many routine awards that are less 

likely to have been affected by material nonpublic information.  To address these concerns, 

similar to the recommendation of one of those commenters to shorten the timeframe to three or 

five days,315 we selected a four-business day period preceding a triggering event because a 

registrant must generally file a Form 8-K within that period of time upon becoming aware of a 

triggering event. It therefore is less likely that the registrant would be able to grant an award 

based upon the board’s awareness of a triggering event more than four business days before the 

filing of a corresponding Form 8-K. We are adopting the same time period for awards preceding 

disclosures on Forms 10-Q and 10-K to make such disclosures readily comparable to those 

triggered by an 8-K filing. In addition, we are requiring disclosure of options awards in the one-

business day period after the filing or furnishing of Forms 8-K, 10-Q, or 10-K because in some 

circumstances the issuer’s share price will not fully reflect the information disclosed immediately 

after disclosure.316 Including post-filing option awards beyond that period might reduce the value 

of the information in the table by including awards that may be less likely to be affected by 

material nonpublic information. 

 In addition, to further ensure that this disclosure covers the types of grants that we are 

concerned with, we have removed the share repurchase triggering event and provided a limited 

exception from the tabular disclosure of option awards based on the filing or furnishing of a 

Form 8-K. We are persuaded by commenters that including awards close in time to any issuer 

share repurchases could result in disclosure of virtually every award, greatly reducing the 

information value of the table. With respect to the Form 8-K trigger, we have created an 

                                                 

315  See letter from Cravath. 

316  See infra Section V.D. 



105 

exception for Item 5.02(e) Forms 8-K that only disclose a material new option award grant 

because we believe including this particular information in the new table would be redundant and 

not informative to investors. We disagree, however, with the commenters that recommended 

removing the Form 8-K trigger or limiting it to Item 1.01 or Item 2.02 Forms 8-K because a 

broad range of Forms 8-K could disclose material information that raises spring-loading 

concerns, not just these types of Forms 8-K. For example, the disclosure of an event under Item 

8.01 of Form 8-K, such as the status of a patent application, may constitute material information 

that could affect the value of an option award.   

 Lastly, we combined the final two columns of the proposed table into a single column 

that requires disclosure of the percentage change in the market value of the securities underlying 

the award between the closing market price of the securities one trading prior to the disclosure of 

material nonpublic information and one trading day following the disclosure of material 

nonpublic information. This change is intended to make it easier for investors to understand the 

impact that spring-loading may have on the potential value realizable by the NEO. 

D. Structured Data Requirements  

 1. Proposed Amendments 

The Commission proposed to require registrants to tag the information specified by 

proposed Items 408 and 402(x) of Regulation S-K, and Item 16J of Form 20-F in Inline XBRL in 

accordance with Rule 405 of Regulation S-T and the EDGAR Filer Manual.317 The proposed 

                                                 

317  This tagging requirement would be implemented by including cross-references to Rule 405 in proposed Item 

408(a)(3), Item 408(b)(3) and Item 402(x), and Item 16J of Form 20-F, and by revising Rule 405(b) to include 

the Item 408(a), 408(b)(1), and Item 402(x) disclosure. In conjunction with the EDGAR Filer Manual, 

Regulation S-T governs the electronic submission of documents filed with the Commission. Rule 405 

specifically governs the scope and manner of disclosure tagging requirements for operating companies and 

investment companies, including the requirement in Rule 405(a)(3) to use Inline XBRL as the specific 

structured data language for tagging the disclosures. 



106 

requirements would include block text tagging of narrative disclosures, as well as detail tagging 

of quantitative amounts disclosed within the narrative disclosures. Inline XBRL is both machine-

readable and human-readable, which improves the quality and usability of XBRL data for 

investors.318  

 2. Comments on the Proposed Amendments 

 Most of the commenters who addressed this proposal supported requiring the tagging of 

the disclosures.319 One commenter, however, opposed this proposal and urged the Commission 

not to adopt it.320 This commenter asserted that XBRL tagging was not well adapted to the 

disclosure of trading policies and procedures that would be required under proposed Item 408 

and proposed Item 16J of Form 20-F, and that the full impact of this requirement would depend 

on what tagging would be required, which was not included with the Proposing Release.  

 3. Final Amendments 

 After considering these comments, we are adopting the amendments as proposed. The 

final amendments will require registrants to tag the information specified by new Items 402(x), 

408(a), and 408(b)(1) of Regulation S-K, and new Item 16J(a) of Form 20-F, in Inline XBRL in 

accordance with Rule 405 and the EDGAR Filer Manual. We do not agree with a commenter’s 

contention that XBRL tagging is not well adapted to these disclosures.321 Rather, XBRL tagging 

is well adapted to narrative disclosures such as those specified by new Items 408(a), 408(b)(1), 

                                                 

318  See Inline XBRL Filing of Tagged Data, Securities Act Release No. 10514 (June 28, 2018) [83 FR 40846 (Aug. 

16, 2018)]. Inline XBRL allows filers to embed XBRL data directly into an HTML document, eliminating the 

need to tag a copy of the information in a separate XBRL exhibit. Inline XBRL is both human-readable and 

machine-readable for purposes of validation, aggregation, and analysis. Id. at 40851. 

319  See, e.g., letters from CII, AFL-CIO, ICGN, and XBRL US, Inc. (“XBRL-US”). 

320  See letter from Cleary. 

321  Id. 



107 

and 402(x)(1) of Regulation S-K and new Item 16J(a) of Form 20-F. In that regard, we note that 

the Commission has required XBRL tagging for narrative disclosures, such as descriptions of 

significant accounting policies in footnotes to financial statements since the initial 

implementation of XBRL requirements in 2009.322 Requiring Inline XBRL tagging of these 

disclosures will benefit investors by making the disclosures more readily available and easily 

accessible to investors, market participants, and others for aggregation, comparison, filtering, and 

other analysis, as compared to requiring a non-machine readable data language such as HTML. 

Registrants must comply with the Inline XBRL tagging requirements in Forms 10-Q, 10-K and 

20-F, and any proxy or information statements that are required to include the Item 408 and/or 

Item 402(x) disclosures, beginning with the first such filing that covers the first full fiscal period 

beginning on or after April 1, 2023, for companies other than SRCs.  SRCs will be required to 

provide and tag the disclosures after an additional six-month transition period. This compliance 

date is intended to provide sufficient time for filers, filing agents, and software vendors to 

transition to the new requirements, as well as to provide time for any necessary taxonomy or 

EDGAR changes. 

 This Inline XBRL tagging will enable automated extraction and analysis of the granular 

data required by the final rules, allowing investors and other market participants to more 

efficiently perform large-scale analysis and comparison of this information across registrants and 

time periods. For example, an Inline XBRL requirement will allow investors to extract and 

search for disclosures about the use of Rule 10b5-1 plans by directors and officers reported in a 

registrant’s periodic reports rather than having to manually run searches for these disclosures 

through entire documents. The Inline XBRL requirement would also enable automatic 

                                                 

322  See 17 CFR 232.405(d). 



108 

comparison of tagged disclosures against prior periods. At the same time, we do not expect the 

incremental compliance burden associated with tagging the information specified by new Items 

402(x), 408(a), 408(b)(1), or new Item 16J(a) will be unduly burdensome because registrants 

subject to the tagging requirements are for the most part subject to similar Inline XBRL 

requirements in other Commission filings. 

E. Reporting of Gifts on Form 4 

 1. Proposed Amendments 

 Currently, Section 16 reporting persons may report any “bona fide gift”323 of equity 

securities registered under Exchange Act Section 12 on Form 5. Exchange Act Rule 16a-3(f) 

permits officers, directors and ten percent holders to report on Form 5 within 45 days after the 

issuer’s fiscal year end certain transactions during the most recent fiscal year that were exempt 

from Section 16(b).324 As transactions that are exempted from Section 16(b) by Rule 16b-5,325 

both the acquisition and disposition of bona fide gifts are eligible for delayed reporting on Form 

5 pursuant to Rule 16a-3(f)(1). This filing schedule, under the current rules, can permit Section 

16 reporting persons to report “bona fide” gifts more than one year after the date of the gift.326 

 In the Proposing Release, the Commission noted that the delayed reporting of gifts on 

Form 5 may allow Section 16 reporting persons to engage in problematic practices involving 

gifts of equity securities, such as making stock gifts while in possession of material nonpublic 

                                                 

323  A bona fide gift is a gift that is not required or inspired by any legal duty or that is in any sense a payment to 

settle a debt or other obligation, and is not made with the thought of reward for past services or hope for future 

consideration. See Ownership Reports and Trading by Officers, Directors and Principal Stockholders, Release 

No. 34-26333 (Dec. 2, 1988) [53 FR 49997 (Dec. 13, 1988)]. 

324  17 CFR 240.16a-3(f). 

325  17 CFR 240.16b-5. 

326  Reports on Form 5 are due within 45 days after the issuer’s fiscal year end, which potentially allows a delay of 

up to 410 days between a reportable transaction and the filing of the Form 5. 



109 

information,327 or backdating stock gifts in order to maximize the tax benefits associated with 

such gifts.328 To address these concerns, the Commission proposed to amend Exchange Act Rule 

16a-3 to require the reporting of dispositions by bona fide gifts of equity securities on Form 4. 

Under the proposal, an officer, director, or a beneficial owner of more than 10 percent of the 

issuer’s registered equity securities who makes a gift of equity securities would be required to 

report the gift on Form 4, which has a deadline of the end of the second business day following 

the date of execution of the transaction. This deadline would be significantly earlier than what is 

required under Form 5. The earlier reporting deadline is intended to help investors, other market 

participants, and the Commission better evaluate the actions of these Section 16 reporting 

persons and the context in which equity securities gifts are being made.  

 2. Comments on the Proposed Amendments 

 Several commenters generally supported the proposal to require Section 16 reporting 

persons to report dispositions of equity securities by bona fide gifts on Form 4.329 One of these 

commenters agreed with the reasons cited in the Proposing Release that the earlier reporting 

deadline would help investors, other market participants, and the Commission better evaluate the 

actions of these Section 16 reporting persons and the context in which these gifts are made.330  

 A number of commenters, however, expressed concern over the reporting of dispositions 

by bona fide gifts of equity securities on Form 4, and in particular expressed concern about the 

                                                 

327  See Daisy Maxey, Improper ‘Insider Charitable Giving’ Is Widespread, Study Says, WALL ST. J. (July 5, 2021) 

(retrieved from Factiva database).  

328  See S. Burcu Avci et al., Insider Giving, 71 DUKE L.J. 619-700 (2021) (finding that insiders’ charitable gifts of 

securities are unusually well timed suggesting that such results are likely due to the possession of material 

nonpublic information and from the backdating of the stock gift). See also David Yermack, Deductio ad 

Absurdum: CEOs Donating Their Own Stock to Their Family Foundations, 94 J. FIN. ECON. 107 (2009).  

329  See, e.g., letters from AFL-CIO, Cravath, and ICGN. 

330  See letter from ICGN. 



110 

proposed reporting two-day deadline, including the resulting compliance and administrative 

burdens.331 Some of these commenters contended that certain estate planning transactions 

involving gifts of equity securities are complex and that Section 16 reporting persons will spend 

substantial time analyzing these transactions to ensure proper reporting under Section 16.332 One 

commenter contended that the proposed amendment could discourage Section 16 reporting 

persons from making gifts of equity securities and, as a result, urged the Commission to not 

adopt this proposal, or, at a minimum, limit it to bona fide gifts of securities made to charities 

affiliated with the insider and to extend the reporting deadline for bona fide gifts of securities, 

such as to 45 days.333 Another commenter suggested that a donor should be able to avoid insider 

trading liability by obtaining a commitment from the charitable donee not to sell the donated 

stock until after any material nonpublic information known by the donor at the time of the 

donation has become public or stale.334 This commenter also argued that the proposed 

amendment was overbroad in that it applied to some gifts, such as in case of transfers to a trust 

controlled by the donor, that the commenter asserted were not “problematic.”335 

 Finally, this same commenter also expressed concern that language in the proposing 

release purporting to illustrate the application of Section 10(b) to gifts of securities appeared to 

represent an extension or modification of insider trading law.336 In footnote 55 of the Proposing 

                                                 

331  See, e.g., letters from HRPA, Davis Polk, and NAM. 

332  See, e.g., letters from HRPA and Davis Polk. 

333  See letter from HRPA; see also letter from NAM (expressing concern that the “tight timeframe” in the proposal 

will be “functionally unworkable” and urging that the Commission consider a reporting deadline longer than 

two days). 

334  See letter from Davis Polk. 

335  See id; see also letter from HRPA (asserting that the proposed amendment could “unnecessarily complicate 

estate planning activities that have a very low likelihood of abuse”). 

336  See letter from Davis Polk (citing footnote 55 of the Proposing Release). 



111 

Release, the Commission stated that “a donor of securities violates Section 10(b) if the donor 

gifts a security of an issuer in fraudulent breach of a duty of trust and confidence when the donor 

was aware of material nonpublic information about the security or issuer, and knew or was 

reckless in not knowing that the donee would sell the securities prior to the disclosure of such 

information.”337 This commenter noted that shareholders often make charitable donations of 

stock at the end of the year to obtain an income-tax deduction for the current year, and that the 

charitable organization that receives the stock often sells the securities upon receipt. This 

commenter asserted the Commission should clearly explain the basis for its conclusion and 

provide guidance as to how a Section 16 reporting person could make a charitable donation of 

securities without running afoul of Section 10(b) and Rule 10b-5. The commenter expressed 

concern that the Commission’s position would criminalize this type of gifting.  

 3. Final Amendments 

 After considering the comments, we are adopting the amendments to Rule 16a-3 as 

proposed. Under the final amendments, Section 16 reporting persons will be required to report 

dispositions of bona fide gifts of equity securities on Form 4 (rather than Form 5) in accordance 

with Form 4’s filing deadline (that is, before the end of the second business day following the 

date of execution of the transaction). To address our concerns that the lengthy reporting deadline 

may allow Section 16 reporting persons to engage in the problematic practices noted above, we 

intend for this reporting deadline to help investors, other market participants, and the 

Commission better evaluate the actions of Section 16 filers and the context in which they make 

gifts of equity securities. In that regard, we agree with the academic authors, cited in the 

                                                 

337  See Proposing Release at 8695.  



112 

Proposing Release,338 who observe that a gift followed closely by a sale, under conditions where 

the value at the time of donation and sale affects the tax or other benefits obtained by the donor, 

may raise the same policy concerns as more common forms of insider trading.339 As these 

academic authors have found, because the donor is in a position to benefit from the asset’s value 

at the time of donation and sale, the donor may be motivated to give at a time when donor is 

aware of material nonpublic information and may expect the donee to sell prior to the disclosure 

of such information.340 Investors cognizant of this dynamic may be more reluctant to trade. We 

also agree with the academic authors that a gift made with the knowledge that the donee will 

soon sell can be seen as in effect a sale for cash followed by gift of the cash.341  

We are clarifying here, however, that the affirmative defense of Rule 10b5-1(c)(1) is 

available for any bona fide gift of securities, including a gift that might otherwise cause the 

donor to be subject to liability under Section 10(b), because when making the gift the donor was 

aware of material nonpublic information about the security or issuer and knew or was reckless in 

not knowing that the donee would sell the securities prior to the disclosure of such 

                                                 

338  See Section II.D. of the Proposing Release. 

339  See supra note 328. 

340  We disagree with the commenter who argued that donors are not motivated by financial advantage and that tax 

considerations do not warrant treating gifts “as if they were market transactions.” See letter from HRPA. 

Although we agree that many gifts are likely driven by other than pecuniary motives, the tax treatment of any 

particular gift can substantially affect the net cost of that donation. Extensive academic literature documents that 

such differences affect the amount and timing of gifts. See, e.g., James A. Andreoni & A. Abigail Payne, 

Charitable Giving, in 5 Handbook of Public Economics 1 (Alan J. Auerbach et al. eds., 2013). To be clear, we 

understand that in the common case of charitable donations of stock to a public charity, the value of the donor’s 

tax benefit is (subject to some limitations) the value of the asset on the date of donation, not the value obtained 

by the recipient upon sale. See 26 U.S.C. 170(e); 26 CFR 1.170A-1(c)(1). But, when a sale occurs close in time 

to the time of donation, these two may be the same. In addition, we note that non-pecuniary motives can also 

lead donors to consider the value a donee realizes upon sale, as in the case where the donor wishes to maximize 

the amount of cash available to the gift recipient. 

341  See Avci et al supra note 328, at 650-52. 



113 

information.342 In our view, the terms “trade” and “sale” in Rule 10b5-1(c)(1) include bona fide 

gifts of securities.343 For example, a covered individual may enter into a binding arrangement 

instructing their attorney or tax advisor to gift shares to a charitable organization, with the 

amount of shares gifted determined according to a traditional algorithm or formula, or instead 

according to some tax objective, such as the amount of shares that would maximize the 

individual’s annual charitable contribution deduction.  

We are not persuaded by the concerns of commenters who suggested that we not adopt 

this proposal, or that we adopt a separate reporting deadline for bona fide gifts of securities that 

is much longer than the existing Form 4 deadline. As noted in Section V below, we recognize 

that this amendment may increase compliance costs and may do so to a greater extent for estate 

planning transactions given their complexity.344 Any such increases, however, should be limited 

as the majority of insiders already report these gifts on Form 4. Further, while we acknowledge 

that the amendment may make year-end tax planning incrementally more difficult as filers must 

delegate analysis of or anticipate their year-end tax needs three or four months earlier, our 

clarification that bona fide gifts are eligible for the Rule 10b5-1(c)(1) affirmative defense should 

mitigate any adverse consequences that commenters suggested, such as discouraging bona fide 

gifts. We also are not convinced that a shorter reporting period will substantially affect estate 

planning transactions, which generally are carefully planned and analyzed in advance and 

adopted under the advice of tax counsel who may assist in any needed analysis.  

                                                 

342 We are aware that some covered individuals currently make bona fide gifts under a Rule 10b5-1 plan. See letter 

from Sullivan. In clarifying that the affirmative defense of Rule 10b5-1(c)(1) is available for bona fide gifts of 

securities, we do not intend to suggest that this defense was previously unavailable for such transactions. 

343  See supra note257. 

344  See infra Sections V.E.1. and V.E.3. 



114 

Further, we disagree with the commenter who suggested that we narrow the scope of the 

gift limitations, such as by applying it only to gifts made to charities affiliated with the Section 

16 reporting person or exempting donors who obtain a commitment from the charitable donee 

not to sell the donated stock until after any material nonpublic information known by the donor 

at the time of the donation has become public or stale.345 While, in some cases, a close affiliation 

between the donor and donee can make an abusive transaction easier to carry out, none of the 

potential concerns we have identified are limited to transfers to entities controlled by or affiliated 

with the donor. In addition, the commenter argued that donated stock would not implicate any 

insider trading concerns if the donor obtained commitments that the stock would not be sold until 

any material nonpublic information became public or stale. We doubt any such approach would 

be effective in maintaining investor confidence because it may be difficult or impossible to 

verify whether the donor had obtained a binding commitment to refrain from such a sale. 

Moreover, this commenter appears to urge us to adopt an exception for gifts to estate planning 

vehicles controlled by the donor, because the commenter believes that such transfers would not 

permit the practices described in the Proposing Release. There may be circumstances, however, 

under which it would be advantageous for the donor if the donee entity obtains a high sales price 

shortly after the donation, such as where the entity allows the donor to take advantage of tax-

favorable diversification opportunities. As we see no practical way to identify which gifts pose 

this risk and which do not, we are not adopting such an exception.346   

III. Transition Matters 

                                                 

345  See letter from Davis Polk.  

346  With respect to estate planning vehicles controlled by the donor, we further note that transactions that “effect 

only a change in the form of beneficial interest without changing a person’s pecuniary interest in the subject 

equity securities” are exempt from Section 16 reporting. See Rule 16a-13a [17 CFR 240.16a-13]. 



115 

 A number of commenters recommended that the Commission provide transition guidance 

or a phase-in period, such as a 12-month phase-in, for the proposed disclosure amendments. In 

response, we are providing the following compliance dates for the final amendments:  

 Section 16 reporting persons will be required to comply with the amendments to Forms 4 

and 5 for beneficial ownership reports filed on or after April 1, 2023; and  

 Issuers that are SRCs will be required to comply with the new disclosure and tagging 

requirements in Exchange Act periodic reports on Forms 10-Q, 10-K and 20-F and in any 

proxy or information statements that are required to include the Item 408, Item 402(x), 

and/or Item 16J disclosures in the first filing that covers the first full fiscal period that 

begins on or after October 1, 2023.  

 All other issuers will be required to comply with the new disclosure and tagging 

requirements in Exchange Act periodic reports on Forms 10-Q, 10-K and 20-F and in any 

proxy or information statements that are required to include the Item 408, Item 402(x), 

and/or Item 16J disclosures in the first filing that covers the first full fiscal period that 

begins on or after April 1, 2023.  

 While we acknowledge that several commenters requested a longer phase-in period for 

these amendments, we believe that these compliance dates strike an appropriate balance between 

affording issuers and Section 16 reporting persons time to prepare to comply with the new rules 

and ensuring that this information becomes available to investors in a timely manner. For 

example, Section 16 reporting persons should have the information needed to comply with the 

amendments to Forms 4 and 5 readily available. 

In addition, some commenters requested that we clarify the application of the amendments 

to Rule 10b5-1(c)(1) to existing Rule 10b5-1 plans and/or provide transitional relief for existing 



116 

plans.347 The amendments to Rule 10b5-1(c)(1) would not affect the affirmative defense 

available under an existing Rule 10b5-1 plan that was entered into prior to the revised rule’s 

effective date, except to the extent that such a plan is modified or changed in the manner 

described in Rule 10b5-1(c)(iv)348 after the effective date of the final rules. In that case, the 

modification or change would be equivalent to adopting a new trading arrangement, and, thus, 

amended Rule 10b5-1(c)(1) would be the applicable regulatory affirmative defense that would be 

available for that modified arrangement.  

IV. Other Matters 

 If any of the provisions of these rules, or the application thereof to any person or 

circumstance, is held to be invalid, such invalidity shall not affect other provisions or application 

of such provisions to other persons or circumstances that can be given effect without the invalid 

provision or application. 

 Pursuant to the Congressional Review Act,349 the Office of Information and Regulatory 

Affairs has designated these rules a “major rule,” as defined by 5 U.S.C. 804(2). 

V. Economic Analysis 

We are mindful of the costs imposed by, and the benefits obtained from, our rules. Under 

Section 2(b) of the Securities Act,350 Section 3(f) of the Exchange Act,351 and Section 2(c) of the 

                                                 

347  See letters from BioNJ, Chevron, Cleary, Cravath, Davis Polk, Jones Day, SIFMA 2 and 3, Sullivan, and 

Wilson Sonsini. 

348  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”). 

349  5 U.S.C. 801 et seq. 

350  15 U.S.C. 77b(b).  

351  15 U.S.C. 78c(f). 



117 

Investment Company Act,352 whenever the Commission is engaged in rulemaking and required 

to consider or determine whether an action is necessary or appropriate in (or, with respect to the 

Investment Company Act, consistent with) the public interest, it shall also consider, in addition 

to the protection of investors, whether the action will promote efficiency, competition, and 

capital formation. In addition, Section 23(a)(2) of the Exchange Act requires the Commission to 

consider the impact on competition of any rules the Commission adopts under the Exchange Act 

and prohibits the Commission from adopting any rule that would impose a burden on 

competition not necessary or appropriate in furtherance of the purposes of the Exchange Act.353 

We have considered the economic effects of the amendments, including their effects on 

competition, efficiency, and capital formation. Many of the effects discussed below cannot be 

quantified. Consequently, while we have, wherever possible, attempted to quantify the economic 

effects expected from the amendments, much of the discussion remains qualitative in nature. 

Where we are unable to quantify the economic effects of the amendments, we provide a 

qualitative assessment of the potential benefits, costs, and impacts of the amendments on 

efficiency, competition, and capital formation. 

A. Broad Economic Considerations  

The amendments are expected to provide greater transparency to investors (i.e., decrease 

information asymmetries between insiders and outside investors) about issuer and insider trading 

arrangements and restrictions, as well as insider compensation and incentives, enabling more 

informed investment and voting decisions. The amendments are also expected to limit the 

opportunity for insider trading based on material nonpublic information (“MNPI”)354 by adding 

                                                 

352  15 U.S.C. 80a-2(c).  

353  15 U.S.C. 78w(a)(2). 

354  See supra note 3. 



118 

new conditions to the Rule 10b5-1(c) affirmative defense, resulting in benefits to investors and 

improvement in insiders’ incentives.  

 Insider trading enables certain investors who have access to inside information or who 

have the ability to influence the timing or substance of corporate disclosures to profit at the 

expense of other investors. Due to their access to MNPI, insiders can obtain illegitimate profits 

through the strategic timing of trades in the issuer’s securities. These profits essentially 

unlawfully transfer wealth from other investors to the insider.355 In addition, insider trading can 

distort the incentives of corporate insiders, which results in a loss of shareholder value and 

erodes investor confidence in the markets. Insider trading can also lead to reputational costs for 

companies.  

1. Insider trading harms investors, distorts insiders’ incentives, and imposes economic costs 

on investors and capital markets 

The amendments are expected to decrease the incidence of unlawful insider trading.356 

Insider trading represents a breach of fiduciary or other similar obligation of trust and 

confidence.357 Congress, the Courts, and the Commission have concluded that such insider 

trading is illegal.358 Before analyzing each aspect of the final rule, in the interest of 

                                                 

355  See, e.g., Michael D. Guttentag, Avoiding Wasteful Competition: Why Trading on Inside Information Should 

Be Illegal, 86 BROOK. L. REV. 895 (2021). 

356  The discussion of broad economic considerations generally focuses on insider trading in stock except where 

specified otherwise. To the extent that insiders benefit from the timing of option awards and gifts of stock 

around MNPI, some of the economic effects associated with insider trading also may be manifested in those 

contexts. For a detailed discussion of the economic considerations applicable to option award timing and insider 

gift timing, see infra Sections V.D and V.E.  

357  See infra note 490. 

358  See supra Section I.  



119 

completeness, the Commission first reviews the economic literature on the insider trading 

prohibition.359 

Insiders have information advantages that place them in a unique position to improperly 

obtain profits for themselves through strategic timing of trades. When an insider profits by 

trading on MNPI, those profits are obtained at other investors’ expense.360 Thus, reducing the 

incidence of insider trading is expected to benefit investors.361  

When investors anticipate that they are dealing with better informed insiders that can 

profit at the investors’ expense (i.e., they anticipate the adverse selection problem due to the 

insiders’ ability to trade on MNPI), investors can become reluctant to trade the issuer’s shares. 

                                                 
359  See, generally, Alexandre Padilla & Brian Gardiner, Insider Trading: Is There an Economist in the Room?, 24 

J. PRIVATE ENTERPRISE 113, 123 (2009) (noting “economists have progressively reached the same conclusion: 

that insider trading is harmful to investors, corporations, and stock exchanges, and, therefore, ought to be 

prohibited”). 

360  See Michael Manove, The Harm from Insider Trading and Informed Speculation, 104 Q. J. ECON. 823 (1989); 

William K.S. Wang, Trading on Material Non-Public Information on Impersonal Stock Markets: Who Is 

Harmed and Who Can Sue Whom Under SEC Rule 10B-5? 54 S. CAL. L. REV. 1217 (1981). 

361  Misappropriation of information may have many economic effects, including but not limited to, revealing 

information to the market in a manner suboptimal to the issuer (and thus discouraging investment in information 

and increasing costs of keeping information private). Further, increased trading by insiders reduces incentives 

for liquidity provision through adverse selection, imposing economic costs on investors broadly. Finally, 

misappropriation has associated agency costs as it represents an undisclosed form of compensation and may 

lead to further divergence of interests between the manager and the shareholders. See Frank H. Easterbrook, 

Insider Trading, Secret Agents, Evidentiary Privileges, and the Production of Information, 1981 SUP. CT. REV. 

309, 315, 323, 331 (1981); In re Melvin, SEC Release No. 3682, 2015 WL 5172974, at *4 & n.31 (Sept. 4, 

2015).  



120 

For this same reason, insider trading is likely to adversely affect price efficiency (i.e., the extent 

to which stock prices reflect an issuer’s fundamental value)362 and liquidity.363  

Insider trading also imposes a cost on the investors in the company by distorting 

managerial incentives, as discussed below, which results in a loss of shareholder value. Thus, 

whether insiders are strategically timing stock sales and purchases based on MNPI can provide 

information to investors about insider incentives. In particular, the ability of officers and 

                                                 
362  A number of studies demonstrate adverse effects of insider trading on market efficiency. See, e.g., Michael J. 

Fishman & Kathleen M. Hagerty, Insider Trading and the Efficiency of Stock Prices, 23 RAND J. ECON. 106 

(1992) (showing that “under certain circumstances, insider trading leads to less efficient stock prices. This is 

because insider trading has two adverse effects on the competitiveness of the market: it deters other traders from 

acquiring information and trading, and it skews the distribution of information held by traders toward one 

trader.”); Zhihong Chen et al., The Real Effect of the Initial Enforcement of Insider Trading Laws, 45 J. CORP. 

FIN. 687 (2017) (finding evidence that the initial enforcement of insider trading laws "improves capital 

allocation efficiency by increasing price informativeness and reducing market frictions”); Robert M. Bushman 

et al., Insider Trading Restrictions and Analysts' Incentives to Follow Firms, 60 J. FIN. 35 (2005) (arguing that 

“insider trading crowds out private information acquisition by outsiders” and showing that “analyst following 

increases after initial enforcement of insider trading laws” in a cross-country sample); Nuno Fernandes & 

Miguel A. Ferreira, Insider Trading Laws and Stock Price Informativeness, 22 REV. FIN. STUD. 1845 (2009) 

(finding that price informativeness increases with the enforcement of insider trading laws, but only in countries 

with a strong “efficiency of the judicial system, investor protection, and financial reporting”); see also 

Alexander P. Robbins, The Rule 10b5-1 Loophole: An Empirical Study, 34 REV. QUANT. FIN. ACCT. 199 (2010) 

(finding, in a sample of 10b5-1 plans of 81 NASDAQ-listed companies from 2004 to 2006 that “10b5-1 plans 

have a significant negative effect on the liquidity of a firm’s shares, and therefore the firm’s cost of capital”). 

Some studies argue that insider trading improves price efficiency. See, e.g., Hayne E. Leland, Insider Trading: 

Should It Be Prohibited?, 100 J. POL. ECON. 859 (1992) (showing in a model that “stock prices better reflect 

information” when insider trading is permitted.); Utpal Bhattacharya et al., When an Event Is Not an Event: The 

Curious Case of An Emerging Market, 55 J. FIN. ECON. 69 (2000) (suggesting “that unrestricted insider trading 

causes prices to fully incorporate the information before its public release”). See generally HENRY G. MANNE, 

INSIDER TRADING AND THE STOCK MARKET (1966). A reduction in insider trading can have nuanced effects on 

market efficiency. For example, the conclusions about the effect of insider trading on market efficiency may 

depend on whether the framework is static or dynamic. See David Easley et al., Is Information Risk a 

Determinant of Asset Returns?, 57 J. FIN. 2185 (2002). 

363  Various studies show that insider trading negatively impacts liquidity. See, e.g., Raymond P.H. Fishe & Michel 

A. Robe, The Impact of Illegal Insider Trading in Dealer and Specialist Markets: Evidence From a Natural 

Experiment, 71 J. FIN. ECON. 461 (2004); Louis Cheng et al., The Effects of Insider Trading on Liquidity, 14 

PACIFIC-BASIN FIN. J. 467 (2006); Leland, supra note 362 (showing in a model that “markets are less liquid” 

and “outside investors and liquidity traders will be hurt” when insider trading is permitted); Laura N. Beny, Do 

Insider Trading Laws Matter? Some Preliminary Comparative Evidence, 7 AM. L. & ECON. REV. 144 (2005) 

(finding that “countries with more prohibitive insider trading laws have more diffuse equity ownership, more 

accurate stock prices, and more liquid stock markets”); Lawrence R. Glosten, Insider Trading, Liquidity, and 

the Role of the Monopolist Specialist, 62 J. BUS. 211 (1989) (showing in a model that insider trading reduces 

liquidity). But cf. Charles Cao et al., Does Insider Trading Impair Market Liquidity? Evidence from IPO Lockup 

Expirations, 39 J. FIN. QUANT. ANAL. 25 (2004) (not finding a negative effect of insider trading on liquidity).121 

directors (who are either involved in making corporate decisions or play a crucial role in the 

oversight of such decisions) to profit from MNPI exacerbates conflicts of interest between 

officers / directors and other shareholders, resulting in inefficient, value-decreasing corporate 

decisions. For example, by protecting the insider from the brunt of the effects of poor corporate 

performance on the value of the insider’s equity position through the ability to sell ahead of 

negative news, insider trading weakens incentive alignment and exacerbates agency conflicts 

(and, in turn, increases the cost of monitoring insiders).  

One incentive distortion is that an insider may steer the company towards projects that 

require less effort or that yield higher private benefits even if such projects have a negative net 

present value (NPV) and thus decrease shareholder value.364 To mitigate agency conflicts and 

better align insider incentives with those of shareholders, insiders are often compensated with 

equity. Because of insiders’ ability to sell shares in advance of negative news, as described 

above, insiders may be less motivated to avoid negative NPV projects. Downside protection also 

incentivizes the insider to choose riskier negative-NPV projects due to the possibility of profiting 

on the upside.365 Relatedly, if short-term investment projects yield more profitable MNPI (due, in 

                                                 

364  See, e.g., Antonio E. Bernardo, Contractual Restrictions on Insider Trading: A Welfare Analysis, 18 ECON. 

THEORY 7 (2001) (showing in a model that “[f]or many reasonable parameter values, however . . . that 

managers may be too willing to take risky projects. In fact, managers will often choose the risky investment 

project when it has a lower expected return than the riskless investment project.”). In some circumstances, 

insider trading may remedy a manager’s excess conservatism due to under-diversification. See Lucian A. 

Bebchuk & Chaim Fershtman, Insider Trading and the Managerial Choice Among Risky Projects, 29 J. FIN. 

QUANT. ANALYSIS 1 (1994). However, Bebchuk & Fershtman (1994) similarly acknowledge that “[t]he desire 

to increase trading profits might lead the managers to prefer a very risky project even if it offers a lower 

expected return than a safer alternative.” 

365  See, e.g., Easterbrook, supra note 361 (stating that “[t]he opportunity to gain from insider trading also may 

induce managers to increase the volatility of the firm's stock prices. . . They may select riskier projects than the 

shareholders would prefer, because if the risk pays off they can capture a portion of the gains in insider trading 

and, if the project flops, the shareholders bear the loss.”). But see Robbins, supra note 362 (finding, in a sample 

of 10b5-1 plans of 81 NASDAQ-listed companies from 2004 to 2006 that “insiders do not appear to increase 

the volatility of their own firms’ shares in order to profit by trading on the basis of material nonpublic 

information under the protection of the 10b5-1 affirmative defense”).  



122 

part, to the reality that MNPI about long-term projects arrives less frequently or is less 

definitive), an insider may exhibit short-termism in making decisions at the company level at the 

expense of shareholder value.366 

Being able to profit from MNPI also can distort insider incentives with respect to other 

corporate decisions that can affect the share price. For example, officers and directors engaged in 

insider trading may be disincentivized from sharing information efficiently within the firm if 

they can profit from withholding it and personally trading on it, which leads to inefficient 

corporate decisions and thus decreased shareholder value.367 

Another economic cost of insider trading is that it may incentivize insiders to adjust the 

timing or content of corporate disclosure (e.g., delaying the release, or increasing the frequency, 

of disclosing MNPI).368 Manipulation of corporate disclosure causes price distortions and 

                                                 

366  See M. Todd Henderson, Insider Trading and Executive Compensation: What We Can Learn from the 

Experience with Rule 10b5-1, RES. HANDBOOK ON EXEC. PAY 299 (2012) (stating that short-termism is a cost of 

insider trading and that “[e]xecutives looking to maximize the value of their shares may engage in conduct that 

increases the stock price in the short run at the expense of the long term so that they can profit from trading in 

firm stock”). Such managerial short-termism/myopia reduces shareholder value. See, generally, John R. 

Graham et al., The Economic Implications of Corporate Financial Reporting, 40J. ACCT. ECON. 3 (2005); Alex 

Edmans, Blockholder Trading, Market Efficiency, and Managerial Myopia, 64 J. FIN. 2481 (2009). 

367  See, e.g., Robert J. Haft, The Effect of Insider Trading Rules on the Internal Efficiency of the Large 

Corporation, 80 MICH. L. REV. 1051, (1982). 

368  See, e.g., Ranga Narayanan, Insider Trading and the Voluntary Disclosure of Information by Firms, 24 J. 

BANKING FIN. 395 (2000) (stating that “[s]tringent enforcement of insider trading regulations induces more 

disclosure by firms”); Qiang Cheng & Kin Lo, Insider Trading and Voluntary Disclosures, 44 J. ACCT. RSCH. 

815 (2006) (finding that when “managers plan to purchase shares, they increase the number of bad news 

forecasts to reduce the purchase price . . . insiders do exploit voluntary disclosure opportunities for personal 

gain, but only selectively, when litigation risk is sufficiently low”); Easterbrook, supra note 361 (stating that 

“[t]he prospect of insiders' gains may lead the firm to delay the release of information”). Some studies also note 

that an opposite effect is possible—managers concerned about litigation may provide higher-quality disclosure 

before selling shares. See, e.g., Jonathan L. Rogers, Disclosure Quality and Management Trading Incentives, 46 

J. ACCT. RSCH. 1265 (2008) (finding that “[c]onsistent with a desire to reduce the probability of litigation . . . 

managers provide higher quality disclosures before selling shares than they provide in the absence of trading” 

but also finding that “[c]onsistent with a desire to maintain their information advantage, . . . some, albeit 

weaker, evidence that managers provide lower quality disclosures prior to purchasing shares than they provide 

in the absence of trading.”). In the context of Rule 10b5-1 plans, see, e.g., Stanley Veliotis, Rule 10b5-1 

Trading Plans and Insiders’ Incentive to Misrepresent, 47 AM. BUS. L. J. 313, 330 & nn. 77-78 (2010) (stating 

that “Rule 10b5-1 plans give insiders an incentive to accelerate the release of good news ahead of planned stock 



123 

impairs the ability of investors to make informed investment decisions. Less informed 

investment decisions result in less efficient allocation of capital in investor portfolios, compared 

to a setting with more timely disclosures. To the extent that investors anticipate such disclosure 

gaming, they may commensurately increase their information gathering effort, resulting in higher 

information gathering costs for investors. Investors, however, have a limited ability to obtain 

timely and accurate information elsewhere. 

Investor recognition of the potential incentive distortions and the risk of lower-quality 

corporate disclosures resulting from insider trading, as well as the risk of buying shares from or 

selling shares to a better informed insider, is likely to decrease investor confidence in the issuer 

and make investors less willing to buy or hold the issuer’s shares.369 The resulting reluctance to 

invest could have negative effects on capital formation and the ability to fund investments due to 

challenges in raising the required amount of capital.  

2. Certain Rule 10b5-1 plan trading practices may raise concerns about potential insider 

trading 

                                                 
sales and to delay the release of bad news until after the sales are completed. . . As a practical matter, 

manipulation of the announcement's timing would be extremely difficult to prove because insiders are not 

required to disclose their 10b5-1 plans and firms seldom disclose a schedule for corporate announcements in 

advance. . .”); Karl T. Muth, With Avarice Aforethought: Insider Trading and 10b5-1 Plans, 10 U.C. DAVIS 

BUS. LAW J. 65, 71 & nn. 32-33 (2009) (stating that “executives can participate in the timing of news . . . about 

the company. Withholding or ‘timing’ news allows the executive to (imperfectly) time market response to news. 

. .”); John Shon & Stanley Veliotis, Meeting or Beating Earnings Expectations, 59 MGMT. SCI. 1988 (2013) 

(finding that “firms with insider sales executed under Rule 10b5-1 plans exhibit a higher likelihood of meeting 

or beating analysts' earnings expectations (MBE) . . . [that] this relation between MBE and plan sales is more 

pronounced for the plan sales of chief executive officers (CEOs) and chief financial officers (CFOs) and is 

nonexistent for other key insiders,” and concluding that “[o]ne interpretation of [their] results is that CEOs and 

CFOs who sell under these plans may be more likely to engage in strategic behavior to meet or beat 

expectations in an effort to maximize their proceeds from plan sales”). 

369  See, e.g., Lawrence M. Ausubel, Insider Trading in a Rational Expectations Economy, 80 AM. ECON. REV., 

1022 (1990) (showing in a rational expectations model that “[i]f ‘outsiders’ expect ‘insiders’ to take advantage 

of them in trading, outsiders will reduce their investment. The insiders’ loss from this diminished investor 

confidence may more than offset their trading gains. Consequently, a prohibition on insider trading may effect a 

Pareto improvement.”). Further, informed trading by insiders can reduce the incentive for outside investors to 

acquire information. See, e.g., Fishman & Hagerty, supra note 362. 



124 

Over the years, various parties have raised concerns that certain persons have engaged in 

securities trading based on MNPI while availing themselves of the Rule 10b5-1(c)(1) affirmative 

defense.370 Examples of practices that have raised such concerns include the strategic 

cancellation of previously adopted plans or individual trades on the basis of MNPI,371 as well as 

the initiation or resumption of trading close in time to plan adoption or modification.372 

                                                 

370  See IAC Recommendations, supra note 22; letter from David Larcker et al.(Mar. 10, 2021), available at 

https://www.sec.gov/comments/s7-24-20/s72420-8488827-229970.pdf; letter from CII (Apr. 22, 2021), 

available at https://www.sec.gov/comments/s7-14-20/s71420-8709408-236962.pdf; letter from CII (Mar. 18, 

2021), available at https://www.sec.gov/comments/s7-24-20/s72420-8519687-230183.pdf; letter from CII 

(Sept. 25, 2020), available at https://www.sec.gov/comments/s7-06-20/s70620-7843308-223819.pdf; letter 

from CII (Dec. 13, 2018), available at https://www.sec.gov/comments/s7-20-18/s72018-4766666-176839.pdf; 

letter from CII (July 11, 2018), available at 

https://www.cii.org/files/July%2011%202018%20SEC%20Reg%20Flex%20Letter%20Final.pdf; letter from 

CII (Feb. 12, 2018, available at https://www.sec.gov/comments/s7-07-17/s70717-3025708-161898.pdf; letter 

from CII to Former Chairman Jay Clayton (January 18, 2018), available at 

http://www.cii.org/files/issues_and_advocacy/correspondence/2018/January%2018%202018%20Rule%2010b5

-1%20(finalI).pdf; letter from CII (July 8, 2016), available at https://www.sec.gov/comments/s7-06-16/s70616-

49.pdf; letter from CII to Former Chair Mary Jo White (May 9, 2013), available at 

http://www.cii.org/files/issues_and_advocacy/correspondence/2013/05_09_13_cii_letter_to_sec_rule_10b5-

1_trading_plans.pdf; CII Rulemaking Petition.  

371  See, e.g., Insider Trading and Stock Option Grants: An Examination of Corporate Integrity in the Covid-19 

Pandemic Before the H. Subcomm. On Investor Protection, Entrepreneurship, and Capital Markets, H. Comm. 

on Fin. Servs., 116th Cong. 5 (2020) (statement of Jill E. Fisch), available at 

https://docs.house.gov/meetings/BA/BA16/20200917/111013/HHRG-116-BA16-Wstate-FischJ-20200917.pdf,; 

Jagolinzer, supra note 19 (finding “for a sample of 54 firms for which there is public disclosure of early sales 

plan terminations” that “early sales plan terminations are associated with pending positive performance shifts, 

reducing the likelihood that insiders’ sales execute at low prices” and noting that the sample size is small 

because there is no requirement to disclose sales plan terminations); Veliotis, supra note 368, at 328-30 

(discussing concerns related to selective cancellations); Mavruk & Seyhun, supra note 19 (discussing selective 

cancellation concerns, providing indirect evidence, and concluding that its findings are “consistent with the 

hypothesis that insiders intervene in their planned transactions to increase profitability”); see also Stephen L. 

Lenkey, Cancellable Insider Trading Plans: An Analysis of SEC Rule 10b5-1, 32 REV. FIN. STUD. 4947 (2019) 

(concluding, in a theoretical framework, that “[b]ecause the conditions under which the insider elects to adopt a 

plan often coincide with the conditions under which the termination option reduces welfare, an alternative 

regulatory framework wherein the insider could adopt a non-cancellable plan (and, thereby, credibly commit to 

execute his planned trade) would improve the investors’ welfare under a wide set of circumstances.”). 

372  For a discussion of the evidence of returns following insider trades occurring close to plan adoption, see infra 

notes 387-397 and accompanying and preceding text.  

372  For a discussion of the evidence of returns following insider trades occurring close to plan adoption, see infra 

notes 387-397 and accompanying and preceding text. But see infra notes 398-406 and accompanying and 

following text. Existing disclosure requirements do not allow investors to obtain systematic or comprehensive 

data on plan cancellations or plan modifications (including cancellations of planned trades). 

https://www.sec.gov/comments/s7-24-20/s72420-8488827-229970.pdf
https://www.sec.gov/comments/s7-14-20/s71420-8709408-236962.pdf
https://www.sec.gov/comments/s7-24-20/s72420-8519687-230183.pdf
https://www.sec.gov/comments/s7-06-20/s70620-7843308-223819.pdf
https://www.sec.gov/comments/s7-20-18/s72018-4766666-176839.pdf
https://www.cii.org/files/July%2011%202018%20SEC%20Reg%20Flex%20Letter%20Final.pdf
https://www.sec.gov/comments/s7-07-17/s70717-3025708-161898.pdf
http://www.cii.org/files/issues_and_advocacy/correspondence/2018/January%2018%202018%20Rule%2010b5-1%20(finalI).pdf
http://www.cii.org/files/issues_and_advocacy/correspondence/2018/January%2018%202018%20Rule%2010b5-1%20(finalI).pdf
https://www.sec.gov/comments/s7-06-16/s70616-49.pdf
https://www.sec.gov/comments/s7-06-16/s70616-49.pdf
http://www.cii.org/files/issues_and_advocacy/correspondence/2013/05_09_13_cii_letter_to_sec_rule_10b5-1_trading_plans.pdf
http://www.cii.org/files/issues_and_advocacy/correspondence/2013/05_09_13_cii_letter_to_sec_rule_10b5-1_trading_plans.pdf
https://docs.house.gov/meetings/BA/BA16/20200917/111013/HHRG-116-BA16-Wstate-FischJ-20200917.pdf


125 

As discussed in detail in Section II above, the Commission is adopting several 

amendments to address these practices, including modifications to the conditions of the 

affirmative defense under Rule 10b5-1(c)(1), additional disclosure requirements under new Item 

408 of Regulation S-K, and additional disclosure of Rule 10b5-1 plan use in beneficial 

ownership forms. The new disclosure requirements are expected to affect the behavior of insiders 

by drawing scrutiny of investors and other market participants to trading practices of insiders.373  

Combined, the amendments are expected to reduce the potential for insider trading 

through both Rule 10b5-1 plans and certain other trading arrangements not reliant on Rule 10b5-

1. Deterring insider trading is expected to result in benefits for investor protection, capital 

formation, and orderly and efficient markets. By deterring insider trading, the amendments are 

expected to disincentivize insider behavior that is likely to harm the securities markets and the 

issuer, and undermine investor confidence.  

3. Current levels of disclosure about insider trading plans limit the ability of investors to 

identify the risk of insider trading and to consider the associated incentive conflicts and 

information asymmetries in their investment decisions 

Existing gaps in the disclosure framework limit the information currently available to 

investors and other market participants regarding the use of insider trading plans and the extent 

to which trading based on MNPI potentially distorts insider incentives with respect to corporate 

decisions (and thus shareholder value). These gaps therefore limit the ability of investors to 

correctly value the issuer’s shares, and thus make informed investment decisions. 

                                                 

373  Studies have found evidence that changes in mandatory disclosure affect behavior. See, e.g., Elizabeth C. Chuk, 

Economic Consequences of Mandated Accounting Disclosures: Evidence from Pension Accounting Standards, 

88 ACCT. REV. 395 (2013); Alice Adams Bonaimé, Mandatory Disclosure and Firm Behavior: Evidence from 

Share Repurchases, 90 ACCT. REV. 1333 (2015). 



126 

The disclosure amendments will provide greater transparency to investors and decrease 

information asymmetries between insiders and outside investors about insider trading 

arrangements and insider trading policies and procedures, enabling more informed decisions 

about whether to invest in the issuer’s shares and at what valuation. This added transparency may 

result in more efficient capital allocation and more informationally efficient pricing. The 

additional disclosure requirements may also indirectly yield potential capital formation benefits 

if they increase investor confidence in the issuer’s governance. 

4. The economic effects of the amendments are uncertain or difficult to generalize 

An important factor contributing to the uncertainty about the magnitude of the benefits of 

the amendments to Rule 10b5-1 is the potential for substitution of Rule 10b5-1 plans by other 

trading arrangements. The use of the Rule 10b5-1(c)(1) affirmative defense is voluntary. Insiders 

and companies may elect not to rely on the Rule 10b5-1(c)(1) affirmative defense if they 

perceive the costs of doing so to be too high. For example, insiders may instead adopt trading 

arrangements that do not rely on the amended Rule 10b5-1(c)(1) affirmative defense or trade 

without trading plans. However, doing so may entail its own costs and limitations for insiders.374 

The application of the disclosure requirements of new Item 408(a) of Regulation S-K to all 

officer and director Rule 10b5-1 and non-Rule 10b5-1 trading arrangements is expected to partly 

mitigate concerns that trading under non-Rule 10b5-1 trading arrangements may adversely 

impact investors. 

The considerations presented above are generally applicable to all of the amendments 

discussed in this release. In the sections that follow, we provide a more detailed discussion of 

economic effects of the individual amendments, including the expected costs and benefits 

                                                 

374  See infra notes 439-440 and preceding and accompanying text. 



127 

relative to the market baseline as well as reasonable alternatives. We separately discuss 

economic considerations related to the timing of option grants and insider gifts of stock in 

Sections V.D and V.E, respectively. 

As discussed in Section III above, in response to commenters’ concerns,375 we are 

providing a six-month transition period for SRCs for compliance with the disclosure 

amendments. The transition period is expected to defer the costs and benefits of the amendments. 

By giving insiders and companies time to adjust their trading plans and recordkeeping processes, 

this transition period is expected to partially mitigate some of the SRCs’ initial costs of preparing 

to comply with the amendments. In addition, it will enable these smaller companies to benefit 

from observing the compliance and disclosure practices of larger companies. 

B. Amendments to Rule 10b5-1(c)(1)  

The Commission is adopting additional conditions that must be satisfied for a trading 

arrangement to be eligible for the Rule 10b5-1(c)(1) affirmative defense. These amendments are 

intended to protect investors by decreasing the likelihood of, and the opportunities to, profit from 

MNPI through such trading arrangements.  

The amendments narrow the conditions under which the Rule 10b5-1(c)(1) affirmative 

defense is available. First, the amendments establish mandatory cooling-off periods before any 

trading can commence under a Rule 10b5-1 trading arrangement after the adoption of a new or 

modified trading arrangement by persons other than the issuer. Second, the amendments impose 

a certification requirement as a condition of the Rule 10b5-1(c)(1) affirmative defense for trading 

arrangements of officers and directors. Third, the amendments restrict the availability of the 

affirmative defense for multiple overlapping trading arrangements involving open-market 

                                                 

375  See, e.g., letters from Cleary, Cravath, BioNJ, SIFMA 2, and Sullivan. 



128 

transactions under some conditions, as well as limit open-market single-trade trading 

arrangements to one such arrangement in any twelve-month period. Finally, the amendments 

expand the existing requirement that a Rule 10b5-1 trading arrangement must be “given or 

entered into” in good faith to add the condition that the trader “act in good faith” with respect to 

the trading arrangement. In a change from the proposal, we are not, at present time, adopting 

cooling-off periods or restrictions on multiple overlapping Rule 10b5-1 trading arrangements or 

single-trade trading arrangements with respect to the issuer. In response to public comments, we 

are making several changes from the proposal, including providing for a cooling-off period for 

officers and directors that is tied to both a specific number of days and to the date of disclosure 

of fiscal period results; imposing a shorter (30-day) cooling-off period for persons other than the 

issuer that are not officers or directors; clarifying the treatment of plan modifications; requiring 

the proposed officer and director certifications to be included in the plan itself and eliminating 

the requirement to maintain the certification for ten years; and making certain changes to the 

restrictions on multiple plans and single-trade plans. 

1. Baseline and Affected Parties 

We consider the economic effects of the amendments in the context of the regulatory and 

market baseline. A lack of comprehensive disclosure of Rule 10b5-1 trading arrangements makes 

it more difficult to provide complete data on existing Rule 10b5-1 practices and affected plan 

participants. Our estimates are limited by the voluntary nature of the Rule 10b5-1 disclosure in 

beneficial ownership filings, where insider trades are reported, as well as the limited scope of 

Rule 10b5-1 trades for which Form 144 reporting is required.376 Based on beneficial ownership 

                                                 

376  Form 144 must be filed with the Commission by an affiliate as a notice of the proposed sale of restricted 

securities when the amount to be sold under Rule 144 during any three-month period exceeds 5,000 shares or 

units or has an aggregate sales price in excess of $50,000. See Rule 144(h) [17 CFR 230.144(h)]. Thus, Rule 



129 

filings (Forms 3, 4, and 5) during calendar year 2021, we estimate that approximately 5,900 

natural persons at approximately 1,700 companies reported trades under Rule 10b5-1 trading 

arrangements. This figure includes approximately 5,800 officers and directors at 1,600 

companies; narrowing the sample to officers yields an estimate of approximately 4,700 officers 

at approximately 1,500 companies.377 Due to the data limitations mentioned above, the actual 

number of affected parties likely is significantly larger.  

Below, we discuss the available evidence on Rule 10b5-1 plans of officers, directors, and 

other natural persons. A recent academic study analyzed Form 144 data on insider trades under 

Rule 10b5-1 plans from January 2016 through May 2020.378 The study documented that “[t]he 

                                                 
10b5-1 plan trades below that threshold are not required to be reported on Form 144 and thus may not be in our 

data. Further, because the vast majority of Form 144 filings were made in paper form during the considered 

period, we rely on information from such paper filings extracted and processed by the vendor for the Thomson 

Reuters / Refinitiv insiders dataset (version retrieved June 27, 2022).  

377  The estimate is based on the data from filings on Forms 3, 4, and 5 for trades during calendar year 2021 that 

reported Rule 10b5-1 plan use (obtained from Thomson Reuters / Refinitiv insiders dataset (version retrieved 

June 27, 2022)). The estimate only captures natural persons with Rule 10b5-1 plans that have Section 16 

reporting obligations, and thus represents a lower bound on the number of affected plan participants (for 

instance, it excludes employees that are not Rule 16a-1(f) officers as well as any other persons with a Rule 

10b5-1 trading plan that do not have a Section 16 reporting obligation). Officers and directors are identified 

based on the role code (beneficial owners and affiliates are not included in the count). Combining data from 

Form 144 filings with planned sale dates in calendar year 2021 that reported Rule 10b5-1 plan use (also 

obtained from Thomson Reuters / Refinitiv insiders dataset (version retrieved June 27, 2022)) and the data from 

filings on Forms 3, 4, and 5 cited above, we estimate that approximately 7,000 natural persons at approximately 

1,800 companies (which includes approximately 6,000 officers and directors at approximately 1,700 companies; 

or when limited to officers only, approximately 4,900 officers at approximately 1,500 companies) reported 

trades under Rule 10b5-1. Due to gaps in the reporting regime, we cannot be certain whether the higher 

prevalence of plans reported for officers is due to their higher prevalence in general or due to greater disclosure 

of such plans.  

378  See Gaming the System, supra note 20. The study presents data “on all sales of restricted stock filed on Form 

144 between January 2016 and May 2020 and the adoption date of any corresponding 10b5-1 plans. . . In total, 

we have data on 20,595 plans, which covers the trading activity by 10,123 executives at 2,140 unique firms. 

These plans are responsible for a total of 55,287 sales transactions totaling $105.3 billion during our sample 

period. Average (median) trade size is $1.9 million ($0.4 million) . . . .” The analysis based on Form 144 data 

has the advantage of not being subject to voluntary reporting bias. However, as a caveat, planned resales 

reported on Form 144 represent a subset of all trades and may not be representative of all Rule 10b5-1 trades by 

insiders (e.g., of purchases, or of sales of unrestricted stock). By comparison, Mavruk & Seyhun examine a 

larger sample of plan trades identified by a voluntary Rule 10b5-1 checkbox on beneficial ownership forms. 

They examine transactions for “an average of 14,211 insiders in 3875 firms for each year between 2003 and 

2013.” See Mavruk & Seyhun, supra note 19. Relatedly, Hugon & Lee (2016) utilize a sample of “voluntary 

disclosures of 10b5-1 plan participation in SEC Form 4 filed between October 2000 and December 2010.” See 



130 

mean (median) cooling-off period is 117.9 (76) days,” “[a]pproximately 14 percent of plans 

commence trading within the first 30 days, and 39 percent within the first 60 days,” and 

“[a]pproximately 82 percent of plans commence trading within 6 months.”379 A set of subsequent 

analyses by the Wall Street Journal (collectively, the “WSJ Analysis”) examined Washington 

Service380 data on “169,000 forms from company insiders submitted from 2016 through 2021” 

and found that “about a fifth of the [prearranged stock sales] occurred within 60 trading days of a 

plan’s adoption.”381 As a caveat, this data did not indicate whether the trading time frames were 

due to an issuer’s policies, the insider’s own timing or scheduling, or execution of trades under a 

plan (i.e., whether there is a “cooling-off period” is not known—only the time between plan 

adoption and the first trade is calculated).  

Using Form 144 data provided by the Washington Service for a more recent period 

(January 2, 2018 – September 13, 2022), we find that the mean (median) Rule 10b5-1 plan has 

the first trade 102 (71) days after adoption, with 13.2 percent of first trades pursuant to a plan 

occurring within thirty days of the plan date and 41.5 percent occurring within 60 days of the 

plan date.382 A shorter period of time between plan adoption and the first trade under the plan is 

also associated with a larger trade size: trades occurring within 90 days of plan adoption have a 

median size of $748,000 compared with a median size of $403,000 for those trades occurring 

                                                 
supra note 19. See also, e.g., Lee (2020), supra note 35; See Rik Sen, Are Insider Sales Under 10b5-1 Plans 

Strategically Timed?, 2008 N. Y. U. (Working Paper) (2008); Eliezer M. Fich et al., When and How Are Rule 

10b5-1 Plans Used for Insider Stock Sales?, 2021 DREXEL U., U.T. AUSTIN & C.U.L. (Working Paper) (2021) 

(also utilizing Form 4 data). Data on Rule 10b5-1 trades by issuers is not available. 

379  Gaming the System, supra note 20. 

380  The Washington Service is a research firm that provides data about trades by insiders. 

381  See McGinty & Maremont, supra note 32; see also Tom McGinty, Methodology: How the Journal Analyzed the 

Data on Insider Stock Sales, WALL ST. J. (June 29, 2022 (retrieved from Factiva database). 

382  We estimate that 13.2 percent of trades occur within 0–30 days. 28.3 percent of trades occur within 31–60 days, 

and 22.3 percent within 61–90 days. In total, 63.8 percent of trades occur within 90 days of the date of plan 

adoption and 86.9 percent of plans commence trading within six months. 



131 

more than six months after plan adoption. Further, single-trade plans constitute approximately 44 

percent of plans during the time period examined.383  

A 2016 industry survey of public companies also examined their Rule 10b5-1 plan 

practices.384 The survey found, among other things, that: (i) 77 percent of the respondents had a 

mandatory cooling-off period of 60 days or fewer and a cooling-off period of 30 days was the 

most common cooling-off period among respondents (41 percent); (ii) 98 percent of the 

respondents reviewed and approved their insiders’ Rule 10b5-1 plans to some degree; (iii) 55 

percent of the respondents allowed early termination of plans, and 40 percent of the respondents 

allowed modification of plans (the survey does not report the extent of overlap between these 

two subsets of respondents); and (iv) 18 percent of respondents allowed insiders to maintain 

multiple overlapping plans while 82 percent disallowed multiple overlapping plans.385 A 2021 

industry survey of public companies (cited by one commenter) provided more recent information 

about Rule 10b5-1 plan practices.386 The survey found, among other things, that: (i) at 39 percent 

                                                 

383  As a caveat, the data does not show the dates of all scheduled trades, only the dates of executed trades. Thus, 

some “single-trade” plans may be multi-trade plans in progress, or multi-trade plans with all but one trade 

cancelled.  

384  See MORGAN STANLEY & SHEARMAN & STERLING LLP, DEFINING THE FINE LINE: MITIGATING RISK WITH 

10B5-1 PLANS (2016), available at https://advisor.morganstanley.com/capitol-wealth-management-

group/documents/field/c/ca/capitol-wealth-management-

group/Defining_the_Fine_Line___Locked_Version.pdf. The survey included public company members of the 

Society of Corporate Secretaries & Governance Professionals. The respondents and their practices related to 

Rule 10b5-1 plans are not necessarily representative of all issuers subject to the amendments and their Rule 

10b5-1 plan policies and practices. Separately, the survey stated that that 51 percent of S&P 500 companies had 

Rule 10b5-1 plans in 2015. 

385  Id. 

386  See letter from SCG; SOC’Y FOR CORP. GOVERNANCE ET AL., 10B5-1 PLAN PRACTICES 2021 SURVEY (2021), 

available at https://higherlogicdownload.s3.amazonaws.com/GOVERNANCEPROFESSIONALS/a8892c7c-

6297-4149-b9fc-378577d0b150/UploadedImages/Final_10b5-1_Plan_Report_CS_Survey_2021_V6_-10-19-

21_W_o_Comments.pdf (“SCG 2021 Survey”). The survey included 145 respondents (with fewer respondents 

providing answers to some questions) among public company members of the Society for Corporate 

Governance (which need not be the same respondents as the respondents to the 2015 survey). The respondents 

and their practices related to Rule 10b5-1 plans are not necessarily representative of all issuers subject to the 

amendments and their Rule 10b5-1 plan policies and practices. For example, 92 percent of respondents to the 

https://advisor.morganstanley.com/capitol-wealth-management-group/documents/field/c/ca/capitol-wealth-management-group/Defining_the_Fine_Line___Locked_Version.pdf
https://advisor.morganstanley.com/capitol-wealth-management-group/documents/field/c/ca/capitol-wealth-management-group/Defining_the_Fine_Line___Locked_Version.pdf
https://advisor.morganstanley.com/capitol-wealth-management-group/documents/field/c/ca/capitol-wealth-management-group/Defining_the_Fine_Line___Locked_Version.pdf
https://higherlogicdownload.s3.amazonaws.com/GOVERNANCEPROFESSIONALS/a8892c7c-6297-4149-b9fc-378577d0b150/UploadedImages/Final_10b5-1_Plan_Report_CS_Survey_2021_V6_-10-19-21_W_o_Comments.pdf
https://higherlogicdownload.s3.amazonaws.com/GOVERNANCEPROFESSIONALS/a8892c7c-6297-4149-b9fc-378577d0b150/UploadedImages/Final_10b5-1_Plan_Report_CS_Survey_2021_V6_-10-19-21_W_o_Comments.pdf
https://higherlogicdownload.s3.amazonaws.com/GOVERNANCEPROFESSIONALS/a8892c7c-6297-4149-b9fc-378577d0b150/UploadedImages/Final_10b5-1_Plan_Report_CS_Survey_2021_V6_-10-19-21_W_o_Comments.pdf


132 

of respondents the aggregate number of 10b5-1 plans by their C Suite had increased over the 

prior two years, and at 74 percent of respondents at least one insider adopted a Rule 10b5-1 plan 

in the prior fiscal year; (ii) 13 percent of respondents required the C Suite to use Rule 10b5-1 

plans, 6 percent required directors to use Rule 10b5-1 plans, and three percent required other 

insiders to use Rule 10b5-1 plans, with companies with higher market capitalization being more 

likely to require insiders to sell through Rule 10b5-1 plans; (iii) a significant majority of 

respondents reported reviewing and approving the Rule 10b5-1 plans entered into by their C 

Suite and directors; (iv) the most common cooling-off period was 30 days – 9 percent of 

respondents reported not imposing a cooling-off period, 10 percent – a cooling-off period of less 

than 30 days, 51 percent – 30 days, 13 percent – longer than 30 days, and 8 percent – a cooling-

off period until the opening of trading window in the next quarter (with “other” cooling-off 

periods comprising the remainder); (v) the majority of respondents allowed insiders to terminate 

or modify their Rule 10b5-1 plans (with many of those imposing restrictions in conjunction with 

terminations or modifications) and permitted insiders with an existing Rule 10b5-1 plan to sell 

shares outside of the plan; (vi) 48 percent of respondents allowed while 52 percent of 

respondents prohibited multiple, overlapping Rule 10b5-1 plans; and (vii) 23 percent of 

respondents required disclosures of Rule 10b5-1 plan adoptions by the C Suite. 

Various studies have sought to examine the potential use of MNPI for trading under Rule 

10b5-1 by looking at the returns around trades under such plans (with the caveats about data 

availability). The WSJ Analysis concluded that, on average, Rule 10b5-1 sales occurring closer 

in time to plan adoptions were more likely to precede declines in share prices than sales 

                                                 
2021 survey had their IPO more than five years ago and 58 percent had market capitalization of at least $10 

billion, which may indicate a greater representation of larger, more established companies. 



133 

conducted later after plan adoptions.387 For insiders that sold shares within 0-30 days, 31-60 

days, and 61-90 days following plan adoptions, average two-month post-sale excess returns 

(calculated net of sector returns) were negative: -1.7 percent, -1.4 percent, and -0.7 percent, 

respectively. For insiders that sold shares within 91-120, 121-150, 151-180, and 181+ days 

following plan adoptions, average two-month post-sale excess returns were positive: 0.3 percent, 

1.5 percent, 1.4 percent, and 0.6 percent, respectively.388 The Gaming the System study 

documented abnormal trends and returns following some insider sales under Rule 10b5-1 (as 

compared to both standard open-market trades and different kinds of Rule 10b5-1 trades), which 

suggests potential insider trading under such plans. For example, the study shows abnormal 

industry-adjusted returns over a six-month period following the first sale to be -2.5 percent for 

plans with the first trade occurring less than 30 days after plan adoption and -1.5 percent for 

plans with the first trade occurring between 30 and 60 days after plan adoption, but no evidence 

of such abnormal returns after the insider sale when the first trade occurs more than 60 days after 

plan adoption. However, the study also finds that the trades of single-trade plans (which 

comprise 49 percent of the 10b5-1 plans in the study) are consistently loss-avoiding regardless of 

cooling-off period, with single-trade plans with short cooling-off periods exhibiting the highest 

average loss avoidance (avoiding an industry-adjusted price decline of -4 percent).389 In contrast, 

the study finds that the trades under multiple-trade plans are only loss-avoiding within 30 days of 

plan adoption (industry-adjusted price decline of -1 percent). The study also finds abnormal 

returns of between -2 percent and -3 percent for plans that execute sales in the window between 

                                                 

387  See McGinty & Maremont, supra note 381. 

388  Id. 

389  See supra note 383 and infra notes 400 and 435. 



134 

when the plans are adopted and quarterly earnings announcements, but no price drop is found 

following sales after the earnings announcements. 

Negative abnormal returns after insider sales under Rule 10b5-1 plans indicate potential 

insider trading ahead of negative news. A lack of such negative returns after insider sales under 

plans with more time between plan adoption and first trade could be indicative of inside 

information becoming stale with the passage of time. Similarly, a lack of negative returns when 

insider sales occur after the quarter’s earnings announcement may suggest less potential for 

informed selling once the earnings information has been made public.  As a caveat, the tests of 

statistical significance of the differences are not shown in the study, so we cannot assess whether 

the economic differences discussed above have statistical significance. 

Several other studies document abnormal returns following trading by insiders who use 

Rule 10b5-1 plans. For example, a 2009 study of the use of Rule 10b5-1 plans finds that 

“insiders’ sales systematically follow positive and precede negative firm performance, 

generating abnormal forward-looking returns larger than those earned by nonparticipating 

colleagues,” that “a substantive proportion of randomly drawn plan initiations are associated 

with pending adverse news disclosures,” and that “early sales plan terminations are associated 

with pending positive performance shifts.”390 A 2016 study examined insider sales at financial 

institutions prior to the 2008 financial crisis and found that “net insider sales in the 2001Q2–

2007Q2 pre-financial crisis quarters predict not-yet-reported non-performing securitized loans 

and securitization income for those quarters, and that net insider sales during 2006Q4 predict 

write-downs of securitization-related assets during the 2007Q3–2008Q4 crisis period” and, 

                                                 

390  See, e.g., Jagolinzer, supra note 19, at 224. 



135 

crucially for this analysis, that “insiders avoid larger stock price losses through 10b5-1 plan sales 

than through non-plan sales.”391 A different 2016 study presented evidence of “insiders selling 

shares prior to imminent bad earnings news through their Rule 10b5-1 trading plans.”392 A 2020 

study presents evidence consistent with insiders using 10b5-1 plans to sell stock in advance of 

disappointing earnings results.393 The study further finds that some of the more aggressive 

insider trading on earnings information shifted into Rule 10b5-1 plans after adoption of the 

rule.394 The study also found that these insiders make the following types of trades: infrequent, 

irregularly timed, close to the plan initiation date, and executed during traditional blackout 

periods.395 Finally, a different 2020 study found that “public companies disproportionately 

disclose positive news on days when corporate executives sell shares under predetermined Rule 

10b5-1 plans,” with such disclosure of good news on Rule 10b5-1 selling days being most 

prevalent “in the health care sector and among mid-cap firms.”396 The study further observed that 

“stock prices reverse after high levels of Rule 10b5-1 selling on positive news days, and that the 

price reversal increases with the share volume of Rule 10b5-1 selling.”397 

                                                 

391  See Stephen G. Ryan, et al., Securitization and Insider Trading, 91 ACCT. REV. 649 (2016). 

392  See Jonathan A. Milian, Insider Sales Based on Short-Term Earnings Information, 47 REV. QUANT. FIN. ACCT. 

109 (2016) (examining data on insider sales under Rule 10b5-1 based on beneficial ownership filings from 

August 2004 through May 2010). As a caveat, the study specifies that the plan identification may be imprecise: 

it “use[s] the timing of insiders’ Rule 10b5-1 trades relative to each other in order to infer a sales plan,” “[g]iven 

the lack of disclosure requirements in SEC Rule 10b5-1 and the nature of the data.” 

393  See Lee (2020), supra note 35. 

394  Id. 

395  Id. 

396  See Joshua Mitts, Insider Trading and Strategic Disclosure, 2020 COLUM. U. (Working Paper) (2020). 

397  Id. 



136 

However, a 2008 study found “no significant difference in stock price performance 

following plan sales and non-plan sales.”398 The study also reports that “price contingent orders 

(e.g., limit orders), a common feature in trading plans, give rise to empirical patterns that have 

been taken as evidence of strategic timing of sales.”399 Insiders may incorporate limit orders into 

trading plans because such plans may involve trading over months and even years and therefore 

expose the insider to potentially significant market fluctuations. The limitations of the data about 

insiders’ trades prevent us from estimating the prevalence of limit orders in such plans and 

comparing it to trades outside such plans, or assessing the magnitude of the potential bias in the 

profitability of trades executed under Rule 10b5-1 plans due to limit order use.400 Nevertheless, 

some evidence suggests that limit orders cannot account for the entirety of the abnormal returns 

documented in other studies.401 Thus, we remain concerned about abnormally profitable insider 

trading under Rule 10b5-1.  

                                                 

398  See Rik Sen, Are Insider Sales Under 10b5-1 Plans Strategically Timed?, 2008 N. Y.U. (Working Paper) 

(2008). The study uses Form 4 data from January 2003 - June 2006. As an important caveat, reporting of 10b5-1 

trades on Form 4 is voluntary. Thus, trades classified as “non-10b5-1” trades in the study may include 10b5-1 

plan trades.  

399  Id; see also letter from Anonymous. 

400  Data biases due to the potential use of limit orders may potentially interact with data biases due to incomplete 

identification of Rule 10b5-1 trades in existing data based on beneficial ownership reporting requirements. 

Thus, the true magnitude of the abnormal profits from insider trading in Rule 10b5-1 plans may differ from 

those observed in the data from available reporting. 

401  See, e.g., Jagolinzer, supra note 19 (comparing Rule 10b5-1 plan and non-Rule 10b5-1 trading arrangement 

subsamples with a similar one-month price run-up and concluding that “predictable” mean reversion following 

sustained price increases that may have triggered limit sell orders is unlikely to explain the abnormal returns 

following 10b5-1 sales); see also Shon & Veliotis, supra note 368 (advising “caution in making inferences, 

because the potential presence of limit order transactions makes it difficult to unambiguously determine the 

direction of causality” but also performing several tests to attempt to rule out the effects of limit orders - 

including, for instance, the finding that, with the caveat that such disclosure is voluntary, only approximately 

1.07 percent of the 10b5-1 sample included keywords related to limit orders in the footnotes to Form 4; the 

finding that either controlling for the indicator for disclosed limit order use or excluding such observations from 

the analysis does not change any of the results; the finding that excluding the categories of firms found more 

likely to be associated with disclosed limit order use does not affect the results; and the finding that abnormal 

returns are driven by CEOs and CFOs, who are more likely to have discretion over meeting or beating earnings 

expectations). Further, “[t]here is evidence, however, that a substantive proportion of randomly drawn plan 

initiations are associated with pending adverse news disclosures. There is also evidence that early sales plan 



137 

Two other studies find evidence that insiders can profit when trading under 10b5-1 plans, 

although these profits may be the same as or smaller than trades that do not qualify for the 

affirmative defense. A 2016 study finds negative abnormal returns after insider sales under Rule 

10b5-1 as well as positive abnormal returns after insider purchases under Rule 10b5-1 (over a 

one-month holding period).402 However, the study does not find significant differences between 

the abnormal returns following insider trades under Rule 10b5-1 and other insider trades.403 A 

2021 study finds that “non-plan sales are, on average, preceded by a larger price run-up (3.0 

percent versus 1.4 percent) and followed by a larger price decline (-1.6 percent versus -1.0 

percent) than plan sales . . . consistent with greater opportunistic behavior by CEOs who trade 

outside of Rule 10b5-1 plans.”404 Further, focusing on “the 25 percent of sales with the largest 

ratio of transaction value to the CEO’s most recent total annual compensation,” this study found 

that “the average cumulative abnormal return (“CAR”) during the 40 trading days before the sale 

is 3.68 percent for non-plan sales and 1.77 percent for plan sales” and “the average CAR for the 

40 trading days after the sale is -2.24 percent for non-plan sales and -2.41 percent for plan 

sales.”405 The study concludes that “the overall level of opportunistic behavior is smaller for 

sales within Rule 10b5-1 plans than for sales outside of such plans” but that “CEOs who have a 

                                                 
terminations are associated with pending positive performance shifts, reducing the likelihood that insiders' sales 

execute at low prices.” See Jagolinzer, supra note 19. 

402  See Mavruk & Seyhun, supra note 19. 

403  Id. As noted above, due to voluntary reporting of the Rule 10b5-1 flag on beneficial ownership forms, trades 

classified as “non-10b5-1” trades in the study may include Rule 10b5-1 plan trades. 

404  See Eliezer M. Fich et al., supra note 378. This study examined “11,250 stock sales by 1,514 CEOs at 1,312 

different public firms during the 2013 to 2018 period” and found that, “[o]f these stock sales, 6,953 are 

identified in SEC Form 4 filings as executed through Rule 10b5-1 plans.” As noted above, due to voluntary 

reporting of the Rule 10b5-1 flag on beneficial ownership forms, trades classified as “non-10b5-1” trades in the 

study may include Rule 10b5-1 plan trades. 

405  Id. Cumulative abnormal returns are returns in excess of returns that would be expected given the security’s 

systematic risk over the period of time in question. 



138 

lot of money at stake are able to trade opportunistically even if the transaction is executed under 

a Rule 10b5-1 plan.”406 The findings of these studies differ, in part, due to differences in the 

samples used for analysis (i.e., the sample periods and data source, which were beneficial 

ownership forms or Form 144 filings) and their methodologies (including, among other 

assumptions, whether insider trading under Rule 10b5-1 is examined in isolation or in 

comparison with other insider sales and purchases). As noted above, the lack of data on Rule 

10b5-1 plans can make it difficult to extrapolate from the available evidence to all trading under 

Rule 10b5-1. However, overall, the evidence on the use of Rule 10b5-1 plans in the above 

studies raises concerns about insider trading. 

 Data on companies’ use of Rule 10b5-1 plans are very limited. Most of the commenters 

discussing issuer Rule 10b5-1 plans referred to issuer repurchases.407 However, one commenter 

expressed concern that the Proposing Release underestimated the number of issuers that conduct 

repurchases under Rule 10b5-1.408 Some companies voluntarily disclose their use of Rule 10b5-1 

plans to carry out stock repurchases on Form 8-K or in periodic reports. Such voluntary reporting 

is likely to underestimate the number of affected companies. Nevertheless, in the current 

disclosure regime, it is the main direct source of information on the prevalence of Rule 10b5-1 

repurchases. One study examining different repurchase methods identified “at least 200 

announcements of repurchases using Rule 10b5-1 per year from 2011 to 2014” and found that 

“[In 2014] 29% [of repurchase announcements] included a 10b5-1 plan.”409 Based on a textual 

                                                 

406  Id. 

407  See supra note 71.  

408  See letter from Cravath. 

409  See Alice Bonaimé et al., Payout Policy Trade-Offs and the Rise of 10b5-1 Preset Repurchase Plans, 66 MGMT. 

SCI. 2762 (2020). The study does not provide evidence of issuers’ use of such plans for insider trading through 

issuer repurchases. It focuses on such plans being less flexible and representing a stronger pre-commitment than 



139 

search of calendar year 2021 filings, we estimate that approximately 210 companies disclosed 

share repurchase programs executed under a Rule 10b5-1 plan.410 Another, indirect approach to 

estimating the number of affected issuers involves extrapolating the number of companies 

conducting repurchases under Rule 10b5-1 in a given year from a combination of the incidence 

of Rule 10b5-1 plan use among voluntarily announced repurchases (estimated at 29 percent as 

previously noted411) and the overall number of companies conducting repurchases based on their 

financial statements.412 Based on data from Compustat and EDGAR filings for fiscal years 

ending between January 1, 2021 and December 31, 2021, we estimate that approximately 3,600 

operating companies conducted repurchases, yielding an estimate of approximately 1,000 

companies affected by the Rule 10b5-1 amendments.413 Due to a lack of an issuer trade reporting 

requirement similar to that for officers and directors, we are not aware of data or studies specific 

to companies’ actual trading under Rule 10b5-1 plans. 

                                                 
open market repurchases. The study finds that, “[c]onsistent with [such] plans signaling commitment, Rule 

10b5-1 repurchase announcements are associated with greater and faster completion rates, with more positive 

market reactions, and with more dividend substitution than open market repurchases.” 

410  The estimate is based on a textual search of calendar year 2021 filings of Forms 10-K, 10-Q, 8-K, as well as 

amendments and exhibits thereto in Intelligize. The estimate is based on a textual search using keywords “10b5-

1 repurchases” or a combination of keywords “repurchase plan” and “10b5-1” (the approach used in the 

Proposing Release estimate). Due to a lack of standardized presentation and the unstructured (i.e., non-machine-

readable) nature of the disclosure, these estimates are approximate and may be over- or under-inclusive. 

411  See supra note 409. 

412  Using the number of issuers that announce repurchases in a given year would underestimate the number 

significantly because issuers may continue to implement a previously announced repurchase program over 

multiple years. 

413  As a caveat, a complete estimate of the number of affected filers is limited by data coverage. A source of data 

commonly used in existing studies, Standard & Poor’s Compustat, has limited coverage of small and unlisted 

registrants and foreign private issuers. Therefore, we supplemented Standard & Poor’s Compustat 

Fundamentals Annual data (version retrieved June 27, 2022) with structured data from financial statement 

disclosures in EDGAR filings (retrieved June 27, 2022), with the caveat that variation in filer use of tags to 

characterize their repurchases may result in some data noise. 29 percent x 3600 = 1,044 ~ 1,000. 



140 

2. Benefits 

The main benefit of the amendments to Rule 10b5-1(c)(1) is the anticipated reduction in 

insider trading based on MNPI through such plans (the benefits of which are discussed in greater 

detail in Section V.A above). Below, we discuss how each of the amendments to Rule 10b5-

1(c)(1) individually is expected to reduce such insider trading. In addition, we expect the 

provisions to work in tandem to substantially reduce insider trading through Rule 10b5-1 plans. 

In particular, for officers and directors, the certification requirement is expected to complement 

the effects of the cooling-off period. Cooling-off periods are expected to work together with the 

restrictions on the use of multiple overlapping plans under Rule 10b5-1(c)(1) to possibly prevent 

a portion of potentially opportunistic plan cancellations based on MNPI. Thus, while we 

separately discuss below the benefits of each individual provision for reducing insider trading 

through such plans, the combined application of the various amendments discussed here may 

also generate synergies. 

As discussed in Section V.A above, because the Rule 10b5-1(c)(1) affirmative defense is 

voluntary, if insiders find the conditions of this defense to be overly burdensome, they may elect 

not to rely on it.414 If migration of trading outside of Rule 10b5-1 plans results, in some 

instances, in an increase or no change in the incidence of insider trading, the benefits of the 

amendments may be attenuated or offset.415 Whether any shift to trading outside of Rule 10b5-1 

plans results in a change to the amount of insider trading will depend on the extent to which 

other mechanisms (such as legal liability, enforcement actions, listing standards, reputational 

                                                 

414  But see infra note 441. 

415  But see infra notes 439-440 and preceding and accompanying text.141 

concerns, and corporate governance mechanisms) and any changes that companies implement to 

their insider trading policies after the amendments deter insider trading incentives.  

In the subsections below we discuss the individual benefits of these amendments to Rule 

10b5-1(c)(1).  

i. Cooling-Off Periods 

With respect to Rule 10b5-1 plans of officers and directors, the final rules add, as a 

condition to the availability of the affirmative defense under Rule 10b5-1(c)(1) a cooling-off 

period before any purchases or sales under the trading arrangement may commence. In a change 

from the 120-day cooling-off period proposed for officers and directors, the cooling-off period 

for officers and directors in the final rules is the later of (1) 90 days following plan adoption or 

modification or (2) two business days following disclosure of the financial results for the 

reporting period in which the plan was adopted (which need not exceed 120 days following plan 

adoption or modification). The cooling-off period for officers and directors is expected to reduce 

incentives to enter or modify plans based on MNPI by ensuring that trades under the plan are 

executed at prices that fully reflect the material information that was previously non-public. This 

is expected to substantially weaken officers’ and directors’ incentives to enter or modify Rule 

10b5-1 plans based on MNPI, in line with the suggestions of commenters.416 The length of the 

cooling-off period will largely prevent officers and directors from profiting on unreleased 

earnings results for the quarter in which the Rule 10b5-1 plan was adopted as well as other types 

of MNPI (such as a potential merger or regulatory action).417 It also is consistent with several 

                                                 

416  See supra notes 47-51 and accompanying text; see also supra Section II.A.1.c for a discussion of the rationale 

for the cooling-off period we are adopting. 

417  See, e.g., Gaming the System, supra note 20; see also supra note 393 and accompanying text. 



142 

recommendations regarding cooling-off periods for officers and directors.418 To the extent that 

MNPI may be time-sensitive, we expect the cooling-off period to effectively discourage officers 

and directors from adopting new or modified plans on the basis of MNPI.419  

Some evidence of the extent to which requiring a longer period of time between Rule 

10b5-1 plan adoption and the first trade under the plan could prevent insider trading is presented 

in the WSJ analysis. It shows that shorter periods between plan adoption and the first sale were 

associated with more negative stock returns after the sale, which implies that more insider 

trading occurs in cases of trading commencing closer to plan adoption.420   

                                                 

418  See, e.g., letters from AFL-CIO, CII, CO PERA, ICGN, Public Citizen O’Reilly, NASAA; see also Council of 

Institutional Investors, Request for rulemaking concerning amending Rule 10b5-1 or further interpretive 

guidance regarding the circumstances under which Rule 10b5-1 trading plans may be adopted, modified, or 

cancelled, December 28, 2012, at p. 3, available at https://www.sec.gov/rules/petitions/2013/petn4-658.pdf 

(recommending a minimum three-month waiting period); Yafit Cohn & Karen Hsu Kelley, Simpson Thacher 

Discusses Combating Securities Fraud Allegations with 10b5-1 Trading Plans (Aug. 10, 2017), available at 

https://clsbluesky.law.columbia.edu/2017/08/10/simpson-thatcher-discusses-combatting-securities-fraud-

allegations-with10b5-1-trading-plans/ (recommending that “insiders wait 30 to 90 days before selling stock 

under the trading plan for the first time”); David B.H. Martin et al., Rule 10b5-1 Trading Plans: Avoiding the 

Heat, Bloomberg BNA Securities Regulation & Law Report, 45 SRLR 438, 2013 (referring to the three-month 

cooling-off period recommended by the Council of Institutional Investors and stating that “[w]aiting periods of 

this duration, or those which restrict trading until after issuance of the next regular earnings release, may assist 

insiders in demonstrating good faith and that trades under a Rule 10b5-1 plan were not designed to take 

advantage of material nonpublic information.”); IAC Recommendations, supra note 22 (recommending a 

cooling-off period of at least four months). 

419  The cooling-off period condition for officers and directors that involves the disclosure of financial results 

references the disclosure on Form 10-K or 10-Q (or for a foreign private issuer, on Form 20-F or 6-K). Earnings 

results are typically announced prior to the periodic report filing. This provision is expected to benefit investors 

by ensuring that officers and directors trading under a Rule 10b5-1 plan cannot profit from MNPI contained in a 

periodic report that was not incorporated in a current report or press release. Form 10-Q and 10-K filings are 

associated with an announcement return, consistent with such disclosures conveying new information to the 

market. See Paul A. Griffin, Got Information? Investor Response to Form 10-K and Form 10-Q EDGAR 

Filings, 8 REV. ACC. STUD. 433 (2003). Periodic reports have been shown to have incremental information 

content compared to earnings releases. See, e.g., Yifan Li, Alexander Nekrasov, & Siew Hong Teoh, 

Opportunity Knocks But Once: Delayed Disclosure of Financial Items in Earnings Announcements and Neglect 

of Earnings News, 25 REV. ACC. STUD. 159 (2020); Angela K. Davis & Isho Tama-Sweet, Managers’ Use of 

Language Across Alternative Disclosure Outlets: Earnings Press Releases versus MD&A, 29 CONTEMP. ACC. 

RES. 804 (2012); Steven Huddart, Bin Ke, & Charles Shi, Jeopardy, Non-public Information, and Insider 

Trading around SEC 10-K and 10-Q Filings, 43 J. ACC. ECON. 3 (2007). 

420  See supra note 381; see also Gaming the System, supra note 20 (similarly finding that shorter periods between 

plan adoption and first sale are associated with more negative returns following the sale, and also noting that 

approximately 14 percent of insider Rule 10b5-1 plans have the first trade within 30 days of plan adoption, 39 

percent within the first 60 days, and 82 percent within six months). More negative returns following an insider 

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143 

The cooling-off period for officer and director Rule 10b5-1 trading arrangements will 

also help deter trades under a newly adopted or modified plan before the disclosure of that 

quarter’s earnings. Trades under a Rule 10b5-1 trading arrangement prior to an earnings 

announcement appear to be more likely to involve insider trading. For example, the Gaming the 

System study found that “38 percent of plans adopted in a given quarter also execute trades 

before that quarter’s earnings announcement (i.e., in the 1 to 90 days prior to earnings [sic]),” 

that “[s]ales occurring between the adoption date and earnings announcement are about 25 

percent larger than sales occurring more than six months after the earnings announcement,” and 

that “plans that execute a trade in the window between when the plan is adopted and that 

quarter’s earnings announcement anticipate large losses and foreshadow considerable stock price 

declines.”421  

With respect to persons other than the issuer that are not officers or directors, in a change 

from the proposal, in line with the suggestions of several commenters,422 the final amendments 

impose a shorter (30-day) cooling-off period (discussed in greater detail in Section II.A.1.c 

above). Similar to the cooling-off period for officers and directors, the cooling-off period for 

persons other than officers, directors, or the issuer is expected to benefit investors by reducing 

the potential for the use of Rule 10b5-1 plans for insider trading based on MNPI. Although 

persons other than officers, directors, or the issuer may be less likely to have MNPI about 

company-wide financial results or influence key corporate decisions, such persons may 

nevertheless come into possession of MNPI. For example, large shareholders other than officers 

                                                 
sale indicate greater loss avoidance by the selling insider. As Gaming the System notes, such plans “avoid 

significant losses and foreshadow considerable stock price declines that are well in excess of industry peers.” 

421  Id., at pp. 2-3. 

422  See letters from Better Markets, NASAA, and Senator Warren et al. 



144 

and directors may exert control rights or have informational advantages enabling access to MNPI 

before it is released. As another example, non-executive employees may obtain MNPI in the 

course of their employment.423 To the extent that persons other than officers and directors are 

less likely to rely on Rule 10b5-1 for their trading, the discussed benefits would be attenuated.424  

The application of the shorter cooling-off period to Rule 10b5-1 trading plans of persons 

other than officers and directors is intended to tailor the application of the most restrictive of the 

additional conditions of the affirmative defense in a way that balances the additional costs to 

insiders with the investor protection benefits. Directors and Rule 16a-1(f) officers, who will be 

subject to the longer cooling-off periods under the final amendments, are generally more likely 

than other insiders (1) to be involved in making or overseeing corporate decisions about whether 

and when to disclose information; and (2) to be aware of MNPI.425 In addition to these risk 

considerations, the shorter cooling-off period for non-officer-and-director insiders recognizes 

                                                 

423  See, e.g., letter from NASAA (stating that “other corporate insiders and lower-level employees can also have 

access to such [material nonpublic] information”). Separately, prior research provides some evidence of 

information advantages of rank-and-file employees. See, e.g., Ilona Babenko & Rik Sen, Do Nonexecutive 

Employees Have Valuable Information? Evidence from Employee Stock Purchase Plans, 62 MGMT. SCI. 1843 

(2016); Steven Huddart & Mark Lang, Information Distribution within Firms: Evidence from Stock Option 

Exercises, 34 J. ACC. ECON. 3 (2003); Kenneth Ahern, Information Networks: Evidence from Illegal Insider 

Trading Tips, 125 J. FIN. ECON. 26, Table 4 (noting insider trading by some lower-level employees). As an 

important caveat, these studies focus on data outside of Rule 10b5-1 plans. See also infra note 424. 

424  The current reporting regime impairs our ability to obtain comprehensive data on the use of Rule 10b5-1 plans 

by other insiders, including non-executive employees. According to a 2021 industry survey, only three percent 

of respondents required the use of Rule 10b5-1 plans for “other insiders” (insiders besides the C Suite and the 

board of directors) while an additional seven percent strongly encouraged it and 85 percent of respondents 

permitted it. By comparison, 13 percent of respondents required Rule 10b5-1 use and 28 percent strongly 

encouraged it for trading by the C Suite while six percent required Rule 10b5-1 plan use and 23 percent strongly 

encouraged it for trading by the board of directors. The survey also found that 77 percent of respondents that 

allowed other insiders to enter Rule 10b5-1 plans did not impose limitations on the ability of “other insiders” to 

enter Rule 10b5-1 plans, while the remainder imposed some limitations (e.g., allowing only employees at a 

certain level or from certain departments to enter such plans or imposing another limitation). The survey also 

found that at close to a third of respondents, the usage of Rule 10b5-1 plans by “other insiders” had increased in 

the prior two years. See SCG 2021 Survey. As a caveat, the survey contained a relatively small number of 

responses and had a high representation of large, more established public companies and thus the survey 

findings discussed above need not be representative of Rule 10b5-1 plan practices at all affected companies. 

425  See, e.g., Mavruk & Seyhun, supra note 19, at 179; see also letters from CII and Cravath. 



145 

that a longer cooling-off period might impose disproportionate costs on those insiders, who may 

be less highly compensated or face greater liquidity needs. 

ii. Officer and Director Certifications 

The amendments require that, as a condition of the amended Rule 10b5-1(c)(1) 

affirmative defense, officers and directors include certain representations in their trading plan. In 

a change from the proposal, to eliminate any additional burden that separate documentation may 

create,426 the final amendments require the certification to be included in the plan documents as a 

representation. This approach would continue to reinforce directors’ and officers’ cognizance of 

their obligations with regard to MNPI. 

The certification requirement is expected to incrementally benefit investors by 

reinforcing officers’ and directors’ cognizance of their legal obligation not to trade or adopt a 

trading plan while aware of material nonpublic information about the issuer or its securities. As a 

result, we expect the certification will reinforce investors’ confidence that the officers and 

directors who make such certifications are not trading on the basis of information derived from 

their position, and also generally improve investor confidence in the securities markets.427 This 

requirement, on the margin, is expected to act as an additional deterrent to officer and director 

trading based on MNPI through Rule 10b5-1 plans. Because the application of cooling-off 

periods to officer and director Rule 10b5-1 plans increases the likelihood that any MNPI 

becomes stale by the time trading commences, the benefits of the certification provision are 

expected to be greatest in instances where officers and directors have MNPI with a longer time 

horizon than the cooling-off period (for example, MNPI related to future corporate transactions 

                                                 

426  See supra note 132. 

427  See United States v. O'Hagan, 521 U.S. 642, 658–59, 117 S. Ct. 2199, 2210, 138 L. Ed. 2d 724 (1997). 



146 

or longer-term earnings forecasts). The benefits of this provision may be smaller if officers and 

directors already abstain from adopting Rule 10b5-1 plans while aware of MNPI (for example, as 

a result of robust insider trading policies and procedures or strong internal corporate governance 

controls). The incremental benefits of this provision may also be smaller in cases where officers 

and directors already make similar representations to broker-dealers that administer Rule 10b5-1 

plans as part of existing industry practices.428 Nevertheless, because such practices may not be 

universal, and the requirement may differ among the various broker-dealers that do require such 

representations, requiring these representations in the Rule 10b5-1 plan documents will likely 

have incremental benefits for investor confidence that the officer or director in fact is not aware 

of MNPI at the time of the representations. 

iii. Restricting Multiple Overlapping and Single-Trade Rule 10b5-1 Trading Arrangements 

A new condition to the affirmative defense will restrict the use of multiple overlapping 

Rule 10b5-1 plans for the open-market trades of persons other than the issuer. The restriction on 

multiple overlapping plans, which was supported by several commenters,429 is expected to 

reduce the likelihood that insiders enter into multiple, overlapping plans and selectively cancel 

some of the plans at a later time based on MNPI, while availing themselves of Rule 10b5-

1(c)(1)’s affirmative defense.430 The effects of this provision may be modest to the extent that 

                                                 

428  See supra note 132. 

429  See supra notes 153-154 and accompanying text. But see supra note 166. 

430  As a result, the benefit of strategically canceling an existing plan based on MNPI will be significantly reduced 

for many insiders. An insider that cancels a plan will be subject to disclosure obligations. This provision is 

expected to work in tandem with cooling-off periods, which will apply to any new plan and a modified plan that 

falls within the meaning of new Rule 10b5-1(c)(1)(iv), making a strategically planned cancellation significantly 

less attractive for insiders that plan to continue trading. Therefore, insiders will not be able to effectively 

shorten or circumvent the applicable cooling-off period by setting up multiple plans covering a similar period. 



147 

companies may already prohibit multiple Rule 10b5-1 plans,431 or to the extent that companies 

may allow a trading plan not reliant on Rule 10b5-1(c)(1) to exist in conjunction with a trading 

plan reliant on Rule 10b5-1(c)(1).432 

The restriction on the availability of the affirmative defense for multiple overlapping 

trading arrangements will not apply to plans not involving open-market transactions, such as, for 

example, employee benefit plans, ESOPs, or DRIPs. This is expected to preserve the benefits of 

flexibility for participants in such plans, which may be less likely to be associated with MNPI-

based trading but impractical or costly to consolidate with an open-market Rule 10b5-1 plan.  

In a modification from the proposal, trades in different classes of securities will not be 

excepted from the restriction on multiple overlapping Rule 10b5-1 plans. While different classes 

of securities may differ in the specific voting and cash flow rights they confer to the insider, as 

noted by a commenter,433 MNPI is likely to have the same directional effects on potential insider 

trading profits. Therefore, applying the multiple overlapping plan restriction across all classes of 

securities is expected to result in greater investor protection benefits.  

In a modification from the proposal, the restriction on multiple overlapping plans will not 

apply in certain circumstances involving plans with more than one broker dealer or other agent, 

as discussed in Section II.A.3.c above. This change is expected to preserve flexibility for insiders 

to rely on multiple financial intermediaries, with whom they may have previously established 

                                                 

431  A 2016 industry survey found that 82 percent of respondents do not allow multiple, overlapping Rule 10b5-1 

plans. See Morgan Stanley & Shearman & Sterling LLP, supra note 384. A 2021 industry survey found that 52 

percent of respondents do not allow multiple, overlapping Rule 10b5-1 plans. See SCG 2021 Survey. The data 

is based on the responses of the surveyed public company members of the Society of Corporate Secretaries and 

Governance Professionals in the respective survey years and may not be representative of other companies.  

432  But see infra note 441 and accompanying text. Also, trading under a plan not reliant on Rule 10b5-1 could 

entail additional legal costs and limitations. 

433 See letter from NASAA. See also Roger M. White, Insider Trading: What Really Protects U.S. Investors? 55 J. 

FIN. QUANT. ANAL. 1305 (2020). 



148 

relationships or from whom they may obtain better financial terms. The final amendments also 

contain a modification to the multiple-plan restriction that permits an insider to maintain two 

separate Rule 10b5-1 plans at the same time so long as trading under the later-commencing plan 

is not authorized to begin until after all trades under the earlier-commencing plan are completed 

or expire without execution. This provision will preserve the ability of insiders to set up two 

successive plans for open-market trading, which may better address their trading needs compared 

to the proposal. This provision would not be available for the later-commencing plan, however, 

if the first trade under the later-commencing plan is scheduled to begin during the “effective 

cooling-off period”, which is expected to strengthen investor protection. Finally, in a 

modification from the proposal, the restriction on multiple overlapping plans will not apply to 

sell-to-cover transactions, which will preserve the flexibility for insiders to meet tax withholding 

obligations related to the vesting of equity compensation. 

The amendments limit the availability of the affirmative defense in the case of single-

trade Rule 10b5-1 trading arrangements to one such trading arrangement in the prior twelve-

month period, which was generally supported by several commenters.434 The limitation on 

single-trade Rule 10b5-1 trading arrangements is expected to reduce the likelihood that plan 

participants would be able to repeatedly profit from “one-off,” ad hoc trading arrangements 

based on previously undisclosed MNPI while availing themselves of the protections of the Rule 

10b5-1(c)(1) affirmative defense.435 The incremental benefit of this limitation may be somewhat 

                                                 

434  See supra notes 152 and 155 and accompanying text; see also supra note 156. 

435  For instance, some suggestive evidence is presented in Gaming the System, supra note 20 (finding that, for 

single-trade plans, share prices decreased following insider sales under Rule 10b5-1). As a caveat, the data does 

not show the dates of all scheduled trades, only the dates of executed trades. Thus, some “single-trade” plans 

may be multi-trade plans in progress, or multi-trade plans with all but one trade cancelled. See also Milian 

(2016), supra note 392 (finding that sales under Rule 10b5-1 plans with few trades are associated with more 

negative subsequent returns than sales under plans with more trades). As a caveat, Milian (2016) does not 



149 

attenuated if insiders relying on single-trade plans are largely driven by one-time liquidity needs, 

or if they are effectively deterred from using MNPI by other provisions also being adopted. 

Nevertheless, there could be a benefit to limiting the frequency of single-trade arrangements to 

the extent that some MNPI may remain undisclosed for periods longer than the cooling-off 

period. In a modification from the proposal, the limitation on single-trade Rule 10b5-1 trading 

arrangements will only apply to plans involving open-market transactions. Similar to the 

application of the restriction on multiple overlapping trading arrangements to plans involving 

open-market transactions, this provision is expected to preserve the benefits of flexibility for 

participants in such plans, which may be less likely to be associated with MNPI-based trading. In 

a further modification from the proposal, the limitation on single-trade Rule 10b5-1 trading 

arrangements will not apply to sell-to-cover transactions, which will preserve the flexibility for 

insiders to meet tax withholding obligations related to the vesting of equity compensation. 

iv. The Amended Good Faith Condition 

The amendments expand the good faith provision to specify that all traders must act in 

good faith with respect to a Rule 10b5-1 plan (and not just enter into such plans in good faith), as 

a condition to the availability of the affirmative defense. The expansion of the good faith 

condition was generally supported by various commenters and is expected to further deter 

potential insider trading as part of such plans.436 As discussed in Section V.A above, a decrease 

in insider trading is expected to alleviate associated incentive distortions and generate benefits 

                                                 
specifically compare single-trade to multi-trade plans. Further, the number of trades in the plan is highly 

correlated with the duration of the plan in the study, which can make it difficult to isolate the effect of the 

number of trades in the plan. But see supra note 399 and accompanying text (citing letter from Anonymous, 

which asserts that some of the observed profitability of single-trade plans may be due to the greater reliance on 

limit orders). However, see, generally, supra note 401 (indicating that abnormal insider trading profits may still 

be present after consideration of the effect of limit orders on the data). 

436  See supra note 191. 



150 

for investors. By making clear that insiders must act in good faith with respect to the plan, 

including with respect to any trading under the plan, the amendments may discourage insiders 

from attempting to evade the prohibitions of the rule by, for example, using their influence to 

affect the timing of a corporate disclosure to occur before or after a planned trade under a trading 

arrangement (one of the economic costs of insider incentive distortions due to insider trading 

discussed in Section V.A above).437 The amendments are expected to strengthen investor 

protection by helping deter fraudulent and manipulative conduct throughout the duration of the 

trading arrangement.  

3. Costs  

The amendments will impose additional conditions on the use of the Rule 10b5-1(c)(1) 

affirmative defense. All else being equal, the conditions on the use of Rule 10b5-1 plans will 

make it more complicated for insiders to sell or buy shares under such plans. The conditions that 

impose additional barriers to sales of company stock under Rule 10b5-1(c)(1) are expected to 

result in decreased liquidity of the insider’s holdings, including reduced ability to meet 

unanticipated liquidity needs (such as emergency or unplanned expenses), as well as potential 

constraints on portfolio rebalancing and achieving optimal portfolio diversification and tax 

treatment. Greater difficulty of selling shares under Rule 10b5-1 plans will impose illiquidity 

costs on insiders and may reduce the value of their compensation.438 The final amendments may 

have relatively greater impacts on some insiders, for example, those with a lower net worth and 

limited means, who may suffer greater adverse effects from the trading restrictions in the event 

                                                 

437  See supra note 368 and accompanying and following text. 

438  See Lisa Meulbroek, The Efficiency of Equity-Linked Compensation: Understanding the Full Cost of Awarding 

Executive Stock Options, 30 FIN. L. MGMT. 5 (2001); see also infra note 442 and accompanying and following 

discussion. 



151 

of liquidity needs. The tailored nature of the final amendments (including the application of 

shorter cooling-off periods to Rule 10b5-1 trading plans of persons other than officers, directors, 

or the issuer; the limitation of certification requirements to officers and directors; and the 

exceptions to the multiple-plan and single-trade plan restrictions) is expected to mitigate some of 

these costs. Shortening the cooling-off period for officers and directors relative to the proposal is 

expected to decrease some of the costs of the rule for officers and directors.  

In general, the economic costs of the amendments to Rule 10b5-1(c)(1) may be partly 

mitigated by the voluntary nature of the Rule 10b5-1(c)(1) affirmative defense. Insiders who find 

the amended conditions to be too restrictive may elect not to rely on Rule 10b5-1(c)(1). For 

example, some insiders may elect to make more discretionary trades during open trading 

windows when they presumably do not possess MNPI, while others may adopt trading 

arrangements not reliant on amended Rule 10b5-1(c)(1). However, insiders that elect not to rely 

on Rule 10b5-1(c)(1) may incur additional costs, such as a potential increase in liability risk or 

cost of counsel to evaluate whether trades conducted pursuant to a plan not reliant on Rule 10b5-

1(c)(1) or conducted without a trading plan are compliant with securities laws and regulations439 

and a potential decrease in flexibility to execute trades during pension blackout periods and any 

“closed window” periods that issuers may choose to impose.440 As an important caveat, although 

                                                 

439  In addition, Form 4 must be filed before the end of the second business day following the day on which the 

transaction was executed. Rule 16a-3(g)(2)(i) indicates that for transactions that satisfy Rule 10b5-1(c), the date 

of execution is deemed to be the date on which the executing broker notifies the reporting person of the 

execution of the transaction. 

440  For example, trading under a Rule 10b5-1 plan is one of the exceptions from the blackout periods imposed in 

Section 306 of SOX. Section 306(a)(1) of SOX makes it unlawful for a director or officer of an issuer of any 

equity security, directly or indirectly, to purchase, sell or otherwise acquire or transfer any equity security of the 

issuer during a pension plan blackout period with respect to the equity security, if the director or executive 

officer “acquires such equity security in connection with his or her service or employment as a director or 

executive officer.” Section 306(a)(2) permits an issuer, or a security holder of the issuer on its behalf, to bring 

an action to recover any profits realized by a director or executive from a transaction made in violation of 

Section 306(a)(1). Rule 101(c)(2) of Regulation BTR [17 CFR 245.101(c)(2)] provides an exemption from 



152 

the use of Rule 10b5-1(c)(1) is voluntary under Commission regulations, some companies’ 

insider trading policies may require insiders to rely on Rule 10b5-1(c)(1).441  

Faced with the additional conditions on the use of Rule 10b5-1 plans, some insiders may 

seek to reduce their holdings of company shares in general, such as by buying fewer shares 

(including potentially greater reluctance to take advantage of DRIPs), selling shares more 

quickly when eligible, and negotiating for cash pay in lieu of equity pay, to the extent feasible 

given companies’ share ownership guidelines and compensation policies.442 The amendments 

also will make it more difficult for insiders to purchase company shares if they wish to do so 

under a Rule 10b5-1 plan.443 Reduced insider equity ownership may in turn affect incentive 

alignment between insiders and shareholders (to the extent such incentive alignment existed in 

                                                 
Section 306(a)(1) for transactions made pursuant to a trading arrangement that satisfies the affirmative defense 

conditions of Rule 10b5-1(c). Officers and directors trading other than under a Rule 10b5-1 plan would not get 

this benefit.  

441  As noted above, a 2016 industry survey found that 17 percent of surveyed companies required the use of Rule 

10b5-1 plans for trading. See Morgan Stanley & Shearman & Sterling LLP, supra note 384. A 2021 industry 

survey found that 13 percent of respondents required the C Suite, while six percent required directors to use 

Rule 10b5-1 plans for trading. See SCG 2021 Survey. We recognize that the number of companies with such 

policies in place may decrease after the rules become effective. 

442  Compensation committees may continue to award incentive pay even if insiders may prefer to reduce exposure 

to the issuer’s equity. See, e.g., Darren T. Roulstone, The Relation Between Insider-Trading Restrictions and 

Executive Compensation, 41 J. ACCT. RSCH. 525 (2003) (showing that firms restricting insider trading “use 

more incentive-based compensation and their insiders hold larger equity incentives relative to firms that do not 

restrict insider trading”). Companies may also impose share ownership guidelines and holding requirements. 

See, e.g., Bradley W. Benson et al., Stock Ownership Guidelines for CEOs: Do They (Not) Meet Expectations?, 

69 J. BANKING FIN. 52 (2016); see also Executive Stock Ownership Guidelines, EQUILAR (Mar. 9, 2016), 

available at https://www.equilar.com/reports/34-executive-stock-ownership-guidelines.html (finding that the 

percentage of Fortune 100 companies that disclose ownership guidelines or holding requirements in any form 

was 87.6 percent in 2014); John R. Sinkular & Don Kokoskie, Stock Ownership Guideline Administration, 2020 

HARV. L. SCHOOL FORUM CORP. GOV. (June 11, 2020), available at 

https://corpgov.law.harvard.edu/2020/06/11/stock-ownership-guideline-administration/; NASPP, 5 Trends in 

Stock Ownership Guidelines, (Dec. 15, 2020), available at https://www.naspp.com/blog/5-Trends-in-Stock-

Ownership-Guidelines (finding that “[e]ighty-five percent of respondents to the 2020 survey currently impose 

ownership guidelines on executives”). 

443  However, the likelihood of choosing a Rule 10b5-1 plan for a purchase is much lower than the likelihood of 

electing to use Rule 10b5-1(c)(1) for a sale (with the caveats about data availability). One study noted that 

approximately 2.3 percent of purchases versus 22.4 percent of sales were reported to be undertaken using Rule 

10b5-1 plans. See Mavruk & Seyhun, supra note 19. 

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153 

the first place and was not undermined by existing agency conflicts discussed in greater detail in 

Section V.A above). In some cases, if insiders have sufficient bargaining power, insiders facing 

illiquidity risk may seek higher total pay to compensate for the trading restrictions.444 Existing 

shareholders are expected to bear any costs incurred by issuers due to potential shifts in 

executive compensation in response to the new conditions of Rule 10b5-1(c)(1) (whether in the 

form of additional compensation for insiders, or changes in compensation structure that weaken 

insider incentives).  

In the subsections below we discuss the individual costs these conditions could impose 

on affected plan participants. However, we also recognize that these provisions may interact with 

each other and further reduce the attractiveness of Rule 10b5-1 plans to prospective traders. 

i. Cooling-Off Periods 

We recognize that the cooling-off period condition for officers and directors will restrict 

their ability to purchase or sell shares pursuant to a Rule 10b5-1 plan for the duration of the 

cooling-off-period, imposing potentially significant costs on officers and directors who seek to 

utilize the Rule 10b5-1(c)(1) affirmative defense, as indicated by various commenters.445 As a 

result, some insiders may choose not to rely on a Rule 10b5-1 plan for future trading.446 A long 

cooling-off period may discourage insiders from adopting Rule 10b5-1 plans and therefore result 

in larger, more concentrated volumes of insider-directed trades taking place during open-window 

                                                 

444  See Darren T. Roulstone, The Relation Between Insider-Trading Restrictions and Executive Compensation, 41 

J. ACCT. RSCH. 525 (2003) (finding that “firms that restrict insider trading pay a premium in total compensation 

relative to firms not restricting insider trading, after controlling for economic determinants of pay.”); see also 

M. Todd Henderson, Insider Trading and CEO Pay, 64 VAND. L. REV. 503 (2011) (finding that “executives 

whose trading freedom increased using Rule 10b5-1 trading plans experienced reductions in other forms of pay 

to offset the potential gains from trading”). 

445  See supra note 52. 

446  But see supra note 441.  



154 

periods rather than being spread out over the duration of the Rule 10b5-1 plan, which could lead 

to increased market volatility, as indicated by various commenters.447 Insiders who sell shares 

without relying on a Rule 10b5-1 plan are likely to incur additional costs and limitations. The 

economic costs of decreased liquidity due to Rule 10b5-1 plan restrictions were discussed in 

detail in Section V.B.3 above.  

In a change from the proposal, the cooling-off period for the Rule 10b5-1 plans of 

officers and directors was revised from 120 days to the later of (1) 90 days after the adoption of 

the Rule 10b5-1 trading plan or (2) two business days following the disclosure of the issuer’s 

financial results for the completed fiscal period in which the plan was adopted (which need not 

exceed 120 days after adoption or modification of the plan). However, because trading during the 

three months following adoption of a Rule 10b5-1 plan, or around earnings announcements, is 

common based on available data summarized in Section V.B.1 above, the amendments are likely 

to reduce officers’ and directors’ ability to trade under Rule 10b5-1 plans compared to their 

trading today, resulting in potential costs to insiders.448  

In another change from the proposal, in response to suggestions of several 

commenters,449 the final amendments include 30-day cooling-off period as a condition of the 

                                                 

447  See supra note 54. 

448  See Gaming the System, supra note 20; see also supra notes 379-381 and accompanying text. A 2016 industry 

survey examining Rule 10b5-1 plan practices at public companies found that 30 days was the most popular 

cooling-off period among their respondents (41 percent) and that for 77 percent of the respondents, the cooling-

off period was 60 days or less. See supra note 384. A 2021 industry survey examining Rule 10b5-1 plan 

practices found that 51 percent of survey respondents had a cooling-off period of 30 days and 67 percent of 

respondents reported cooling-offs of 60 days or less. See SCG 2021 survey. Separately, because many issuers 

release financial results prior to the filing of a Form 10-Q or 10-K, the use of the filing of Form 10-Q or 10-K 

for purposes of identifying the date of the disclosure of a domestic issuer’s financial results is expected to result 

in a longer minimum cooling-off period for the officers and directors of the typical issuer, compared to using 

the date of the issuance of a press release announcing earnings results, resulting in less flexibility for the 

affected officers and directors. 

449  See supra note 422. 



155 

affirmative defense for persons other than the issuer that are not officers or directors. We 

recognize that this change will result in additional costs for the affected persons, particularly 

those rank-and-file employees and other individuals that have a lower net worth and 

undiversified stockholdings and lack the resources and access to alternative liquidity sources to 

absorb unanticipated liquidity needs in the presence of the trading restrictions in the final 

amendments. Such costs are expected to be mitigated to a considerable extent by the shorter 

duration of the cooling-off period for persons other than officers, directors, or the issuer. Further, 

the costs relative to the baseline are expected to be potentially more modest to the extent that the 

30-day duration of the cooling-off period is generally aligned with existing industry practices.450 

In the aggregate, such costs may be further alleviated to the extent that persons other than 

officers, directors, or the issuer may hold less stock or may be less likely to trade under Rule 

10b5-1 plans.451  

The final amendments are also adding new paragraph (c)(1)(iv) that states that a 

modification or change to the amount, price, or timing of the purchase or sale of the securities 

underlying a Rule 10b5-1 plan is treated as a termination of the plan and the adoption of a new 

plan, and to the extent that insiders seek to continue to rely on the affirmative defense, they 

would incur the costs associated with a new cooling-off period. Other types of changes to Rule 

                                                 

450  A 2016 industry survey found that 41 percent of respondents had a 30-day cooling-off period and an additional 

eight percent reported a cooling-off period exceeding 30 days. See supra note 384. A 2021 industry survey 

found that 51 percent of respondents had a 30-day cooling-off period and an additional 13 percent reported a 

cooling-off period exceeding 30 days. See SCG 2021 Survey. As a caveat, neither survey specifies whether the 

cooling-off periods varied depending on the type of insider. As a further caveat, survey respondents need not be 

representative of all affected companies. Several commenters identified 30 days as a common duration of the 

cooling-off period (similarly not noting whether prevailing industry practices with regard to cooling-off periods 

vary depending on the type of insider). See supra note 57 and accompanying text. 

451  But see supra note 424. 



156 

10b5-1 plans would not be treated as the adoption of a new plan and would not result in those 

potential costs generally in line with the comments received.452  

ii. Officer and Director Certifications 

The amendments introduce as a condition to the Rule 10b5-1(c)(1) affirmative defense a 

new requirement that directors and officers provide representation in the plan documents that, at 

the time of adopting a new or modified Rule 10b5-1 plan: (1) they are not aware of material 

nonpublic information about the issuer or its securities; and (2) they are adopting the contract, 

instruction, or plan in good faith and not as part of a plan or scheme to evade the prohibitions of 

Section 10(b) and Rule 10b-5. In a change from the proposal to eliminate any additional burden 

that separate documentation may create,453 officers and directors will be required to include the 

certification in the plan documents as representations, rather than provide a separate certification 

to the issuer. The final rules also do not provide that officers and directors should retain the 

certification for ten years, as was originally proposed. These changes are expected to 

incrementally decrease the costs of compliance with the amendments and avoid any potential 

costs that issuers might have chosen to incur to develop systems or procedures to accept officer 

and director certifications. 

The incremental costs of this provision may be small to the extent that officers and 

directors already avoid adopting Rule 10b5-1 plans while aware of MNPI (for example, due to 

robust policies and procedures related to officer and director trading or robust corporate 

governance controls). Further, insiders may already make representations to that effect to broker-

dealers that administer the plans, as part of existing industry practices.454 Nevertheless, we 

                                                 

452  See supra note 80. 

453  See supra note 132. 

454  See supra note 132. 



157 

recognize that such representations to broker-dealers may not be universal in practice or uniform 

in substance today. We further recognize, consistent with the concerns of commenters, that the 

certification condition may result in increased costs for officers and directors, such as the cost of 

consulting with legal counsel to help them analyze whether they have MNPI and to comply with 

the certification requirement, which may in some instances deter officers and directors from 

relying on Rule 10b5-1(c)(1).455 To the extent that officers and directors forgo Rule 10b5-1 plans 

due to the certification requirement, they may incur additional costs of trading outside of such 

plans (see V.B.3 above for a more detailed discussion). The associated costs could also lead 

officers and directors to potentially seek other compensation terms with less equity exposure, 

which may result in additional costs to the company and its shareholders.456 

iii. Restricting Multiple Overlapping and Single-Trade Rule 10b5-1 Trading Arrangements 

We are adopting the restriction on multiple overlapping Rule 10b5-1 trading 

arrangements for open-market trades, with certain modifications. This restriction is expected to 

limit the affected plan participants’ flexibility to use Rule 10b5-1 plans to purchase or sell their 

shares. In a change from the proposal, we are adopting modifications to this condition that 

address the use of multiple brokers in a Rule 10b5-1 plan and that permit an insider to maintain 

two Rule 10b5-1 plans at the same time in certain circumstances. These changes should decrease 

the incremental costs of the amendments by preserving some flexibility for insiders that plan to 

use a successive Rule 10b5-1 plan after the current Rule 10b5-1 plan expires but wish to set it up 

before the first plan concludes as well as for insiders that have established relationships with, or 

otherwise prefer to utilize, multiple brokers. In another change from the proposal which should 

                                                 

455  See supra note 131. 

456  See supra note 442 and accompanying and following text. 



158 

further reduce the incremental costs for affected insiders, the restriction will not apply to sell-to-

cover transactions. The effects of the multiple-plan restriction will be smaller for insiders that 

can anticipate and consolidate most upcoming open-market purchases and sales of securities into 

a single plan (e.g., utilizing an algorithm-based strategy). As proposed, the restriction on multiple 

overlapping plans will apply only to plans involving open-market trades, which will enable 

insiders with purchases and sales planned, for example, as part of employee benefit plans, 

ESOPs, or DRIPs, and not involving open-market purchases or sales to avoid the cost of the 

requirement. In a modification from the proposal, trades in different classes of securities will not 

be excepted from the restriction on multiple overlapping Rule 10b5-1 plans, consistent with a 

commenter’s suggestion.457 Compared to the proposal, this modification is expected to limit 

flexibility for those plan participants that seek to implement independent purchase or disposition 

strategies for different share classes through separate, overlapping plans. 

We recognize that the multiple-plan restriction will impose costs on affected insiders, as 

suggested by various commenters.458 While some insiders may be able to meet different trading 

needs involving open-market purchases or sales with a single plan, or through the exceptions 

provided above for one successive plan, a plan executed by multiple brokers, and sell-to-cover 

transactions, other insiders will incur costs due to this restriction.459 For example, insiders may 

have immediate liquidity or other trading needs involving open-market transactions at different 

points in time that are difficult to incorporate into a single plan, resulting in greater costs. 

Modifying a single existing plan based on updated trading needs will initiate a new cooling-off 

                                                 

457 See letter from NASAA. See also Roger M. White, Insider Trading: What Really Protects U.S. Investors? 55 J. 

FIN. QUANT. ANAL. 1305 (2020). 

458  See supra note 167. 

459  See letter from SIFMA 3.  



159 

period, imposing costs on insiders in such cases. Nevertheless, the incremental costs of the 

multiple-plan restriction are expected to be limited for the affected insiders of companies that 

already disallow such plans today.460 The incremental costs of the multiple-plan restriction are 

also expected to be smaller for the affected insiders of companies that allow trading 

arrangements that do not rely on Rule 10b5-1(c)(1) and do not require the use of Rule 10b5-1 for 

insider trades.461 Nevertheless, as noted above, insiders that maintain trading arrangements not 

reliant on Rule 10b5-1(c)(1) may incur other costs.  

The final amendments limit the number of single-trade Rule 10b5-1 trading arrangements 

to one such arrangement in any twelve-month period. As noted by several commenters, this 

limitation is expected to impose costs on the affected insiders.462 This limitation will make it 

costlier for insiders with repeated sporadic or ad hoc liquidity needs to divest issuer equity 

holdings.463 At the same time, the approach of limiting the number of single-trade Rule 10b5-1 

plans in a 12-month period, rather than restricting them entirely, alleviates costs for insiders with 

occasional unexpected liquidity needs that seek to avail themselves of the affirmative defense for 

such a single-trade plan. This approach has the benefit of protecting investors from trades that 

run a higher risk of being opportunistically driven by MNPI, while still accommodating the 

liquidity needs of certain insiders. While it is possible that the same insider would experience 

                                                 

460  See, e.g., supra note 431 and accompanying text (discussing restrictions on multiple overlapping plans). 

According to a 2016 industry survey, more than 80 percent of respondents do not allow multiple, overlapping 

Rule 10b5-1 plans. According to a 2021 industry survey, 52 percent of respondents do not allow such plans. See 

SCG 2021 Survey. 

461  See supra note 432 and accompanying text. 

462  See supra notes 157-162 and accompanying text. 

463  Single-trade plans appear to be common. Based on Washington Service data from January 2016 – May 2020, 

Gaming the System, supra note 20, note that 49 percent of the 10b5-1 plans in their sample cover only a single 

trade. Using Washington Service data for a more recent period (January 2, 2018 – September 13, 2022), we 

estimate that single-trade plans constitute approximately 44 percent of plans during the time period examined. 

See supra Section V.B.1. The caveat about classification of plans as “single-trade” plans in the available data 

applies. See supra note 435. 



160 

multiple instances of repeated, ad hoc liquidity needs in a 12-month period that can only be met 

through a new single-trade Rule 10b5-1 plan and such an insider would lose flexibility under the 

final amendments, the likelihood of such successive unanticipated liquidity needs occurring 

within the same 12-month period is lower than that of a single occurrence of an ad hoc liquidity 

need, for which the final rule provides an exception. In a modification from the proposal, the 

limitation on single-trade Rule 10b5-1 trading arrangements will only apply to plans involving 

open-market transactions. Similar to the focus of the multiple-plan restriction on plans for open-

market trades, tailoring the limitation on single-trade Rule 10b5-1 trading arrangements in this 

manner is expected to eliminate the cost of the requirement for insiders with plans not involving 

open-market purchases or sales. In a further modification from the proposal, the limitation on 

single-trade Rule 10b5-1 trading arrangements will not apply to sell-to-cover transactions, which 

will also help to mitigate costs of this provision by allowing insiders to sell shares to cover tax 

withholding obligations related to the vesting of equity compensation. 

iv. The Amended Good Faith Condition 

The amendments specify that a trader must act in good faith with respect to the plan as a 

condition to the continued availability of the affirmative defense. Consistent with the views of 

various commenters, this provision is expected to result in additional legal costs (such as the cost 

of legal counsel to aid in compliance with the requirement), ambiguity,464 and risks for plan 

participants (namely, the risk of loss of the Rule 10b5-1(c)(1) affirmative defense if a trader is 

found not to have acted in good faith).465 Some commenters also expressed the concern that the 

amended good faith provision may create an “unintended incentive for directors or officers to 

                                                 

464  See supra note 196 and accompanying text. 

465  See supra notes 195 and 198.161 

consider their Rule 10b5-1 plans in connection with corporate actions long after establishing 

their plans.”466 If plan participants perceive the amended good faith provision as increasing the 

legal cost and risk associated with the use of Rule 10b5-1 plans, they may reduce their reliance 

on Rule 10b5-1 plans.467  

4. Effects on Efficiency, Competition, and Capital Formation 

We expect the amendments to reduce the improper use of Rule 10b5-1 plans by insiders 

with MNPI. This decrease in insider trading should also limit insiders’ incentives to engage in 

inefficient corporate decisions associated with insider trading, which were discussed in Section 

V.A above. The effects of the rule on the efficiency of corporate investment and other decisions 

are not fully certain because the rule may induce insiders to adjust their holdings in response to 

the reduced liquidity and potentially lead companies to adjust incentive and compensation 

structure or other policies and practices in response to the rule. 

Further, limiting insiders’ ability to trade on MNPI would decrease the insiders’ 

incentives to influence the timing and content of corporate disclosures. Timelier and higher-

quality corporate disclosures would provide more information to investors, resulting in more 

informationally efficient share prices in the secondary market and more efficient allocation of 

investor capital across investment opportunities in their portfolio.  

A reduction in insider trading may also benefit market efficiency.468 For example, a lower 

risk of trading against an informed insider is expected to increase investor confidence and the 

willingness of market participants to buy, and trade in, the issuer’s shares. This effect would 

indirectly make it easier for the company to raise capital from investors. 

                                                 

466  See letter from Chamber of Commerce 2; see also letter from Wilson Sonsini. 

467  See supra note 198. 

468  See supra note 362. 



162 

Finally, the amendments may affect competition. Decreasing the ability of insiders to 

trade on MNPI should weaken their competitive edge in trading, promoting competition among 

other investors in the market for the issuer’s shares. A lower risk of an insider with a significant 

private information advantage trading the issuer’s shares may strengthen the incentive of other 

market participants to trade the issuer’s shares and compete in gathering and processing 

information about the company.  

All of the effects described above would be weaker to the extent that some insiders may 

trade under non–Rule 10b5-1 trading arrangements or may trade without a plan. Whether the 

amendments prompt a large increase in insider trading under non-Rule 10b5-1 trading 

arrangements would depend, in part, on how burdensome insiders find the amendments and how 

company policies constrain insider use of MNPI in non-Rule 10b5-1 trading arrangements 

(including in response to the Item 408 disclosure requirements). 

It is not clear if the amendments will result in meaningful competitive effects on the labor 

market. We are not exempting any categories of public companies from the amendments, which 

should reduce potential effects on competition for talent among public companies. We do not 

anticipate significant effects of the amendments on the competition for talent between public and 

private companies. While Rule 10b5-1(c)(1) amendments may make insider holdings of public 

company stock less liquid (as discussed in greater detail in Section V.B.3 above), holdings of 

public company shares will remain significantly more liquid than holdings of private company 

stock.  

5. Reasonable Alternatives 

The certification requirements will apply to officers and directors only, as proposed. 

Cooling-off periods (with the duration dependent on the type of insider) and restrictions on 



163 

multiple overlapping plans and single-trade plans will apply to persons other than the issuer. The 

expanded good faith provision will apply to all persons who seek to rely on the Rule 10b5-

1(c)(1) affirmative defense.  

As an alternative, we could limit each of the provisions to officers only.469 Compared to 

the amendments, this alternative would eliminate the costs of the rule (discussed in greater detail 

in Section V.B.3 above) for the exempted plan participants but increase the risk of insider trading 

by such plan participants. The latter effects may be smaller to the extent the exempted persons 

are less involved in making and overseeing corporate decisions or are less likely to be aware of 

MNPI, but that likely is not the case for directors. As another alternative, we could extend all of 

the Rule 10b5-1(c)(1) amendments, including the certification requirements and the longer 

cooling-off periods applicable to officers and directors, to all persons other than the issuer. 

Compared to the amendments, this alternative would subject additional persons other than the 

issuer, including employees, to the costs of all of the provisions of the rule (discussed in greater 

detail in Section V.B.3 above) but also decrease the risk of insider trading by such plan 

participants. The latter benefits may be smaller to the extent that persons other than the issuer 

that are not officers or directors are less involved in making and overseeing corporate decisions, 

may lack control or knowledge about the timing and substance of the issuer’s disclosures, or are 

less likely to be aware of MNPI. The aggregate effects of all of the discussed alternatives, 

compared to the amendments, may also be smaller to the extent that Rule 10b5-1 plans may be 

most prevalent among officers (with the caveat about data availability).  

                                                 

469  With the caveat about data availability, where Rule 10b5-1(c)(1) use is reported, officers are far more likely to 

report trading under Rule 10b5-1 plans than directors. 



164 

Alternatively, rather than adding new conditions to the affirmative defense, we could 

rescind the Rule 10b5-1(c)(1) affirmative defense altogether.470 Rescinding Rule 10b5-1(c)(1) 

would increase the costs for existing Rule 10b5-1 plan participants (such as the additional costs 

of legal counsel to determine whether trading arrangements, or trades not reliant on a trading 

arrangement, are compliant with the Exchange Act in the absence of the Rule 10b5-1(c)(1) 

affirmative defense). Rescinding the Rule 10b5-1(c)(1) affirmative defense would also increase 

the liability risk for insiders that continue to trade due to greater uncertainty about whether they 

have complied with Rule 10b-5 and subject insiders to additional limitations on trading (such as 

restrictions on trading during blackout periods). The associated costs of divesting stock in the 

absence of the affirmative defense would make insiders’ holdings of stock less liquid and could 

further induce insiders to negotiate non-stock-based compensation.471 Further, while rescinding 

Rule 10b5-1(c)(1) would eliminate Rule 10b5-1 plans, it would not affect the use of other trading 

arrangements by officers, directors, and companies. The potential for trading under non-Rule 

10b5-1 trading arrangements or outside of plans may lead to an increase in insider trading, 

compared to the amendments. It also may increase investor effort to perform due diligence on 

non-Rule 10b5-1 trading arrangements and trades outside of plans to assess the risk of trading 

against an informed insider. Moreover, rescinding Rule 10b5-1(c)(1) may hinder issuers’ efforts 

to develop and implement corporate governance practices for trading arrangements that comply 

with securities laws and regulations. We expect that the new Item 408 disclosure requirements, 

discussed in detail in Section V.C below, will partly mitigate incentives to engage in insider 

                                                 

470  See, e.g., letter from Better Markets. 

471  See supra note 442 and accompanying and following text. 



165 

trading under all trading arrangements, including trading arrangements that are not reliant on 

Rule 10b5-1(c)(1) under this alternative.  

As another alternative, we could impose some, but not all, of the new conditions to the 

affirmative defense. This alternative would lower the aggregate costs of the rule and preserve 

greater flexibility than the amendments, decreasing the costs discussed in the case of each of the 

specific provisions. However, due in part to their expected synergy, this alternative would make 

the combined set of amendments less effective at curbing insider trading behavior under Rule 

10b5-1.472  

With respect to the cooling-off period for officers and directors, the Commission could 

adopt a shorter or longer cooling-off period.473 A shorter cooling-off period for officers and 

directors (such as the 30-day minimum cooling-off period that the final amendments apply to 

persons other than the issuer that are not officers or directors) could reduce some of the costs of a 

cooling-off period and preserve greater flexibility for officers and directors, compared to the 

amendments, but it would increase the risk of officers’ and directors’ trading based on MNPI. 

Conversely, a longer cooling-off period for officers and directors (such as the 120-day minimum 

cooling-off period proposed for officers and directors) could increase costs to officers and 

directors and limit flexibility, compared to the amendments, but it may further decrease the risk 

                                                 

472  As discussed in Section V.B.2 above, in particular, for officers and directors, the certification condition is 

expected to complement the effects of the cooling-off period, which, in turn, is expected to work in tandem with 

the exclusion of multiple overlapping plans from Rule 10b5-1(c)(1) to possibly prevent a portion of potentially 

opportunistic plan cancellations based on MNPI. 

473  See supra note 418 (discussing suggestions for three-month and four- to six-month cooling-off periods); see 

also supra note 384 and following text (noting that at over three-quarters of surveyed respondents, the cooling-

off period was 60 days or less); supra note 56 (suggesting a 30-day cooling-off period); letter from Cravath 

(suggesting a cooling-off period of the later of (1) 45-days after the adoption of the Rule 10b5-1 trading plan 

and (2) the second trading day following the next publication of the issuer’s financial results for a completed 

fiscal period); supra note 58 (suggesting a cooling-off period not exceeding 90 days); supra note 48 (supporting 

the proposed 120-day cooling-off period); letter from CII (recommending a cooling-off period of four to six 

months). 



166 

of officers’ and directors’ trading based on MNPI. As another alternative, we could specify a 

minimum cooling-off period for officers and directors that extends one trading day past the filing 

or furnishing of the issuer’s next earnings announcement covering at least one fiscal quarter (and 

not include a minimum 90-day cooling-off period for officers and directors).474 Such a variable-

length cooling-off period would, in most cases, be shorter than the cooling-off period for officers 

and directors under the final amendments. This alternative also would introduce much greater 

variability in the permissible duration of the minimum cooling-off period for officers and 

directors, which may require incrementally greater effort from investors seeking to evaluate the 

timing of officer and director trades. Compared to the final amendments, it would also not be as 

effective as the adopted approach in discouraging trading on MNPI that is not tied to quarterly 

results.475 A more detailed discussion of the costs and benefits of a cooling-off period that would 

be magnified or reduced, respectively, under these alternatives is included in Sections V.B.2.i 

and V.B.3.i. The discussed effects of the alternatives would also depend on whether they differ 

from existing, voluntary cooling-off period practices of issuers.476  

The final amendments include a 30-day cooling-off period for persons other than the 

issuer that are not officers or directors. As an alternative, the Commission could lengthen the 

cooling-off period or shorten the cooling-off period applicable to such persons. As another 

alternative, the Commission could eliminate the cooling-off period for persons other than the 

                                                 

474  See letter from Davis Polk. 

475  For example, one study finds that “specific disclosures are associated with subsequent negative news events that 

may not be impounded in short-term earnings . . . approximately 25% of the specific-disclosure sample exhibits 

a single news event, not related to earnings, for which the three-day market-adjusted return falls between 10% 

and 75%, within an average 140 calendar days of disclosure. These news events include exchange-imposed 

stock trade suspension, drug trial failure, and announcement of the intent to acquire another firm.” See M. Todd 

Henderson et al., supra note 19. 

476  See supra notes 379-384 and accompanying and preceding text. 



167 

issuer that are not officers or directors (for instance, only applying cooling-off periods to officers 

and directors, as proposed). Including a longer cooling-off period for persons other than the 

issuer that are not officers or directors (such as the longer cooling-off period applicable to 

officers and directors) would increase the costs to the affected plan participants and limit their 

flexibility (as discussed in greater detail in Section V.B.3.i above), compared to the amendments, 

but it may further decrease the risk of the affected plan participants’ trading based on MNPI. 

Conversely, shortening or eliminating the cooling-off period applicable to persons other than the 

issuer that are not officers or directors could reduce costs (discussed in greater detail in Section 

V.B.3.i above) and preserve greater flexibility for the affected plan participants, compared to the 

amendments, but it would increase the risk of the affected plan participants’ trading based on 

MNPI. The effects of this alternative would be smaller than discussed to the extent that persons 

other than officers and directors may be less likely to trade under Rule 10b5-1.477  

As an alternative to including the certifications of officers and directors in Rule 10b5-1 

plan documents, we could provide for the certification to be made to the issuer in a separate 

document and retained for ten years, as proposed. Compared to the amendments, this alternative 

could result in incrementally greater costs for officers and directors, to the extent that they do not 

presently make representations separately to the issuer. This alternative also could result in 

additional costs for issuers to the extent that they decide to establish new processes and systems 

to accept officer and director certifications. In turn, due to the employer relationship between the 

issuer and its officers and the fiduciary relationship between the issuer and its directors, a 

condition that would require officers and directors to make a certification to the issuer under this 

alternative could be marginally more effective in reminding them of their existing obligations 

                                                 

477  But see supra note 424. 



168 

with respect to MNPI, compared to the amendments. The potential benefit of the alternative 

compared to the amendments would be decreased if officers and directors already comply with 

their MNPI obligations under the existing rule and market practices. 

The amendments restrict the availability of the affirmative defense for multiple 

overlapping Rule 10b5-1 trading arrangements for open-market trades. As an alternative, we 

could allow multiple overlapping plans but limit their number (e.g., to two or three), limit the 

provisions to no more than one plan pertaining to purchases and one plan pertaining to sales, or 

provide other exceptions. These alternatives could preserve greater flexibility, compared to the 

amendments, and lower costs for plan participants that have multiple accounts or trading 

arrangements through which they trade in the company stock. However, these alternatives could 

introduce greater complexity in companies’ oversight of insiders’ multiple overlapping plans and 

potentially present a greater risk of insider trading, compared to the amendments (to the extent 

not mitigated by the other provisions that we are adopting, including certifications, the amended 

good faith condition, cooling-off periods, and the disclosure requirements). In particular, the 

option to maintain multiple, overlapping plans concurrently facilitates the ability to selectively 

cancel one of the plans based on MNPI, without being subject to a cooling-off period with 

respect to the remaining plans’ trades. The economic effects of this alternative may be less 

significant to the extent that companies already may disallow the use of multiple overlapping 

plans,478 or allow these insiders to maintain both trading arrangements not reliant on Rule 10b5-

1(c)(1) and Rule 105b-1 trading arrangements.  

The amendments limit the availability of the affirmative defense in the case of single-

trade Rule 10b5-1 plans of persons other than the issuer to one such trading arrangement in any 

                                                 

478  See supra note 431 and accompanying text. 



169 

twelve-month period. As an alternative, we could disallow single-trade trading arrangements 

under Rule 10b5-1(c)(1) altogether. Compared to the final rule, this alternative could marginally 

reduce the likelihood that plan participants would be able to profit from a “one-off,” ad hoc trade 

based on previously undisclosed MNPI while availing themselves of the protections of the Rule 

10b5-1(c)(1) affirmative defense. However, the incremental benefit of this alternative, compared 

to the final rule, may be attenuated if insiders relying on single-trade plans once in a twelve-

month period are largely driven by a one-time liquidity need or financial hardship, or if they are 

effectively deterred from using MNPI by other Rule 10b5-1 provisions. In turn, this alternative 

would also significantly limit the flexibility and impose additional costs on insiders with a 

legitimate one-time, ad hoc liquidity need, compared to the final rule.  

C. Disclosure of Trading Arrangements and Policies and Procedures in New Item 408 of 

Regulation S-K and Mandatory Rule 10b5-1 Checkbox in Amended Forms 4 and 5 

The new Item 408(a) of Regulation S-K will require quarterly disclosures, in Form 10-Q 

and Form 10-K, of the adoption or termination,479 and the material terms of Rule 10b5-1 and 

non-Rule 10b5-1 trading arrangements by directors and Rule 16a-1(f) officers. In a change from 

the proposal, price terms are excluded from the scope of material terms required to be disclosed 

under Item 408(a). New Item 408(b) will require an issuer to file its insider trading policies and 

procedures as an exhibit to its annual report on Form 10-K, which will be linked in the exhibit 

index (as discussed in greater detail in Section II.B above). Similar requirements will apply to 

FPIs that file annual reports on Form 20-F via new Item 16J.480 The new Item 408(a), 408(b)(1), 

                                                 

479  New paragraph (c)(1)(iv) states that any modification or change to the amount, price, or timing of the purchase 

or sale of the securities underlying a Rule 10b5-1 plan is a termination of such plan and the adoption of a new 

plan.  

480  The discussion in this section referring to Item 408(b) also extends to the economic effects of related 

amendments to Form 20-F that apply similar requirements to Form 20-F filers. 



170 

and analogous Form 20-F disclosures are required to be tagged using a structured data language 

(specifically, Inline XBRL). As discussed in Section II.B.1.c above, in response to a 

recommendation by some commenters, at this time, we are not adopting the proposed rule to 

require corresponding disclosure regarding trading arrangements of the issuer. 

In addition, we are amending Forms 4 and 5 to add a checkbox to indicate that a reported 

transaction was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c)(1) and 

require disclosure of the date of adoption of the trading plan. In a change from the proposal, we 

are not adopting the optional checkbox for non-Rule 10b5-1 plans.  

1. Baseline and Affected Parties 

The new Item 408(a) disclosure requirements regarding the adoption, modification, 

termination, and material terms of officer and director trading arrangements apply to annual and 

quarterly reports on Forms 10-K and 10-Q. During calendar year 2021, based on the analysis of 

EDGAR filings, we estimate that there were approximately 7,200 filers with annual reports on 

Form 10-K and/or quarterly reports on Form 10-Q or amendments to them.481 The new Item 

408(b) disclosure requirements regarding insider trading policies and procedures will apply to 

annual reports on Forms 10-K and proxy and information statements on Schedules 14A and 14C. 

Disclosure requirements similar to Item 408(b) will also apply to FPIs that file Form 20-F. 

During calendar year 2021, based on the analysis of EDGAR filings, we estimate that there were 

approximately 6,300482 filers of annual reports on Form 10-K, proxy or information statements, 

                                                 

481  The estimate excludes registered investment companies and asset-backed securities issuers, which will not be 

subject to the Item 408 disclosures. 

482  The difference between this number of filers of annual reports on Form 10-K, proxy or information statements, 

or amendments to them, and the above number of filers of annual reports on Form 10-K and/or Form 10-Q, or 

amendments to them, is largely attributable to the fact that, given that calendar year 2021 was an active year for 

initial public offerings, a number of new reporting issuers may have filed a Form 10-Q during 2021 but not a 

Form 10-K as it was not due until 2022.  



171 

or amendments to them, and, in addition, approximately 800 filers of annual reports on Form 20-

F (or amendments to them).483 

Item 408(a) requirements will affect all issuers whose officers or directors have Rule 

10b5-1 or non-Rule 10b5-1 trading arrangements as well as all officers and directors whose 

trading arrangements will now be subject to public disclosure by the issuer.484   

Item 408(b) requirements will affect all issuers subject to the requirements, as well as 

issuers, directors, officers, and employees that engage in trading subject to the disclosed policies 

and procedures. 

The Rule 10b5-1 checkbox requirement will apply to all filers of Forms 4 and 5 

(including officers and directors as well as other filers). During calendar year 2021, we estimate 

that there were approximately 54,000 such filers.485 

2. Benefits 

New Item 408 and Item 16J will benefit investors by providing greater transparency 

about officer and director Rule 10b5-1 and non-Rule 10b5-1 trading arrangements, as well as 

governance practices with respect to insider trading.486 This enhanced transparency may enable 

better informed voting and investment decisions and more efficient allocation of investor capital. 

The timing of trading arrangement adoptions and terminations by officers and directors, as well 

as a description of the material terms of the trading arrangements, is expected to enhance the 

value of existing trade disclosures, aiding investors in obtaining a more accurate valuation of the 

                                                 

483  See supra note 481. 

484  See supra Section V.B.1. 

485  The estimate is based on filings of Forms 4 and 5 during calendar year 2021 in Thomson Reuters / Refinitiv 

insiders dataset (version retrieved June 27, 2022). 

486  See supra Section V.A. 



172 

issuer’s shares and making more informed voting and investment decisions, as supported by 

various commenters.487 These informational benefits should be considered in the context of the 

existing baseline (which includes partial revelation of information contained in officer and 

director trades as part of Section 16 reporting).488 Further, informational benefits of the Item 

408(a) disclosure may be low to the extent that plan trades are motivated by liquidity needs and 

similar considerations rather than by MNPI (especially after the amendments to Rule 10b5-1, 

such as the cooling-off period condition, aimed to reduce potential for MNPI-based trading under 

such trading arrangements). Finally, in a change from the proposal, price terms will be outside 

the scope of the required Item 408(a) disclosure of the terms of trading arrangements. This 

change will reduce the informational benefits of Item 408(a) to investors, compared to the 

proposed amendments. 

The requirement that these data points be tagged in a structured data language 

(specifically, in Inline XBRL) is expected to facilitate access to, and analysis of, the disclosures 

by investors, potentially leading to more useful and timely insights, consistent with the 

suggestions of several commenters.489 In particular, structuring the disclosures about trading 

arrangements under Item 408(a) will enable automated extraction of granular data on such 

trading arrangements, allowing investors to efficiently perform large-scale analyses and 

comparisons of trading arrangements across issuers and time periods. Structured data on trading 

                                                 

487  See supra note 209.  

488  See, e.g., letters from Sullivan and Wilson Sonsini (indicating that the proposed disclosures would be 

duplicative of the disclosures that would be required under the proposed disclosure amendments to Forms 4 and 

5); see also letters from Cravath and Shearman (indicating that details of non-Rule 10b5-1 trades already are 

disclosed on beneficial ownership forms). While beneficial ownership forms contain information about 

individual trades, some of which pertain to Rule 10b5-1 transactions, the information required in new Item 

408(a) is significantly more detailed and comprehensive, which is expected to provide information benefits to 

investors above and beyond those that could be obtained today from the analysis of Section 16 reports. 

489  See supra note 319. 



173 

arrangements may also be efficiently combined with other information that is available in a 

structured data language in corporate filings (e.g., information on insider sales and purchases of 

securities) and with market data contained in external machine-readable databases (e.g., 

information on daily share prices and trading volume). The use of a structured data language is 

also expected to enable considerably faster analysis of the disclosed data by investors. 

Structuring the narrative disclosure on insider trading policies and procedures required under 

Item 408(b)(1) of Regulation S-K in Inline XBRL is expected to make it easier for investors to 

extract information from the disclosures about insider trading policies and procedures, compare 

these disclosures against prior periods, and perform targeted artificial intelligence and machine 

learning assessments of specific narrative disclosures about insider trading policies and 

procedures. 

We expect these benefits to result from disclosure of terminations, changes in material 

plan terms, and adoptions of trading arrangements. A termination or a change in material terms 

of a prior trading arrangement may similarly convey information about the views of the officers 

or directors regarding the issuer’s future outlook and share price. Further, the timing of trading 

arrangement adoptions or terminations, relative to the issuance of other corporate disclosures, 

may provide investors with valuable insight into potential insider trading under such trading 

arrangements, and thus associated conflicts of interest that may erode firm value. We expect such 

benefits from the disclosure of both Rule 10b5-1 and non-Rule 10b5-1 trading arrangements. 

Moreover, by drawing market scrutiny to the adoption and termination of trading arrangements, 

enhanced disclosure is expected to deter insider abuses of trading arrangements based on MNPI. 

This scrutiny is expected to reduce insider trading, benefiting investors and decreasing the 

economic costs and inefficiencies associated with insider trading, as discussed in Section V.A 



174 

above. The described benefits may be low or not realized in cases of trading arrangements 

initiated to meet officers’ and directors’ liquidity needs or for other reasons unrelated to MNPI.  

The requirement to provide disclosure regarding insider trading policies and procedures 

is expected to provide investors with valuable information about governance practices with 

respect to insider trading of issuer stock. It will allow investors to better understand the policies 

and procedures, if any, that guide issuers in which they invest and the conduct of officers, 

directors, and employees of those issuers and the issuers themselves, including whether, and if 

so, how, issuers adopt standards that are reasonably necessary to promote (i) honest and ethical 

conduct, including the handling of conflicts of interest, (ii) full, fair, and accurate disclosure in 

periodic reports, including the potential mitigation of pricing distortions from insider trading, and 

(iii) compliance with applicable government rules and regulations, including the prohibition on 

insider trading. The absence or presence, and the nature of, such policies and procedures can 

inform investors about the likelihood of use of MNPI by these parties and, thus, the likelihood of 

incurring the economic costs of insider trading discussed in Section V.A above. It will help 

investors better understand how issuers protect their confidential information—which “qualifies 

as property to which the company has a right of exclusive use”—as well as guard against the 

misappropriation of that information.490 Disclosure regarding insider trading policies and 

procedures could also aid shareholders’ voting and investment decisions. Moreover, requiring 

this disclosure would provide greater consistency in disclosures across issuers to the extent that 

they already disclose this type of information. In addition, the anticipation of market scrutiny 

following mandatory disclosure may incentivize issuers without specific insider trading policies 

                                                 

490  See United States v. O’Hagan, 521 U.S. 642, 654 (1997) (recognizing that the undisclosed misappropriation of 

MNPI in breach of a duty of trust and confidence is “fraud akin to embezzlement”). 



175 

to implement such policies and procedures (with some issuers possibly converging to a 

standardized insider trading policy). Such revisions to insider trading policies are, in turn, 

expected to reduce the likelihood of insider trading and the associated economic costs discussed 

in Section V.A above, particularly at issuers with weaker governance practices with respect to 

insider trading.  

The amendments adding a Rule 10b5-1 plan checkbox to Forms 4 and 5 will benefit 

investors by providing transaction-specific disclosures of sales and purchases under Rule 10b5-1 

trading arrangements. The checkbox disclosure will allow investors easier and timelier access to 

information about trades under Rule 10b5-1. This information will enable investors to more 

comprehensively identify insider trading pursuant to Rule 10b5-1 trading arrangements, as well 

as provide greater consistency in the disclosure of Rule 10b5-1 trades. Today, the disclosure of a 

purchase or sale under a Rule 10b5-1 trading arrangement in Forms 4 and 5 is voluntary, 

resulting in a lack of consistent and comprehensive information about such trades. Making this 

checkbox mandatory will allow investors to more readily interpret information in Forms 4 and 5. 

The mandatory Rule 10b5-1 checkbox disclosures, in combination with the quarterly 

disclosure regarding adoptions and terminations of officers’ and directors’ Rule 10b5-1 trading 

arrangements, will provide greater transparency to investors regarding the use of Rule 10b5-1 

trading arrangements for trading, in line with the suggestions of several commenters.491 Such 

information will provide investors with valuable context for interpreting other corporate 

disclosures in valuing the companies’ shares and making informed voting and investment 

decisions. Because Forms 4 and 5 would continue to use a structured data language, investors 

                                                 

491  See, e.g., letters from ACCO, CII, Quinn, and Cravath. 



176 

could extract and analyze comprehensive information about trades under Rule 10b5-1 trading 

arrangements across multiple time periods, individuals, and issuers.  

3. Costs 

First, we consider the direct (compliance-related) costs of the disclosure requirements for 

insiders and companies. Such costs include preparing the disclosure and gathering the 

information required to comply with the new disclosure requirements. Such costs are expected to 

be lower for companies that already disclose some information about Rule 10b5-1 trading 

arrangements and insider trading policies and procedures. Officers and directors are likely to 

have information about the adoption, modification, termination, duration, and number of 

securities to be sold through their trading arrangements readily available and/or accessible. 

However, issuers may not be systematically collecting such information from officers and 

directors today.492 In those cases, issuers will incur additional cost to establish processes and 

systems to collect information about officers’ and directors’ trading arrangements required to 

comply with the new Item 408(a) disclosure requirement.493 Officers and directors will incur an 

incremental cost to follow internal processes their companies establish, if any, to gather 

information about officer and director trading arrangements for the Item 408(a) disclosure. 

Issuers are likely to have information about their insider trading policies and procedures required 

to comply with Item 408(b) readily available. The tasks of identifying, and preparing a disclosure 

of, such policies and procedures (and, for issuers without such policies and procedures, the 

                                                 

492  See, e.g., letter from Sullivan (expressing concern that requiring disclosure of this information would impose a 

significant burden on issuers).  

493  Id.  



177 

reasons for not having them) are expected to result in some additional direct costs;494 however, 

such costs are likely to be relatively small.495  

In a modification from the proposal, the final rules do not require disclosure of the 

issuer’s policies and procedures in the body of the annual report, proxy statement, or information 

statement. Instead, they require registrants to disclose whether they have adopted insider trading 

policies and procedures governing the purchase, sale, and other dispositions of their securities by 

directors, officers, and non-executive employees or the registrant itself that are reasonably 

designed to promote compliance with insider trading laws, rules, and regulations, and any listing 

standards applicable to the registrant. If a registrant has not adopted such insider trading policies 

and procedures, it will be required to explain why it has not done so. These disclosures will be 

required in annual reports on Form 10-K and proxy and information statements on Schedules 

14A and 14C. FPIs will be required to provide analogous disclosure in their annual reports on 

Form 20-F. Registrants will also be required to file a copy of their insider trading policies and 

procedures as an exhibit to their annual reports on Form 10-K or 20-F. If all of the registrant’s 

insider trading policies and procedures are included in its code of ethics (as defined in Item 

406(b)) and the code of ethics is filed as an exhibit pursuant to Item 406(c)(1), a hyperlink to that 

exhibit, accompanying the issuer’s disclosure as to whether it has insider trading policies and 

procedures, would satisfy this component of the exhibit filing requirement. Requiring registrants 

to file their insider trading policies and procedures as an exhibit would facilitate investor access 

to the document as it would be available online through EDGAR and hyperlinked in the exhibit 

                                                 

494  See, e.g., letter from Dow (expressing concern about the administrative burden of the Item 408(b) disclosure 

requirement). 

495  The final amendments may impose higher additional costs on FPIs. Such additional costs would be relatively 

small to the extent an FPI already discloses similar information under its home country rules.  



178 

index. These modifications also may result in improved readability of the disclosure in the main 

body of the filing and incrementally facilitate compliance, compared to the proposed requirement 

to disclose the policies and procedures in the body of the filing. 

The requirement to tag the new Item 408(a) and Item 408(b)(1) disclosures in Inline 

XBRL will impose incremental compliance costs on issuers. Such costs are expected to be 

modest, because issuers affected by the Inline XBRL requirements (including SRCs) are already 

required (or, in the case of certain business development companies, will be required no later 

than February 2023) to use Inline XBRL to comply with other disclosure obligations.496 

Moreover, the limited scope of the disclosure will likely require a relatively narrow-in-scope 

taxonomy of additional tags (compared to the significantly more extensive taxonomies used for 

financial statement disclosure tagging requirements), thus limiting the initial and ongoing costs 

of complying with the tagging requirement.  

Next, we discuss the indirect costs of Item 408 and Item 16J. Indirect costs include 

potential reputational and investor relations costs associated with the disclosure. For example, 

issuers that have not implemented specific insider trading policies and procedures, as well as 

issuers at which the adoption, modification, or termination of officer and director Rule 10b5-1 

and non-Rule 10b5-1 trading arrangements appears to correlate to the release of MNPI, may 

experience reputational and legal costs and a weakening of investor confidence in their corporate 

governance after public disclosure of this information. Relatedly, officers and directors that 

adopt, modify, or terminate a Rule 10b5-1 or non-Rule10b5-1 trading arrangement around the 

release of MNPI may also suffer reputational or legal costs from the public disclosure of this 

                                                 

496  See Inline XBRL Filing of Tagged Data, Release No. 33-10514 (June 28, 2018) [83 FR 40846, 40847 (Aug. 16, 

2018)]; Securities Offering Reform for Closed-End Investment Companies, Release No. 33-10771 (Apr. 8, 

2020) at 33318 [85 FR 33290 (Jun. 1, 2020)]. 



179 

information. To the extent that the amendments to Rule 10b5-1(c)(1), such as the cooling-off 

period, eliminate or deter insider trading based on MNPI under Rule 10b5-1 trading 

arrangements, these legal and reputational costs of public disclosure may be minimal in cases of 

such trading arrangements.  

The information in the domestic issuers’ quarterly Item 408(a) disclosure of the material 

terms of officers’ and directors’ Rule 10b5-1 and non-Rule 10b5-1 trading arrangements, which 

may benefit investors and other market participants, may cause the affected officers and directors 

to incur costs to the extent that it reveals their future trading plans to other market participants – 

a concern expressed by various commenters.497 The application of a cooling-off period may 

enable other market participants to obtain some information498 about the timing and terms of the 

officer’s or director’s Rule 10b5-1 trading arrangement before trading begins, potentially 

enabling other market participants to incorporate this information in their own trading strategy 

before the officer’s or director’s trading arrangement may be executed. For Rule 10b5-1 trading 

arrangements relying on a simple trading strategy (e.g., equally-sized, equally-spaced periodic 

transactions), the combination of the Item 408(a) disclosure and the Rule 10b5-1 checkbox on 

Form 4 may enable investors to gauge some information about the officer’s or director’s trading 

strategy. This could lead to a potentially less favorable price than the officer or director might 

otherwise have obtained because other market participants are reacting to the officer’s or 

                                                 

497  See supra note 216. 

498  The Item 408(a) disclosure is limited to whether any director or officer adopted or terminated a Rule 10b5-1 

plan or non-Rule 10b5-1 trading arrangement and a description of its material terms, including the name of the 

officer or director, the adoption or termination date, plan duration, and the number of shares to be traded. Price 

terms are not required to be disclosed.  



180 

director’s trading strategy.499 Officers and directors may continue to use limit orders to partly 

insure against an unfavorable price impact of the Item 408(a) disclosure, if any. For planned 

trades motivated by liquidity needs and other considerations that do not involve MNPI 

(especially after the amendments to Rule 10b5-1 aimed to reduce potential for MNPI-based 

trading under such plans), the costs to officers and directors from the revelation of Item 408(a) 

information to market participants will likely be low. Moreover, such costs of Item 408(a) should 

be considered in the context of the baseline, under which officers’ and directors’ Form 4 filings 

already reveal some information about their trades to the market. Importantly, in a change from 

the proposal, the amendments exclude price terms of the trading arrangement from the scope of 

Item 408(a), which should significantly alleviate the potential costs to officers and directors.500    

Finally, some issuers may implement new insider trading policies and procedures or 

update existing insider trading policies and procedures in anticipation of the Item 408(b) 

disclosure requirement and the potential public scrutiny of their policies and procedures, if any. 

Additional restrictions on insider trading arrangements adopted in anticipation of the public 

disclosure could result in economic costs for insiders and, in some instances, changes in insider 

compensation and insider equity holdings that reduce their exposure to issuer stock (broadly in 

                                                 

499  However, the described effects may be modest due to the generally small size of individual officer and director 

trades. Further, even the revelation of large predictable planned trades may not result in front-running. See 

Hendrik Bessembinder et al., Liquidity, Resiliency and Market Quality Around Predictable Trades: Theory and 

Evidence, 121 J. FIN. ECON. 142 (2016) (showing, in a setting with large and predictable exchange-traded fund 

trades, that “traders supply liquidity to rather than exploit predictable trades in resilient markets” and not 

finding “evidence of the systematic use of predatory strategies”). 

500  See supra note 218 (noting that various commenters expressed concerns that disclosure of pricing information 

and other details of a Rule 10b5-1 trading arrangement could impose costs on issuers and their insiders). But see 

letter from Quest (stating that the final rule should not require disclosure of the number of shares covered by a 

trading arrangement and the duration of the arrangement) and letters from Fenwick and Shearman 

(recommending that the required disclosures should be limited to the person adopting the plan, the date of 

adoption or termination, and duration). While we recognize that the volume and duration information may 

potentially be informative to other market participants, we expect the potential costs to officers and directors 

from the disclosure of such information to be modest in the absence of pricing information.181 

line with the discussion of the potential indirect costs of restrictions on insider use of trading 

arrangements in Section V.B.3 above). Costs incurred by issuers would be borne by their 

existing shareholders.  

Insiders are likely to have information about which of their trades were executed pursuant 

to a Rule 10b5-1 trading arrangement readily available, likely resulting only in small direct costs 

of providing checkbox disclosure and the date of adoption of the trading arrangement on Forms 4 

and 5. Systematic identification of trades under Rule 10b5-1 trading arrangements on Form 4 

under the amendments, combined with existing time frames for Form 4 reporting (and for 

officers and directors, the new disclosures in Item 408(a)), may enable some market participants 

to infer the likely trading strategy employed by the insider under a Rule 10b5-1 trading 

arrangement. While this information may benefit investors and other market participants, it may 

result in the indirect cost of information spillovers to market participants, which may contribute 

to an unfavorable price movement prior to the execution of all trades under the plan.501 Such 

indirect costs will be lowest for insiders other than officers and directors given that they are not 

subject to Item 408(a) and for insiders who use Rule 10b5-1 trading arrangements largely for 

liquidity rather than due to information considerations (especially in conjunction with the 

amendments to Rule 10b5-1(c)(1) that reduce the potential for MNPI-based trades). Insiders that 

already voluntarily disclose Rule 10b5-1 use in their filings of Forms 4 and 5 will not incur these 

direct and indirect costs. 

4. Effects on Efficiency, Competition, and Capital Formation 

We expect the amendments to reduce the information asymmetry between insiders and 

outside investors by providing more granular and timelier detail about officers’ and directors’ 

                                                 

501  But see supra note 499. 



182 

trading arrangements and issuers’ insider trading policies and procedures. The reduction in 

information asymmetry as a result of the additional disclosure would result in more 

informationally efficient stock prices. Because disclosure of directors’ and officers’ trading 

arrangements and insider trading policies and procedures can inform investors about insider 

incentives and governance practices, which could affect shareholder value as discussed in 

Section V.A above, the additional disclosure about trading arrangements and insider trading 

policies and procedures could also better inform investment decisions (enabling more efficient 

allocation of capital in investor portfolios) and shareholder voting decisions. 

Importantly, we expect the amendments to draw market scrutiny to officers’ and 

directors’ Rule 10b5-1 and non-Rule 10b5-1 trading arrangements, decreasing the ability of 

insiders to trade on MNPI through such trading arrangements. As discussed in Section V.B.4 

above, this potential scrutiny should reduce insiders’ incentive conflicts associated with insider 

trading. In particular, it would decrease incentives for inefficient corporate investment decisions 

and other corporate decisions. Further, it would decrease insiders’ incentives to influence 

corporate disclosures, resulting in timelier and higher-quality disclosures that enable more 

informationally efficient share prices and more efficient allocation of capital in investor 

portfolios. 

A lower risk of trading against an informed insider is expected to increase investor 

confidence and the willingness of market participants to buy and trade in the issuer’s shares. 

These effects would indirectly make it easier for the issuer to raise capital from investors. Issuers 

that disclose robust insider trading policies and procedures in particular may elicit greater 

investor confidence, as well as interest from investors seeking issuers with stronger corporate 

governance practices, resulting in capital formation benefits for such issuers. 



183 

Finally, in line with the discussion in Section V.B.4 above, the amendments may affect 

competition. Decreasing the ability of insiders and issuers to trade on MNPI will weaken their 

competitive edge in trading, promoting competition among other investors in the market for the 

issuer’s shares. A lower risk of an insider with a significant private information advantage 

trading the issuer’s shares will strengthen the incentive of other market participants to trade those 

shares and compete in gathering and processing information about the issuer. Disclosure of 

insider trading policies and procedures will also enable investors to access and compare insider 

trading policies and procedures across issuers, potentially enhancing issuers’ incentives to 

compete in, and establish a reputation for, having strong governance practices in the area of 

insider trading. 

To the extent that the disclosure requirements impose a fixed cost on issuers, they would 

have a negative competitive effect on smaller issuers subject to the amendments and issuers that 

do not already provide disclosure regarding insider trading policies and procedures as well as 

Rule 10b5-1 and non-Rule 10b5-1 trading arrangements of their officers and directors. The final 

amendments defer by six months the date of compliance with the additional disclosure 

requirements for SRCs,502 potentially mitigating some of the adverse competitive effects of the 

amendments. The Item 408(a) disclosure requirements will not apply to FPIs, potentially placing 

them at a relative competitive advantage to domestic filers.503 With that exception, because the 

disclosure amendments will apply broadly across domestic public companies, generally, we do 

                                                 

502  Based on staff review of EDGAR filings for calendar year 2021, approximately 3,900 of the filers subject to the 

Item 408(a) amendments and 3,200 of the filers subject to Item 408(b) amendments are SRCs and thus will be 

eligible for the extended compliance date under the amendments. 

503  FPIs that file annual reports on Form 20-F will be subject to requirements similar to Item 408(b). Further, FPIs 

listed on U.S. exchanges will remain subject to insider trading laws and exchange listing standards.  



184 

not anticipate it to result in meaningful competitive disparities in the labor market for executive 

talent.504 

All of the effects described above will be smaller to the extent that some issuers already 

provide disclosure regarding their insider trading policies and procedures and the trading 

arrangements of their officers and directors today.  

5. Reasonable Alternatives 

The amendments require quarterly disclosure related to trading arrangements of officers 

and directors and disclosure of issuers’ insider trading policies and procedures, if any, as an 

exhibit to their annual reports, proxy statements, and information statements. As an alternative, 

we could modify the scope and granularity of the required disclosure of officer and director 

trading arrangements or insider trading policies and procedures. The alternatives of expanding 

(narrowing) the scope of the disclosures required by new Item 408 could potentially provide 

greater (lesser) detail to investors, enabling better (less) informed investment decisions and more 

(less) accurate assessment of the risk of the use of MNPI for informed trading through trading 

plans compared to the amendments. However, the alternative of expanding (narrowing) the scope 

of the disclosure could also increase (decrease) disclosure costs (discussed in greater detail in 

Section V.C.3 above) compared to the amendments. As another alternative, we could permit the 

Item 408(b) requirement to be satisfied by posting the insider trading policies and procedures on 

the issuer’s website, as suggested by some commenters.505 Compared to the proposal, this 

approach could marginally ease compliance for issuers that prefer to post the material on their 

                                                 

504  We do not expect significant effects on the labor market competition for executive talent between public and 

private companies. While the new disclosures will increase costs for public companies and, indirectly, their 

officers and directors, these amendments are likely to have only a marginal effect on the overall tradeoff of 

being an officer or director at a public company (including the liability risk and costs of public scrutiny of the 

insider’s holdings, trades, and other actions). 

505  See supra notes 246-247. 



185 

website rather than file it as an exhibit. However, compared to the proposal, this alternative 

would marginally increase investor effort required to access this information as the disclosure 

(including historical versions of the policies and procedures) would no longer be available online 

through EDGAR, and investors would not be able to follow a hyperlink directly to the EDGAR 

filing exhibit. 

As another alternative to the quarterly disclosure related to trading arrangements, we 

could require a different frequency of disclosure. Requiring more (less) frequent disclosure under 

Item 408(a) would provide timelier (less timely) information to investors about trading 

arrangements but also impose higher (lower) costs on issuers and insiders. A more detailed 

discussion of the benefits and costs of the Item 408(a) disclosure is included in Sections V.C.2 

and V.C.3 above.  

As another alternative to the quarterly disclosure requirement, we could narrow its scope 

to include only Rule 10b5-1 trading arrangements, consistent with the suggestions of some 

commenters.506 Under this alternative, officers and directors with non-Rule 10b5-1 trading 

arrangements would not incur the costs of the amendments (discussed in detail in Section V.C.3 

above). However, investors would receive less information about their non-Rule 10b5-1 trading 

arrangements compared to the amendments. This effect on investors would be more pronounced 

in cases where officers and directors forgo Rule 10b5-1 trading arrangements in favor of non-

Rule 10b5-1 trading arrangements as a result of the potential increased costs and complexity of 

Rule 10b5-1 trading arrangements under the amendments.507 

                                                 

506  See supra note 222. 

507  Some commenters indicated, however, that Item 408(a) disclosure of non-Rule 10b5-1 trading arrangements 

would not be informative to investors. See, e.g., letters from Cleary, Cravath, Shearman, and Simpson. While 

we agree that trades under such plans are subject to Section 16 reporting, Item 408(a) would require information 



186 

As another alternative to the quarterly disclosure requirement, we could narrow or 

expand the scope of information required to be disclosed about trading arrangements as 

suggested by some commenters.508 For instance, we could only require the disclosure of the dates 

of adoption or termination of the trading arrangement (and not require disclosure of the plan 

duration or the number of shares to be traded under the plan) or only require disclosure of the 

date of trading arrangement adoption. Alternatively, we could expand the scope of information 

required to be disclosed to include price terms of the trading arrangement, in line with the 

proposal. Under the alternative of narrowing (expanding) the scope of the information required 

to be disclosed, issuers that prepare the Item 408(a) disclosure, as well as officers and directors 

with trading arrangements subject to Item 408(a), would also incur lower (higher) costs 

(discussed in detail in Section V.C.3 above), compared to the amendments. Specifically, 

narrowing (expanding) the scope of the disclosure under Item 408(a) could decrease (increase) 

information spillovers to investors and other market participants and potentially decrease 

(increase) the likelihood of unfavorable price movement based on such disclosure prior to the 

officer’s or director’s own trades, compared to the amendments. In turn, narrowing (expanding) 

the scope of the Item 408(a) disclosure could decrease (increase) the information benefits of the 

disclosure to investors, compared to the amendments. The described effects may be attenuated if 

officers or director trades under the trading arrangements subject to the Item 408(a) disclosure 

are driven mainly by liquidity rather than information considerations. 

                                                 
about key material terms of such plans that cannot be obtained from examining Section 16 reports alone. 

Further, although non-Rule 10b5-1 officer and director trading arrangements by definition do not meet the 

conditions of the Rule 10b5-1(c)(1) affirmative defense, Item 408(a) disclosure of such plans can provide 

valuable additional insight to investors about the future trading plans of officers and directors (which, similar to 

Rule 10b5-1 plans can also be informative about officers’ and directors’ outlook on the issuer) and potentially 

inform investment decisions. 

508  See supra notes 219-221. 



187 

Item 408(a) and Item 408(b)(1) disclosures will be required to be tagged using a 

structured data language (specifically, Inline XBRL). Alternatively, we could forgo the tagging 

requirement (consistent with the suggestion of one commenter509) or narrow its scope, such as to 

cover only quarterly Item 408(a) disclosures. This alternative would provide incremental 

compliance cost savings for issuers, who would not be required to select, apply, and review 

Inline XBRL tags for the disclosure of whether they have insider trading policies and procedures 

in annual reports and proxy and information statements. Such cost savings, however, would 

likely be low given the very limited number of Inline XBRL tags that are expected to be needed 

to tag the new disclosures. This alternative would also remove the informational benefits to 

investors that would accrue from facilitating retrieval of such disclosures across issuers and time 

periods, compared to the amendments. 

Item 408(a) disclosure requirements will only apply to domestic filers. Disclosure 

requirements regarding insider trading policies and procedures, however, will apply to both 

domestic filers (through Item 408(b)) and FPIs that file Form 20-F.510 As an alternative, we 

could exempt Form 20-F filers from this disclosure requirement, as suggested by some 

commenters.511 Generally speaking, such an exemption would eliminate the direct and indirect 

costs of the rule (as described in detail in Section V.C.3 above) for FPIs. Exempting Form 20-F 

filers also would decrease the amount of information available to investors about the insider 

trading incentives and policies and procedures at such issuers, potentially limiting investors’ 

ability to make informed decisions with respect to such issuers. This exemption also could lead 

                                                 

509  See supra note 320. 

510  FPIs will be required to provide analogous disclosure in their annual reports pursuant to new Item 16J to Form 

20-F.  

511  See supra note 249. 



188 

to incrementally greater competitive disparities due to the higher compliance burden of domestic 

issuers with respect to this requirement.  

As another alternative, we could extend requirements similar to Item 408(a) requirements 

to FPIs that file annual reports on Form 20-F. Because such FPIs do not have a quarterly 

reporting obligation equivalent to a Form 10-Q, the incremental benefit of this alternative could 

be relatively more modest due to the less timely disclosure of information on trading 

arrangements, if it were required to be disclosed in annual reports.  

In addition, as another alternative, we could exempt SRCs from the Item 408(a) 

requirement, as suggested by one commenter,512 rather than defer the compliance date for SRCs. 

Compared to the amendments, this alternative would reduce the costs for SRCs, which may be 

disproportionately affected by the fixed component of the compliance costs (assuming any of the 

officers or directors have a trading plan reportable under this Item). However, this alternative 

also could prevent investors in such issuers from being able to evaluate trading plans and their 

material terms and potentially result in less informed voting and investment decisions, compared 

to the amendments. 

The amendments to Forms 4 and 5 add a mandatory Rule 10b5-1 checkbox and require 

the disclosure of the date of Rule 10b5-1 plan adoption. As an alternative, we also could require 

this type of disclosure on Forms 4 and 5 for trades made under non-Rule 10b5-1 trading 

arrangements. This alternative could provide investors with more comprehensive information 

and greater transparency about trades under a broader range of trading arrangements. However, 

to the extent that non-Rule 10b5-1 trading arrangements can take various forms, requiring trades 

                                                 

512  See letter from MD Bar. Based on staff analysis of EDGAR filings for calendar year 2021, we estimate there are 

approximately 3,900 unique filers with annual reports on Form 10-K and/or quarterly reports on Form 10-Q or 

amendments thereto (excluding asset-backed securities issuers and registered investment companies, which will 

not be subject to the amendments). 



189 

under such trading arrangements to be identified on Forms 4 and 5 separately from trades 

conducted without a trading arrangement under this alternative may provide less meaningful 

information to investors.513  

D. Additional Disclosure of the Timing of Option Grants and Related Company Policies 

and Practices  

The Commission is adopting new Item 402(x) of Regulation S-K to enhance the 

accessibility of information and transparency regarding issuers’ grants of stock options, SARs, or 

similar option-like instruments before or after the filing of a periodic report, or the filing or 

furnishing of a current report on Form 8-K that contains MNPI. As proposed, the amendments 

would have applied to grants made during a period beginning 14 calendar days before and 

ending 14 calendar days after the MNPI filing (to include periodic reports on Forms 10-K or 10-

Q, issuer share repurchases, or current reports on Form 8-K that contain MNPI). We are adopting 

the narrative disclosure requirement as proposed and the tabular disclosure requirement with 

several modifications. In a change from the proposal, partly in response to commenter 

feedback,514 the amendments sharpen the focus of the new table on the data that can help 

investors evaluate the potential presence of spring-loading as well as tailor the trigger 

requirements and shorten the coverage window. The new table will apply only to grants made 

within a period starting four business days before and ending one business day after a triggering 

event. Further, the final rules remove from the scope of triggering events the share repurchase 

triggering event and provide that Forms 8-K disclosing the grant of a material new option award 

                                                 

513  See letters from Cravath and Cleary (noting that the non-Rule 10b5-1 trading arrangement checkbox would not 

be informative to investors). 

514  See supra note 297. 



190 

under Item 5.02(e) do not trigger this disclosure.515 These changes are consistent with the 

suggestions of commenters to shorten the reporting window for the tabular disclosure and 

remove share repurchase as a triggering event.516  

We believe that the modified coverage window will make the tabular disclosure more 

useful to investors compared to the proposal, as discussed in Section II.C.3 above. By 

eliminating almost all of the post-filing period from the coverage window included in the 

proposal, the final amendments significantly reduce the potential noise in the tabular disclosure 

due to awards made after the release of MNPI intended as an effort to avoid spring-loading, 

rather than a strategic attempt at bullet-dodging.517 Nevertheless, by extending the coverage 

window to one business day after the filing date, the final amendments account for potential 

spring-loading in cases where it may take the market an additional trading day to incorporate 

information in the triggering filing into share prices (e.g., in the presence of MNPI filings made 

after trading hours518 or by companies with a less liquid market for their shares). The asymmetry 

in the modified coverage window is intended to balance the costs to companies against the 

different likelihood of a grant being strategic (as opposed to a result of a general attempt to avoid 

grants while in possession of MNPI) if a grant is made before versus after the MNPI release. 

Overall, the modified coverage window will give investors easier access to data about option 

                                                 

515  In a change from the proposal, issuer share repurchases will not trigger this disclosure, consistent with the 

suggestion of one commenter. See letter from Sullivan (noting that many issuers engage in repurchase activity 

regularly and, in some instances, daily, and that this requirement could pose a substantial burden on issuers 

without any potential benefit to investors). This change is expected to decrease the costs of the amendments 

relative to the proposal. 

516  See, e.g., letters from Davis Polk and Cravath. 

517  See infra note 564. 

518  See, e.g., Henk Berkman & Cameron Truong, Event Day 0? After-Hours Earnings Announcements, 2009 J. 

ACC. RES. 71. 



191 

grants in the days leading up to and immediately following the MNPI filing. While we recognize 

that it may capture some grants made on the date following the triggering filing in an attempt to 

avoid spring-loading, such grants should generally be discernible by investors from the provided 

disclosure519 and, on balance, this coverage window is more appropriately tailored, relative to the 

proposal. Overall, tailoring the tabular disclosure requirement in these ways is expected to 

enhance the benefits of the resulting disclosure to investors by improving its usability and 

including fewer details that could offer little information value for investors. These changes also 

should decrease the costs of the disclosure for issuers and affected NEOs compared to the 

proposal.  

Finally, we are combining the two columns that would have reported the market value of 

the underlying securities on the trading days before and after the MNPI filing, respectively, into 

a single column with the percentage change in the market value of the underlying securities 

between the trading day before and after the MNPI filing. Compared to the proposal, this column 

is expected to incrementally make it easier for investors to understand the impact that spring-

loading may have on the value realized by the NEOs, and somewhat condense the size of the 

new tabular disclosure without a meaningful effect on the cost to companies as the percentage 

change can be readily calculated from the market values in dollar terms for the two days.  

                                                 

519  For example, an investor reviewing the disclosure is unlikely to be concerned about grants made immediately 

after the triggering filing representing bullet dodging if the information in the triggering filing was not negative 

in nature or was not followed by much stock price movement or was instead followed by a share price increase. 



192 

1. Baseline and Affected Parties 

 New Item 402(x) will apply to filers of annual reports on Form 10-K and proxy and 

information statements.520 During calendar year 2021, we estimate that there were approximately 

6,300 affected filers. 

Existing Item 402 requires disclosure of option grant dates, thus potentially enabling 

investors today to compare the timing of grant dates and historical filings of a periodic report or 

another EDGAR filing that contains MNPI. The Commission provided interpretive guidance 

regarding option grants in the 2006 Executive Compensation Release.521 In considering the 

timing of option grants close in time to the release of MNPI, the Commission explained in the 

release that, if the issuer has such a program, plan, or practice, the issuer should disclose that the 

board of directors or compensation committee may grant options at times when the board or 

committee is aware of MNPI.522 To the extent that the existing disclosures of issuers that allow 

the timing of option grants around MNPI reflect such guidance, the incremental effects of a 

mandate to disclose policies and procedures related to option grants close in time to MNPI may 

be small. 

Some studies have noted that the regulatory reforms of the early and mid-2000s have led 

to the decline, if not disappearance, of questionable option timing practices.523 However, there is 

                                                 

520  Current filing requirements of Form 10-K permit filers to incorporate by reference executive compensation 

disclosures from a proxy or information statement involving the election of directors. See supra note 252. These 

estimates exclude registered investment companies and asset-backed securities issuers, which are not subject to 

the amendments. 

521  See 2006 Executive Compensation Release, supra note 277. 

522  Id. 

523  See Randall Heron & Erik Lie, What Fraction of Stock Option Grants to Top Executives Have Been Backdated 

or Manipulated?, 55 MGMT. SCI. 513 (2009); M. P. Narayanan & H. Nejat Seyhun, The Dating Game: Do 

Managers Designate Option Grant Dates to Increase Their Compensation?, 21 REV. FIN. STUD. 1907 (2008); 

Lucian Bebchuk et al., Lucky CEOs & Lucky Directors, 65 J. FIN. 2363 (2010); Linxiao Liu et al., Stock Option 



193 

evidence that strategic option grant timing persists.524 For example, one study, which examined 

4,852 scheduled CEO stock option grants from 2007 through 2011, found that managers 

accelerate bad news before a grant and delay good news until after a grant, consistent with self-

interested attempts at strategic option grant timing that maximizes their value to the CEO, and 

that “market reactions to SEC Form 8-K filings (which report material corporate events) tend to 

be negative in the months immediately before a scheduled CEO option grant and positive in the 

months after the grant.”525 Executives also appear to move earnings from the pre-grant period to 

the post-grant period, such as by changing a firm’s accounting choices (e.g., accruals 

management) and perhaps even by timing investments (e.g., real earnings management).526 

Another study concluded that spring-loading partly replaced the disappearing practice of option 

                                                 
Schedules and Managerial Opportunism, 41 J. BUS. FIN. ACCT 652 (2014); Rik Sen, The Returns to Spring-

Loading, 2008 N.Y.U. (Working Paper) (2008). 

524  See Insider Trading and Stock Option Grants: An Examination of Corporate Integrity in the Covid-19 

Pandemic, Memo from FSC Majority Staff to Members, Committee on Financial Services, September 17, 2020, 

available at https://financialservices.house.gov/uploadedfiles/hhrg-116-ba16-20200917-sd002.pdf, at pp. 2-5. 

525  See Robert M. Daines et al., Right on Schedule: CEO OPTION GRANTS AND OPPORTUNISM, 53 J. FIN. QUANT. 

ANAL. 1025 (2018) (finding that: “some CEOs have manipulated stock prices to increase option compensation, 

documenting negative abnormal returns before scheduled option grants and positive abnormal returns 

afterward;” “document[ing] several mechanisms used to lower stock price, including changing the substance 

and timing of disclosures;” and further contend[ing] that such opportunism “distorts stock prices, leading to 

capital misallocation, and may dissipate firm value if executives postpone valuable projects.”). 

526  Id.; see also David Aboody & Ron Kasznik, CEO Stock Option Awards and the Timing of Corporate Voluntary 

Disclosures, 29 J. ACCT. ECON. 73 (2000) (focusing on CEO option awards with fixed award schedules and 

showing that “CEOs make opportunistic voluntary disclosure decisions that maximize their stock option 

compensation,” based on changes in share prices, analyst earnings forecasts, and management earnings 

forecasts); Keith W. Chauvin & Catherine Shenoy, Stock Price Decreases Prior to Executive Stock Option 

Grants, 7 J. CORP. Fin. 53 (2001) (finding, in a May 1991 to February 1994 sample covering 313 CEOs, “a 

statistically significant abnormal decrease in stock prices during the 10-day period immediately preceding the 

grant date” and concluding that “[e]xecutives who expect to be granted stock options have the incentive, 

opportunity and ability to affect the exercise price with their inside information”). 

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194 

backdating.527 A different study documented spring-loading around stock splits but does not 

disaggregate the 1992-2012 period into pre- and post-2006 sub-periods.528 

2. Benefits 

As discussed in Section II.C above, certain practices related to the timing of executive 

compensation option grants may raise investor concerns about the use of MNPI. Improved 

disclosure may potentially enhance the transparency of such compensation awards (informing 

investment and voting decisions) and potentially mitigate the economic costs of the associated 

incentive distortions, consistent with the suggestions of commenters that supported the proposed 

amendments.529 

The amendments will make information that investors may seek to help them identify the 

occurrence and effects of potential spring-loading more salient and readily accessible. Spring-

loading increases the effective economic value of the options granted to the executive upon 

MNPI becoming public.530 Holding the number of the granted options and the policy to grant 

options with the exercise price equal to the current observable market price (i.e., “at-the-money”) 

constant, the executive would effectively receive a higher compensation award than if the timing 

of option grants were completely independent of MNPI releases.531 Further, lowering an option’s 

                                                 

527  See Giulian Bianchi, Stock Options: From Backdating to Spring Loading, 59 Q. REV. ECON. FIN. 215 (2016) 

(examining data through 2011). 

528  See Erik Devos et al., CEO Opportunism? Option Grants and Stock Trades around Stock Splits, 60 J. ACCT. 

ECON. 18 (2015). However, companies may adjust exercise prices to account for the effect of stock splits. 

529  See supra note 293. 

530  Past studies have focused primarily on options. In this context, the same economic effects can be expected in 

the case of awards of SARs and similar instruments. For purposes of this analysis, the term “option” includes 

stock options, SARs and similar instruments with option-like features. 

531  See David Yermack, Good Timing: CEO Stock Option Awards and Company News Announcements, 52 J. FIN. 

449 (1997); see also Iman Anabtawi, Secret Compensation, 82 N.C.L. REV. 835 (2004); Alex Edmans et al., 

Chapter 7 – Executive Compensation: A Survey of Theory and Evidence, HANDBOOK OF THE ECON. OF 

CORPORATE GOVERNANCE 383-539 (2017). They note that the use of “stealth compensation” is a “challenge for 



195 

exercise price through timing of an option award around an MNPI release affects the sensitivity 

of the awarded options to changes in the issuer’s share price.532  

Some have argued that these practices may be the result of an optimal compensation 

policy.533 Whether such practices constitute an optimal compensation policy or not, a lack of 

transparency about such compensation awards may limit investors’ ability to fully gauge the key 

terms of compensation arrangements and their implications for executives’ incentives and thus, 

potentially, firm value, and may limit shareholders’ ability to make informed voting decisions. 

The amendments incrementally improve the accessibility of information about option grant 

timing practices. Item 402(x) will require additional disclosure regarding practices related to the 

awards of stock options, SARs, and similar option-like instruments to provide a more 

comprehensive picture of the timing of these awards relative to MNPI releases. New Item 

402(x)(1) will require issuers to provide disclosure of their policies and procedures related to 

timing of these awards in relation to the disclosure of MNPI, which is not currently required. The 

tabular disclosure requirement of new Item 402(x)(2) will make information about such awards 

that are made shortly before MNPI releases more readily available to investors.  

                                                 
the shareholder value view” and that, in most cases, “[i]f executive pay were efficiently designed and 

competitive, there would be no need to disguise it from shareholders... hiding these compensation elements 

from shareholders is suggestive of rent extraction.” They further note that “[s]tock options can be a means of 

camouflaging pay if directors or shareholders do not fully understand their cost” and that opportunistic option 

timing practices “are correlated with weak corporate governance.” 

532  Spring-loading can cause a call option to be in-the-money when it would have otherwise been at-the-money, 

assuming favorable MNPI is about to be released. Everything else equal, the value of an in-the-money call 

option has a higher sensitivity to the share price than the value of an at-the-money call. The effects of such 

changes depend on the objectives of the overall compensation package with respect to inducing optimal 

executive incentives and the role of option and SAR awards in this package. 

533  See, e.g., Erik Devos et al., supra note 528 (stating that “it is not clear whether shareholders are necessarily 

harmed by this apparent option grant timing, as it is possible that this is just another way by which the [board of 

directors] attempts to reward and retain a high performing CEO”); see also Speech by SEC Commissioner: 

Remarks Before the International Corporate Governance Network 11th Annual Conference by Commissioner 

Paul S. Atkins, U.S. Securities and Exchange Commission, July 6, 2006, available at 

https://www.sec.gov/news/speech/2006/spch070606psa.htm. But see supra note 531. 

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196 

New Item 402(x)(3) will require issuers to submit this disclosure in Inline XBRL. This 

requirement is expected to offer incremental benefits to investors by facilitating automated 

extraction of the information for purposes of aggregation, analysis, and comparison (across time 

periods and filers), potentially enabling more informed investment and voting decisions. Even 

though investors can fairly readily extract the dates of MNPI disclosures and share prices around 

such MNPI disclosures respectively from EDGAR and third-party sources today, because option 

grant information in proxy statement disclosures does not use a structured data language, 

extracting such information from HTML filings for a large set of issuers requires additional cost 

and effort.534 

We recognize that there may be various reasons, besides strategic spring-loading, for 

option grants within the specified number of days before disclosure of MNPI. Nevertheless, we 

believe that making this data more accessible to investors will help them analyze whether spring-

loading is a concern as part of a comprehensive review of the various elements of compensation 

practices. Investors can then compare this information with the executive’s on-the-job 

performance in assessing the optimality of executive compensation, which, will, on the margin, 

benefit investors by equipping them to make better informed voting and investment decisions. 

Combined with the narrative disclosure of the applicable policies, the tabular disclosure also may 

incrementally help to alleviate information asymmetries between issuers and investors with 

respect to this aspect of executive compensation practices and better inform investors about 

                                                 

534  Daily market prices can be obtained from a wide variety of sources, including commercial databases that 

provide such data for a subscription fee. Some commercial databases extract option grant information from 

proxy statements and provide it for a subscription fee, but they tend to focus their coverage on large companies. 

To obtain comprehensive option grant information for all NEOs of mid-size and small companies, investors 

would presently need to analyze or “scrape” (apply a computer algorithm to extract information from) a large 

number of proxy statement filings in the HTML format. 



197 

executives’ incentives. Besides contributing to better informed voting and investment decisions, 

the disclosure may facilitate more informed shareholder say-on-pay votes and votes in director 

elections.535  

Another potential benefit of the disclosure is that, to the extent that strategically timed 

option grants were not the result of a value-maximizing compensation policy but rather an 

outcome of agency conflicts (such as executives’ attempts to extract additional compensation 

without drawing investor scrutiny to the full amount of such compensation),536 and to the extent 

that companies forgo such grants in anticipation of the additional disclosure, the disclosure 

requirement may improve shareholder value. However, if the extra compensation is currently 

optimally awarded, forgoing such compensation could negatively impact shareholder value.537 

Further, to the extent that the practice of strategically timed option grants in some 

instances created incentives for executives to change the timing and content of MNPI disclosures 

                                                 

535  See, e.g., Glass Lewis, 2020 Proxy Paper Guidelines: An Overview of the Glass Lewis Approach to Proxy 

Advice - United States, 12-13, 41-42 (2020), available at https://www.glasslewis.com/wp-

content/uploads/2016/11/Guidelines_US.pdf. See also, e.g., Anabtawi, supra note 531 (stating that “under state 

law fiduciary duty principles, a manager who receives stock options while in possession of inside information 

that will raise the stock price when it is later released discharges her fiduciary duty of loyalty through full 

disclosure to and ratification by a disinterested board. It is then the board’s responsibility, pursuant to its 

fiduciary duty of disclosure, to inform the corporation's shareholders of the favorable timing of the grant, if it 

disseminates to them information about the company's executive compensation arrangements”); Matthew E. 

Orso, ‘Spring-Loading’ Executive Stock Options: An Abuse in Need of a Federal Remedy, 53 ST. LOUIS U. L. J. 

629 (2009); Jonathan Tompkins, Opportunity Knocks, But the SEC Answers: Examining the Manipulation of 

Stock Options Through the Spring-Loading of Grants and Rule 10b-5, 26 WASH. U. J. L. & POL’Y 413 (2008). 

536  One article notes that “[t]here are, of course, constraints that check the extent to which the level and structure of 

executive compensation can deviate from what would be optimal for shareholders. . . To circumvent such 

pressures, managers will want to enhance their compensation as discreetly as possible. By ‘camouflaging’ 

elements of their pay, managers can maximize their compensation while minimizing adverse reaction. Timing 

option grants is an especially attractive way to enhance executive compensation both because it is difficult to 

detect and because it has generally eluded attention.” See, e.g., Anabtawi, supra note 531; see also, e.g., 

Bianchi, supra note 527 (stating that “[o]pportunistic option timing is found to be associated with weaker 

corporate governance. Indeed, practices such as backdating and spring loading raise governance concerns. . . 

Eventually, the opportunistic option timing casts doubt on the efficacy of incentives to address the principal 

agent models.”); see supra note 294. 

537  See, e.g., Tompkins, supra note 535; see also supra note 533. But see supra note 531. 

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198 

around option grant dates in an attempt to increase the economic value of compensation 

awards,538 the amendments may partly mitigate such incentives. In those instances, the indirect 

effect of the amendments may improve the information content, timeliness, and quality of 

disclosures and result in more efficient share prices and better informed voting and investment 

decisions. 

We recognize that several factors may potentially limit the magnitude of these economic 

benefits. First, the economic benefits of the amendments are likely to be modest because the 

information required by the new tabular disclosure can be obtained from other sources today. In 

particular, the benefits of the new tabular disclosure will be limited by the fact that investors 

today can research and assess, based on historical option grant dates already required to be 

disclosed under Item 402, how grant timing relates to EDGAR filings containing MNPI and to 

share price changes around such filings (information that is publicly accessible but not all found 

in one location), as indicated by various commenters.539 The new disclosure will aggregate this 

information in a more readily accessible tabular format in one location, potentially incrementally 

lowering investor search costs and increasing investor awareness of option grant timing around 

MNPI. The Inline XBRL tagging requirement also is expected to further facilitate automated 

extraction of the information for purposes of aggregation, analysis, and comparison across time 

periods and filers.  

Second, the discussed benefits may also be limited to the extent that issuers are already 

disclosing similar information today. 

                                                 

538  See supra note 526 and accompanying and following text. 

539  See supra note 298. 



199 

Third, the discussed benefits may be attenuated if some investors find the new tabular 

disclosure to be of limited use. For example, some investors may find the tabular disclosure 

difficult to parse for issuers with multiple filings containing MNPI and option awards. As 

another example, investors may find that the information value of the disclosure is diminished 

due to confounding events that occur between the option grant date and the dates of MNPI filings 

within the reporting window; however, the considerable narrowing of the reporting window from 

the proposal should partly alleviate this potential limitation. Investors in issuers with thinly 

traded securities may find that the percentage change in the market value of the underlying 

securities on the trading day following the MNPI disclosure, relative to the trading day before the 

MNPI disclosure, may not fully capture the effects of the MNPI disclosure. Some other investors 

may find that the information value of the disclosure is diminished due to market- or sector-wide 

events that may affect the issuer’s share price on some MNPI filing dates, notwithstanding the 

substance of the MNPI that was disclosed. Further, some issuers may issue these awards shortly 

prior to MNPI filings due to pure coincidence rather than strategic reasons, as noted by some 

commenters.540 For instance, several commenters noted that the timing of equity awards may be 

based on a meeting schedule established several months in advance without consideration of 

disclosure of MNPI.541 Further, issuers that routinely award options on a specified schedule (e.g., 

monthly or quarterly) may have grants within the reporting window of the new disclosure simply 

due to their obligations to file quarterly reports or to report current events on Form 8-K.542  

                                                 

540  See supra note 299. 

541  See supra note 300. Nevertheless, even if the grant schedule dates are set in advance, to the extent that some 

investors may be concerned about strategic management of MNPI disclosures around such pre-scheduled 

grants, the tabular disclosure may help investors more readily access information as they evaluate such 

occurrences. See Daines et al. (2018), supra note 525. 

542  See supra note 301. 



200 

New Item 402(x)(1) will require annual disclosure of policies and practices related to 

option grant timing close in time to the release of MNPI and will offer new information that is 

not presently available to investors. The disclosure of the presence or absence of such policies 

and practices may inform investment and voting decisions. The anticipation of public disclosure 

may also lead issuers to adopt policies and practices disallowing option grants around MNPI, 

leading to the benefits discussed above. To the extent such disclosures already are provided by 

issuers in light of the 2006 Executive Compensation Release,543 such indirect benefits 

incremental to the amendments would be diminished. 

A few other potential considerations may limit the economic benefits of the new 

disclosures (both in Items 402(x)(1) and 402(x)(2)). First, shareholders of some issuers may view 

the described option granting practices as an optimal compensation policy set by the board.544 

Second, the discussed benefits of the amendments are expected to be modest at issuers that rely 

less on stock options and primarily or exclusively grant restricted stock or do not grant equity-

linked compensation.545 Third, the effects of the amendments may be modest to the extent that 

other factors already deter spring-loading (for example, best practices implemented by the 

                                                 

543  See 2006 Executive Compensation Release, supra note 277. 

544  See supra notes 533 and 537 and accompanying and following text. But see supra note 531. 

545  The proportion of companies that grant options to executives has declined substantially after the introduction of 

FAS 123R in 2004 (now codified in Accounting Standards Codification Topic 718). See, e.g., Prevalence of 

Options Decreases as Companies Tie Awards to Performance, EQUILAR (Aug. 23, 2018), available at 

https://www.equilar.com/press-releases/103-prevalence-of-options-decreases-as-companies-tie-awards-to-

performance; Aubrey Bout et al., S&P 500 CEO Compensation Increase Trends, 2020 HARV. L. SCHOOL 

FORUM CORP. GOV. (Feb. 11, 2020), available at https://corpgov.law.harvard.edu/2020/02/11/sp-500-ceo-

compensation-increase-trends-3/. Based on the analysis of Execucomp data for fiscal year 2021 (version 

retrieved on June 27, 2022), approximately 34 percent of companies reported option grants. Execucomp data 

covers S&P 1500 companies and thus may not be representative of option compensation at smaller companies. 

Small business issuers and registrants other than small business issuers were required to comply with FAS 123R 

beginning with the first reporting period of the first fiscal year beginning on or after Dec. 15, 2005 and June 15, 

2005, respectively. See Amendment to Rule 4-01(a) of Regulation S-X Regarding the Compliance Date for 

Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment, Release No. 33-

8568 (Apr. 15, 2005) [70 FR 20717 (Apr. 21, 2005)]. 

https://www.equilar.com/press-releases/103-prevalence-of-options-decreases-as-companies-tie-awards-to-performance
https://www.equilar.com/press-releases/103-prevalence-of-options-decreases-as-companies-tie-awards-to-performance
https://corpgov.law.harvard.edu/2020/02/11/sp-500-ceo-compensation-increase-trends-3/
https://corpgov.law.harvard.edu/2020/02/11/sp-500-ceo-compensation-increase-trends-3/201 

compensation committee or generally robust internal corporate governance mechanisms). 

Finally, the effects of the amendments on executives may be small if issuers adjust compensation 

to offset the decline in spring-loading under the amendments (e.g., by changing option terms, the 

allocation of compensation between cash, options, and restricted stock, or the overall amount of 

compensation). 

3. Costs  

We recognize that the amendments to Item 402 requiring additional disclosure of the 

timing of option awards and related corporate policies will impose certain costs on issuers, as 

suggested by various commenters.546 The amendments will result in direct compliance-related 

costs for affected filers of compiling the information required in amended Item 402 for inclusion 

in the annual report or proxy or information statement. Because issuers either already provide 

such information (option grant information and dates) for other disclosures or can readily obtain 

the information (daily share prices and dates of EDGAR filings), the direct costs are expected to 

be modest. We acknowledge that issuers will incur some direct costs of aggregating such 

existing information into the tabular format. Further, issuers will incur compliance-related costs 

to assess which of the filings from the reporting period contained MNPI and thus should be a 

part of the tabular disclosure. These direct costs of complying with the new tabular disclosure 

may be potentially mitigated to the extent that issuers can leverage existing systems and 

recordkeeping practices used to prepare the plan-based table disclosure required today, as well as 

internal records on the dates of other disclosures filed on EDGAR with the Commission.  

Issuers will incur compliance costs of structuring the Item 402(x) disclosure in Inline 

XBRL. Such costs will be higher for filers with more option grants subject to the new disclosure. 

                                                 

546  See supra note 297. 



202 

However, because filers subject to the amendments already are or will soon be subject to other 

structured disclosure requirements (e.g., Inline XBRL requirements for financial statement 

information and cover page information in certain filings), the incremental cost of submitting the 

compensation disclosure using a structured data language will likely be relatively modest.547 We 

expect that the direct costs of Inline XBRL tagging of the new disclosure may be potentially 

mitigated to the extent that issuers subject to the amendments, which already utilize Inline XBRL 

tagging to comply with other filing obligations, may leverage existing systems or only incur an 

incremental cost when utilizing outside service providers to tag the new disclosures in proxy 

statements. 

The amendments also may result in indirect costs for issuers and executives. Disclosure 

of option grant timing practices could result in reputational harms for some issuers or individual 

executives, such as unfavorable say-on-pay votes, if investors perceive such practices as 

inconsistent with shareholder value maximization and optimal compensation policies. Outside 

scrutiny of this disclosure may cause issuers to forgo such option grant timing practices. For 

issuers at which such practices arose from efforts to implement an economically optimal 

compensation policy for issuers and executives,548 deviating from such a policy could result in 

less optimal compensation. Some commenters also indicated that these disclosures may mislead 

investors by causing them to infer a causal link between option awards and the release of MNPI 

where none exists.549 The shorter reporting window for the tabular disclosure in the final 

amendments and removal of the share repurchase triggering event are expected to substantially 

alleviate this concern. At issuers that forgo option grant timing but do not change other 

                                                 

547  See supra note 496. 

548  See supra notes 533 and 537. But see supra note 531. 

549  See supra note 540. 



203 

compensation terms to offset it, executives could experience smaller, more volatile compensation 

awards. However, it is important to note that the final rules do not require a particular option 

grant timing policy. Rather, the amendments aim to incrementally improve transparency about 

such compensation awards, enabling investors to more fully gauge the key terms of 

compensation arrangements and their implications for executives’ incentives and thus, 

ultimately, firm value.  

Several considerations would mitigate the potential indirect costs of the disclosure 

requirement to issuers. Given that this disclosure would incrementally improve access to 

information about option grant timing practices, in cases where such practices are optimal from 

the standpoint of shareholder value, issuers likely would not make inefficient changes to those 

compensation practices as a result of the improved investor access to such information under the 

new rules (however, the direct costs of compliance with the rule, discussed above, may 

potentially result in inefficient compensation changes). Issuers for which compensation awards 

timed in this manner are consistent with shareholder value maximization should be able to 

readily preserve the economic effects of such compensation for executives, either by continuing 

their existing compensation practices or by altering the size or other terms of the award to ensure 

a similar value of compensation. Moreover, issuers may be able to use other, readily available 

means to adjust compensation terms to achieve a similar outcome.550 

As discussed in Section V.D.2 above, several factors are expected to potentially limit the 

incremental impact of the new tabular disclosure and thus the magnitude of the discussed indirect 

economic costs. First, the indirect costs of the amendments likely will be modest due to the 

                                                 

550  Issuers could lower the exercise price, increase the number of options granted, decrease the proportion of 

options in overall pay, increase overall pay, modify performance-based or other compensation terms, or some 

combination of those.  



204 

availability of the information subject to the new disclosure requirement in other sources today, 

as indicated by various commenters.551 Second, the discussed indirect costs may also be reduced 

to the extent that the newly required information is already contained in compensation 

disclosures. Third, the discussed indirect costs may be partly attenuated to the extent that some 

investors may find the tabular disclosure to be too extensive or difficult to parse for issuers with 

multiple MNPI filings and option grants for different NEOs. 

Further, as discussed in Section V.D.2 above, some investors may incorrectly interpret 

information in the disclosure as evidence of spring-loading, which may in turn increase indirect 

costs for issuers and insiders. Such incorrect interpretations may happen due to confounding 

events between the option grant date and MNPI disclosure dates within the reporting window 

(with less potential for confounding with a shorter window); market prices being slow to adjust 

to the MNPI disclosure (e.g., at some issuers with thinly traded securities); market- or sector-

wide events affecting market prices on MNPI disclosure dates; or coincidental nature of option 

grants close in time with MNPI disclosures (e.g., with frequent or routine grants).552  

The above discussion has focused on the tabular disclosure of new Item 402(x)(2). In 

addition, new Item 402(x)(1) mandates disclosure of policies and practices related to option grant 

timing around MNPI, which is not presently required. While issuers are likely to have 

information readily available about policies and practices related to option grant timing, they will 

likely incur some direct compliance costs to compile and prepare that information for public 

disclosure. Issuers may also incur indirect costs of this disclosure. Specifically, issuers with 

policies and practices that allow strategic option grant timing may incur reputational costs of 

                                                 

551  See supra note 539. 

552  See supra note 540. 



205 

such disclosure. Further, the anticipation of public disclosure may lead such issuers to adopt 

policies and practices disallowing option grants around MNPI, which, in some cases may result 

in a deviation from optimal compensation policies.553 Such changes may also impose costs on 

executives, to the extent other compensation terms are not adjusted in an offsetting manner, as 

described above. To the extent that issuers already provide disclosures of policies and procedures 

related to option grant timing following the 2006 Executive Compensation Release,554 the costs 

incremental to the amendments will be lower.  

Finally, as discussed in Section V.D.2 above, the overall economic costs of the new 

disclosures required by Items 402(x)(1) and 402(x)(2) are expected to be more modest to the 

extent that fewer issuers rely on stock option compensation.555 Further, the cost to executives of 

the decline in strategic option grant timing may be lower if other factors already deter such 

option grant timing (e.g., compensation committee policies or other corporate governance 

mechanisms) or if issuers make offsetting adjustments to executive compensation (e.g., by 

changing option terms, the mix of cash, options, and restricted stock, or the amount of 

compensation). 

4. Effects on Efficiency, Competition, and Capital Formation 

We expect the disclosures required in new Item 402(x) to incrementally decrease the 

information asymmetry between insiders and investors about the issuer’s option compensation 

awards and associated policies, resulting in better information about the insiders’ incentives that 

may derive from such option awards. This effect may result in more informationally efficient 

prices and more efficient allocation of capital in investor portfolios. Greater accessibility to 

                                                 

553  See supra notes 533 and 537. 

554  See 2006 Executive Compensation Release, supra note 277. 

555  See supra note 545. 

https://sharepoint/sites/CF/Rulemaking/10b5-1/Shared%20Documents/Adopting%20Release/supra


206 

investors of information about the timing of option compensation awards may marginally reduce 

shareholders’ information gathering costs and enable them to make more efficient voting 

decisions in say-on-pay and director election votes. 

To the extent that option spring-loading is inconsistent with shareholder value 

maximization and the amendments draw market scrutiny to issuers engaged in spring-loading, 

the amendments may result in a decrease in option spring-loading. In turn, a decrease in spring-

loading may weaken insiders’ incentives to game corporate disclosures, which may result in 

potentially timelier and higher-quality disclosures (that enable more informationally efficient 

share prices and more efficient allocation of capital in investor portfolios). 

To the extent that the Item 402 requirements impose a fixed cost on issuers, they will 

have a negative competitive effect on smaller issuers subject to the amendments, as well as on 

issuers that do not already disclose policies and practices related to the timing of awards of stock 

options close in time to the release of MNPI. The final amendments defer by six months the date 

of compliance with the additional disclosure requirements for SRCs,556 potentially mitigating 

some of the adverse competitive effects of the amendments. The disclosure requirements will not 

apply to FPIs, placing them at a relative competitive advantage to domestic filers. 

Because the disclosure amendments will apply broadly across domestic public issuers, 

generally, we do not anticipate them to result in meaningful competitive disparities in the labor 

market for executive talent.557 

                                                 

556  Based on staff review of EDGAR filings for calendar year 2021, approximately 3,200 of the filers subject to the 

new Item 402(x) requirements are SRCs and thus will be eligible for the extended compliance date under the 

amendments. 

557  The amendments will not apply to FPIs. 



207 

The described effects are expected to be attenuated to the extent investors already can 

infer whether issuers time option awards prior to releases of MNPI based on existing disclosures 

of option grant dates and other public information. The described effects may also be attenuated 

to the extent that issuers engaged in option spring-loading already disclose such policies and 

practices as a result of the 2006 Executive Compensation Release.558 

5. Reasonable Alternatives 

New Item 402(x) includes both a new table with information on individual option grants 

and a requirement to disclose policies and practices regarding the timing of option awards in 

relation to the disclosure of MNPI. As an alternative, we could adopt only one of those 

requirements, which could reduce the costs of disclosure for filers discussed in Section V.D.3 

above.559 However, omitting one of the disclosure requirements would provide investors with 

less information about option compensation practices, resulting in potentially less informed 

investment and voting decisions. For example, omitting the tabular disclosure requirement could 

marginally reduce the salience of information about the actual timing of option grants around 

MNPI releases and the effects of such timing on the value of granted options in cases where an 

issuer discloses that it does not have policies restricting option awards around MNPI releases. In 

turn, omitting the requirement to disclose the issuer’s practices and policies regarding the timing 

of option awards would reduce the amount of information about potential future compensation 

practices, compared to the amendments. Nevertheless, there is likely to be some substitution 

between the information benefits of the two requirements, particularly in combination with the 

existing requirements to disclose grant dates. 

                                                 

558  See 2006 Executive Compensation Release, supra note 277. 

559  See letter from Dow (suggesting that the Commission’s concerns are sufficiently addressed by the narrative 

disclosure requirements of proposed Item 402(x)). 



208 

New Item 402(x)(2) will require tabular disclosure of awards made during a period 

starting four business days before and ending one business day after the filing of a periodic 

report on Form 10-Q or Form 10-K or the filing or furnishing of a current report on Form 8-K 

that discloses MNPI other than a current report on Form 8-K disclosing a material new option 

award grant under Item 5.02(e). A typical issuer files or furnishes multiple such reports in a 

given year and may include multiple option and SAR awards in the new tabular disclosure.560 As 

an alternative, we could use a shorter or longer time period around reports with MNPI during 

which awards would be subject to the tabular disclosure. A shorter (longer) time period could 

result in less (more) disclosure and thus incrementally lower (higher) disclosure costs for issuers, 

compared to the amendments. Because prices may change for reasons other than the release of 

MNPI when a longer time period is used, pre- and post-filing prices might be more informative 

                                                 

560  During calendar year 2021, the average annual report / proxy statement filer (excluding asset-backed securities 

issuers and registered investment companies) filed Forms 10-K, 10-Q, 8-K, or amendments to them, on 15 

different days. The use of a window starting four business days before and ending one business day after the 

date of a filing on Form 10-K, 10-Q, or 8-K results in a potential average disclosure coverage period of 

approximately 91 calendar days out of 365 (compared to the average disclosure coverage period of 220 calendar 

days based on the proposed +/-14 calendar day window). Because option grants, unlike EDGAR filings, are 

sometimes made on non-business days, the estimate reports the number of potentially affected calendar days. 

As issuers typically grant options only a few times a year, rather than on every one of those potentially affected 

days, we also evaluate the number of actual option grants that fall in the disclosure coverage period under the 

amendments. Based on staff analysis of Institutional Shareholder Services’ (ISS) Incentive Lab data on plan-

based option and SAR awards made during calendar year 2021 (retrieved Aug. 10, 2022), the use of this 

window results in 2.9 grants (out of 5.4 grants) subject to the disclosure for the average affected filer (compared 

to the 4.6 grants subject to the disclosure for the average affected filer based on the proposed +/-14 calendar day 

window). To account for potential lags in proxy data ingestion, which may make the data for 2021 

underinclusive of some affected filers with plan-based awards made in 2021, we also consider the ISS Incentive 

Lab estimate for calendar year 2020 (also based on data retrieved August 10, 2022): this results in 2.9 grants 

(out of 5.6 grants) subject to the disclosure for the average affected filer (compared to 4.8 grants subject to the 

disclosure for the average affected filer based on the proposed +/-14 calendar day window). As a caveat, ISS 

Incentive Lab data is constructed from proxy statement information for a subset of the affected filer universe, 

dominated by larger companies (371 issuers with option or SAR grant data for year 2021 and 461 for year 

2020), and thus may not be representative of all affected filers, such as smaller filers that may make fewer 

awards or file fewer current reports. The above estimates exclude from the list of MNPI filings those Forms 8-K 

that are classified as reporting compensation arrangements (Item 5.02(e)) to avoid mechanical effects (such 

filings are identified as Form 8-K filings that only report Item 5.02, based on EDGAR data, and that also 

mention either Item 5.02(e) or related keywords (“stock option”, “option” and “grant”, “named executive 

officer”) in the body of the filing, based on the analysis of Intelligize data). The definition of “business days” 

excludes weekends and Federal holidays.  



209 

for assessing the effects of the MNPI release on the valuation of option awards made during a 

shorter window around the filing. Shortening (lengthening) the window under these alternatives 

would reduce (increase) the amount of information aggregated in one location about options 

granted in proximity to MNPI releases, potentially resulting in marginally less (more) informed 

investment and voting decisions.  

As another alternative, we could further modify the scope of reports that trigger the 

tabular disclosure, such as by omitting Forms 8-K or limiting it to Forms 8-K that contain Items 

1.01 or 2.02, as suggested by some commenters.561 Narrowing the set of triggers in this manner 

would reduce the amount of information aggregated in one location about options granted in 

proximity to MNPI releases,562 potentially resulting in marginally less informed investment and 

voting decisions. At the same time, it would reduce the costs incurred by issuers, discussed in 

Section V.D.3 above. 

As another alternative, we could require tabular disclosure of awards made within four 

business days before and four business after the filing of a periodic report or the filing or 

furnishing of any Form 8-K that discloses MNPI.563 Compared to the amendments, this 

alternative would potentially improve the accessibility to investors of data that can be used to 

                                                 

561 See supra note 307. 

562  For example, requiring disclosure of option grants made during a window starting four business days before and 

ending one business day after the filing of Form 10-K or 10-Q (omitting the Form 8-K trigger) would shorten 

the disclosure coverage period to approximately 33 calendar days out of 365 for the average affected filer 

during calendar year 2021, based on EDGAR filings data, and decrease the number of affected grants to 

approximately 1.4 out of 5.4 for calendar year 2021 (1.4 out of 5.6 for calendar year 2020) for the average 

issuer, based on Incentive Lab data. See supra note 560 for a description of how these estimates were obtained. 

563  The use of a window starting four business days before and ending four business days after filings of Form 10-

K, 10-Q, or 8-K would result in a potential average disclosure coverage period of approximately 126 calendar 

days out of 365, based on EDGAR filings data for calendar year 2021, and approximately 3.7 grants (out of 5.4 

grants) subject to the disclosure for the average issuer, based on ISS Incentive Lab data for calendar year 2021 

(and approximately 3.8 affected grants out of 5.6 grants for the average filer, based on ISS Incentive Lab data 

for calendar year 2020). See supra note 560 for a description of how these estimates were obtained. 



210 

gauge the presence of bullet-dodging as well as spring-loading, rather than primarily focusing on 

spring-loading.564 This could incrementally improve the information benefits of the disclosure to 

investors. However, the improvement in information benefits under this alternative may be small 

if the additional disclosure introduces considerable noise. For example, if issuers schedule option 

grants shortly after the disclosure of MNPI in a periodic or current report, specifically because 

they are least likely to be in possession of MNPI during that time frame, the tabular disclosure 

would include a considerable number of options that are not granted strategically. In turn, this 

alternative could increase costs (discussed in detail in Section V.D.3 above), compared to the 

amendments. 

Consistent with other provisions of Item 402, the amendments apply to awards to NEOs. 

This approach ensures consistency with other existing compensation disclosures and provides 

information about awards to the subset of executives likely to have MNPI as well as the most 

influence on the issuer’s business decisions. As alternatives, we could limit the disclosure to the 

CEO or expand it to all executives. The alternative of narrowing (expanding) the set of 

executives whose awards are subject to the new disclosure requirement would result in lower 

(higher) disclosure costs but also would result in less (more) information about the timing of 

option awards and executive incentives, compared to the amendments. These alternatives would 

also decrease consistency across compensation disclosures. 

The amendments require the additional disclosure to be submitted using a structured (i.e., 

machine-readable) data language. As an alternative, we could require the disclosure but not 

require the use of a structured data language. Compared to the amendments, this alternative 

                                                 

564  Bullet-dodging can cause a call option to be at-the-money when it would have otherwise been out-of-the-

money, assuming negative MNPI is about to be released. Generally speaking, the value of an at-the-money call 

option has a higher sensitivity to the share price than the value of an out-of-the-money call. 



211 

could make it harder for investors to extract the disclosure information, potentially increasing the 

costs they incur in making investment and voting decisions. However, this alternative also would 

decrease costs for affected filers (particularly for filers with more option grants subject to the 

new disclosure), compared to the amendments.  

E. Additional Disclosure of Insider Gifts of Stock 

The amendments will require the disclosure of insiders’ gifts of stock within two business 

days on Form 4. This amendment is a change from the existing rules that allow a stock gift to be 

disclosed on Form 5, which is required to be filed within 45 days of the end of the year during 

which the gift was made. It will result in timelier disclosure of such transactions across all 

affected insiders.  

1. Baseline and Affected Parties 

The amendments will affect insiders that make gifts of stock and report them on Form 5 

today, although the majority of insiders already report gifts of stock on Form 4. We estimate that 

approximately 800 insiders reported gifts of stock on Form 5 during calendar year 2021 

(including approximately 200 insiders that reported gifts both on Form 4 and Form 5).565 The 

majority of insiders reporting gifts of stock already report gifts of stock on Form 4: during 

calendar year 2021 approximately 3,000 insiders reported stock gifts on Form 4 (including 

approximately 200 insiders that made both Form 4 and Form 5 filings reporting stock gifts).  

2. Benefits 

To the extent that not all insiders presently report gifts of stock on Form 4, the 

amendments to Form 4 to require disclosure of such gifts of stock will result in timelier 

                                                 

565  The estimate is based on Form 5 data in Thomson Reuters / Refinitiv insiders dataset (version retrieved June 27, 

2022). Gifts of stock are identified based on transaction code “G” (“bona fide gift”).  



212 

availability of information about beneficial ownership by the issuer’s insiders, which was 

supported by various commenters.566 Disposition of an insider’s shares through a gift in many 

cases reduces that insider’s economic exposure to the issuer, which potentially weakens the 

alignment of incentives with the shareholder value maximization objective. A scenario in which 

an insider gifts stock while aware of MNPI and the recipient sells the gifted securities while the 

information remains nonpublic and material is economically equivalent to a scenario in which 

the insider trades on the basis of MNPI and gifts the trading proceeds to the recipient (see 

Section II.E for more details). 

While non-pecuniary motives may be more important in a gift than in an open-market 

sale, the timing of a gift can reveal the insider’s beliefs about the issuer’s future share price. For 

an insider that has decided to make a gift, finding the time when the shares are priced higher 

(e.g., before the release of negative MNPI) will allow the insider to reduce the effective cost of 

the gift.567 In light of this, disclosure of timely information about the stock gift could be 

informative for investors evaluating the issuer’s share price and making investment or sale 

decisions.568 However, these information benefits will be lower if the officer or director does not 

                                                 

566  See supra notes 329-330 and accompanying text. 

567  In addition to any tax benefit from charitable stock gifts, an altruistic insider-donor may internalize the benefit 

to the donee. See, e.g., Louis Kaplow, A Note on Subsidizing Gifts, 58 J. PUBLIC ECON. 469 (1995); Louis 

Kaplow, Tax Policy and Gifts, 88 AM. ECON. REV. 283 (1998). 

568  See letter from Mittendorf (citing Anil Arya et al., Tax-favored Stock Donations by Corporate Insiders and 

Consequences for Equity Markets, 2022 MGMT. SCI. (forthcoming) (2022) (developing a “model of informed 

stock trading when disposal of stock by insiders takes the form of tax-favored charitable donations rather than 

direct trading” and demonstrating “that charitable gifts by insiders can reflect nonpublic information about firm 

value”) (“Arya et al. (2022)”) and concluding that “evidence suggests both prevalence of insiders making gifts 

strategically and potential consequences of accelerating public disclosure of such gifts as proposed in the 

amendment to Exchange Act Rule 16a-3.”); see also Sureyya Burcu Avci et al., Insider Giving, 2021 DUKE L. J. 

71 (2021) (finding evidence of informed timing of gifts of stock by the subset of insiders that are beneficial 

owners and also pointing to gift backdating as a potential consequence of delayed reporting of stock gifts with 

the latter providing inaccurate information to investors about changes to an insider’s ownership incentives and 

incentive alignment with shareholder interests); Yermack (2009), supra note 328 (demonstrating that these 



213 

consider the cost of a gift (e.g., because the amount of the gift is small or relatively 

inconsequential in the context of the insider’s overall net worth). 

Finally, the requirement to disclose insiders’ stock gifts on Form 4 will facilitate market 

scrutiny and may reduce an insider’s marginal incentive to donate stock based on MNPI, thereby 

reducing the associated incentive distortions.569 While an insider’s benefit from using MNPI to 

time stock gifts may be smaller than in the case of timing trades, the ability to profit from such 

stock gift timing is expected to have a similar direction of the effect on insider incentives (such 

as incentives to pursue inefficient corporate decisions or to distort disclosure, in line with the 

discussion in Section V.A above). 

We recognize that these benefits of the amended Form 4 requirements will be 

substantially reduced to the extent that most insider gifts of stock already are reported on Form 4, 

as noted in Section V.E.1 above. 

3. Costs  

As several commenters noted, amended Form 4 disclosure with regard to gifts of stock 

will result in additional costs for insiders.570 Direct costs of accelerated gift reporting will include 

additional compliance-related costs, which may be higher for more complex transactions 

involving gifts, such as estate planning transactions.571 Indirect costs may include reputational 

                                                 
effects of strategic giving behavior are even more pronounced when gifts are to (nonoperating) private 

foundations). 

569  But see letter from Mittendorf citing Arya et al. (2022) (demonstrating, in a “model of informed stock trading 

when disposal of stock by insiders takes the form of tax-favored charitable donations,” “that charitable gifts by 

insiders can reflect nonpublic information about firm value, and that they do so in a manner that promotes 

greater market efficiency” and that “relative to informed trading, insider donations yield greater market 

liquidity, more efficient equity prices, and superior investor protection.”) As an important caveat, the paper is 

based on a theoretical model rather than an empirical analysis of insider giving. 

570  See supra notes 331-332 and accompanying text. 

571  See, e.g., letters from Davis Polk and HRPA. 



214 

and investor relations costs stemming from increased market scrutiny of gifts of stock, as well as 

potential changes to gifting behavior in anticipation of such scrutiny.572 We note that these costs 

of the amended Form 4 requirements will be substantially reduced to the extent that most insider 

gifts of stock already are reported on Form 4, as noted in Section V.E.1 above. 

4. Effects on Efficiency, Competition, and Capital Formation 

We expect the amendments to incrementally decrease the information asymmetry 

between insiders and investors. Recent disposition of shares through gifts of stock informs 

investors about changes to officers’ and directors’ incentives derived from holdings of issuer 

stock. Timely information about the disposition of shares through stock gifts could in some 

circumstances inform investors about officers’ and directors’ outlook on future changes to the 

issuer’s share prices. Both factors may result in more informationally efficient prices and more 

efficient allocation of capital in investor portfolios.  

Importantly, we expect the amendments to draw market scrutiny to insiders’ use of MNPI 

in the timing of stock gifts, potentially decreasing the incidence of such stock gift timing. This 

reduces insiders’ incentives to manipulate corporate disclosures around stock gifts, which could 

in turn yield more informationally efficient share prices and more efficient allocation of capital 

in investor portfolios. The amendments also could marginally reduce insider incentives to pursue 

inefficient corporate investment decisions driven by personal gain from gifts based on MNPI, in 

line with the discussion in Sections V.A and V.E.2 above. 

Because this amendment will apply broadly across all insiders’ stock gifts, generally, we 

do not anticipate it to result in meaningful competitive disparities among insiders. 

                                                 

572  See supra note 333. In effect, then, allowing insiders to donate based on MNPI without Form 4 reporting would 

transfer value to donees at the expense of other traders and of market liquidity.  



215 

5. Reasonable Alternatives 

The amendments require timelier disclosure of insider gifts of stock. As an alternative, 

we could narrow the scope of the amended gift disclosure to apply only to officers and directors, 

or only to a certain type of gift of stock (e.g., charitable gifts to charities affiliated with the 

insider). Compared to the amendments, narrowing the scope of gifts subject to the disclosure 

could provide less information to market participants573 but also result in lower aggregate costs. 

Further, because the majority of insiders already disclose gifts on Form 4, the economic 

significance of potential exemptions under this alternative may be modest. The requirement will 

provide consistency in the timeliness of reporting of stock gifts across insiders.  

VI. Paperwork Reduction Act 

A. Summary of the Collections of Information 

 Certain provisions of our rules, schedules, and forms that would be affected by the rule 

amendments contain “collection of information” requirements within the meaning of the 

Paperwork Reduction Act of 1995 (“PRA”).574 The Commission published a notice requesting 

comment on revisions to these collections of information requirements in the Proposing Release 

and has submitted these requirements to the Office of Management and Budget (“OMB”) for 

review in accordance with the PRA.575 The hours and costs associated with preparing, filing, and 

sending the schedules and forms constitute reporting and cost burdens imposed by each 

collection of information. An agency may not conduct or sponsor, and a person is not required to 

comply with, a collection of information unless it displays a currently valid OMB control 

                                                 

573  See supra note 568 (discussing a recent study that documents widespread informed gift timing not limited to 

insider-affiliated charities). 

574  44 U.S.C. 3501 et seq. 

575
  See 44 U.S.C. 3507(d) and 5 CFR 1320.11. 



216 

number. The titles for the collections of information are:  

 Form 10-K (OMB Control No. 3235-0063); 

 Form 10-Q (OMB Control No. 3235-0070); 

 Schedule 14C (OMB Control No. 3235-0057); 

 Schedule 14A (OMB Control No. 3235-0059); 

 Form 4 (OMB Control Number 3235-0287); 

 Form 20-F (OMB Control Number 3235-0288); 

 Form 5 (OMB Control Number 3235-0362); and 

 Rule 10b5-1 (a new collection of information). 

 The forms, schedules, and regulations listed above were adopted under the Securities Act 

and/or the Exchange Act. These regulations, schedules, and forms set forth the disclosure 

requirements for registration statements, periodic and current reports, distribution reports, and 

proxy and information statements filed by registrants to help investors make informed 

investment and voting decisions. Compliance with these information collections is mandatory. 

Responses to these information collections are not kept confidential, and there is no mandatory 

retention period for the information disclosed. Rule 10b5-1 sets forth the conditions to the 

affirmative defenses under the rule. The use of the affirmative defenses is voluntary, and 

compliance with this information collection would be mandatory only if a respondent chooses to 

rely on the affirmative defenses. Responses to this information collection will not be confidential 

and there is no mandatory retention period for the collection of information. 

 A description of the amendments, including the need for the information and its use, as 

well as a description of the likely respondents, can be found in Section II above, and a discussion 

of the economic effects of the amendments can be found in Section V above. 



217 

B. Summary of Comment Letters 

 

 In the Proposing Release, the Commission requested comment on the PRA burden hour 

and cost estimates and the analysis used to derive such estimates. We did not receive any 

comments that directly addressed the PRA analysis of the proposed amendments. Several 

commenters, however, did provide responses to certain requests for comment that have informed 

some of our PRA estimates. As discussed, above, we have made some changes to the proposed 

amendments as a result of comments received in response to the Proposing Release. We have 

revised our estimates from the Proposing Release accordingly, taking into account the changes 

and the comments received. 

C. Summary of Collections of Information Requirements 

 As discussed in more detail in the Proposing Release,576 we derived the burden hour 

estimates by estimating change in paperwork burden as a result of the amendments. As discussed 

in Section II, we have made several changes to the proposed amendments as a result of 

comments received. Some of these changes impact our estimates.577  

 In the Proposing Release, the Commission estimated that the average incremental burden 

for an issuer to prepare the Item 408(a) disclosure would be 15 hours. The proposed estimate 

included the time and cost of preparing the disclosure, as well as tagging the data in XBRL 

                                                 

576  See Section V of the Proposing Release. 

577  The changes to new Item 408(b) and Item 16J, the amendments to Forms 4 and 5, and the new certification 

condition of Rule 10b5-1(c)(1)(ii)(C) did not impact our estimates. Item 408(b) and Item 16J of Form 20-F will 

require that an issuer file its insider trading policies and procedures as an exhibit to the applicable filing rather 

than in its body, and that exhibit will not be tagged. Because this change only moves the location of this 

disclosure and eliminates one tagging requirement, we believe a four hour burden estimate remains appropriate. 

Finally, the certification will be included in the Rule 10b5-1 plan as a representation rather than prepared as a 

separate document to be furnished to the issuer. We do not expect this change in disclosure location to change 

the PRA burden on the director or officer. The removal of the retention instruction for the certification similarly 

does not affect our PRA burden estimates as that retention instruction was not included in the PRA estimate in 

the Proposing Release. 



218 

format. We have revised new Item 408(a) to (1) clarify that Item 408(a) does not require 

disclosure of pricing terms, and (2) not require quarterly disclosure regarding the adoption and 

termination of Rule 10b5-1 plans and non-Rule 10b5-1 trading arrangements by an issuer. To 

reflect the impact of this change on our estimate, we first estimate the burden of each of the two 

proposed components we are not adopting and deduct this amount from the proposed 15 hours. 

We estimate that the burden of disclosing the proposed disclosure of pricing terms of Rule 10b5-

1 plans would have been two hours and that burden of preparing proposed disclosure regarding 

the adoption and termination of Rule 10b5-1 and non-Rule 10b5-1 trading arrangements by a 

registrant would have been three hours for a combined burden of five hours. Therefore, we are 

reducing the estimated the burden of Item 408(a) from 15 hours to 10 hours.  

 We also are not adopting the proposed optional checkboxes on Forms 4 and 5 that would 

allow a filer to indicate whether a reported transaction was made pursuant to a pre-planned 

contract, instruction, or written plan for the purchase or sale of equity securities of the issuer that 

did not satisfy the affirmative conditions of Rule 10b5-1(c). We do not believe this change would 

substantively modify the collection of information requirements or otherwise affect the overall 

burden estimates associated with these forms. We are, however, adjusting the burden estimate for 

Form 5 to reflect the impact of requiring the disclosure of dispositions of equity securities by 

bona fide gifts on Form 4, rather than on Form 5. We believe this change would result in a 

decrease in 0.25 hours in the information collection burden for Form 5. 

 In addition, the table required by new Item 402(x) will cover stock options, SARs, and/or 

similar option-like instruments awarded to a named executive officer within a four business day 

period before and a one day period after certain triggering events. This is a change from the 

proposal, in which the time window for disclosure would have been the 14 day period before and 



219 

after the event. We also narrowed the events that trigger this disclosure by removing the issuer 

share repurchase disclosure trigger and carving out Item 5.02(e) Forms 8-K that report the grant 

of a material new option award. As a result, we expect fewer awards will be disclosed. 

Accordingly, we have adjusted our PRA estimate for this disclosure from nine hours to six hours 

per form. 

 The following table summarizes the estimated effects of the final amendments on the 

paperwork burdens associated with the affected forms. 

PRA Table 1.  Estimated Paperwork Burden Effects of the Final Amendments 

 
Final Amendments Affected Forms or Schedules Estimated Burden Increase 

and/or Decrease 

 
Item 402(x): 

 

 Require disclosure of a 

registrant’s policies and 

practices on the timing of 

awards of stock options, SARs 

or similar option-like 

instruments in relation to the 

disclosure of material 

nonpublic information by the 

registrant, including how the 

board determines when to grant 

options, whether the board or 

compensation committee takes 

material nonpublic information 

into account when determining 

the timing and terms of an 

award; and whether the 

registrant has timed the 

disclosure of material 

nonpublic information for the 

purpose of affecting the value 

of executive compensation. 

 

 Require tabular disclosure of 

each option award granted 

within four business days 

before and one business day 

after the filing of a periodic 

report or the filing or 

furnishing of a current report 

on Form 8-K that contains 

material nonpublic information 

 

 

Form 10–K* and Schedules 14A, 

and 14C. 

 

 

6 hour increase in compliance 

burden per form.  

 



220 

Final Amendments Affected Forms or Schedules Estimated Burden Increase 

and/or Decrease 

 
(other than disclosure of a 

material new option award 

grant under Item 5.02(e) of 

Form 8-K).  

 

 Require information to be 

reported using a structured data 

language. 

 

Item 408(a): 

 Require disclosure of the 

adoption or termination of any 

contract, instruction or written 

plan for the purchase or sale of 

securities intended to satisfy 

the affirmative defense 

conditions of Rule 10b5-1(c) 

and non-Rule 10b5-1 trading 

arrangements, by directors and 

officers (as defined in 

Exchange Act Rule 16a-1(f)), 

including the name and title of 

the director or officer; and a 

description of the material 

terms of the contract, 

instruction or written plan 

(other than pricing terms). 

 

 Require information to be 

reported using a structured data 

language. 

 

 

Forms 10–K and 10–Q. 

 

10 hour increase in compliance 

burden per form.  

 

 

Item 408(b) and Item 16J: 

 Require disclosure of whether 

the registrant has adopted (and 

if not, why) insider trading 

policies and procedures 

governing the purchase, sale, 

and other dispositions of the 

registrant’s securities and 

require filing of a copy of its 

insider trading policies and 

procedures as an exhibit to 

Form 10-K. 

 

 Require information to be 

reported using a structured data 

language. 

 

 

Forms 10–K,* 20-F, and Schedules 

14A, and 14C. 

 

4 hour increase in compliance 

burden per form.  

 

 

Form 4:221 

Final Amendments Affected Forms or Schedules Estimated Burden Increase 

and/or Decrease 

 
 Require reporting of 

dispositions of equity securities 

by bona fide gifts. 

 

 Require new checkbox 

disclosure to indicate that a 

sale or purchase reported on 

the form was made pursuant to 

a contract, instruction, or 

written plan that is intended to 

satisfy the Rule 10b5-1(c)(1) 

affirmative defense, and 

require disclosure of the date of 

adoption of the plan. 

 

Form 4. 0.5 hour increase in compliance 

burden per form. 

 

Form 5: 
 

 Require new checkbox 

disclosure to indicate that a 

sale or purchase reported on 

the form was made pursuant to 

a contract, instruction, or 

written plan that is intended to 

satisfy the Rule 10b5-1(c)(1) 

affirmative defense, and 

require disclosure of the date of 

adoption of the plan. 

 

 Require reporting of 

dispositions of equity securities 

by bona fide gifts on Form 4, 

rather than on Form 5. 

 

 

 

Form 5. 

 

 

0.25 hour increase in compliance 

burden per form. 

 

 

 

 

 

 

 

 

 

0.25 hour decrease in compliance 

burden per form. 

Rule 10b5-1(c)(1)(ii): 
 

 Require directors and 

“officers” (as defined in 

Exchange Act Rule 16a-1(f)) 

as a condition to the 

affirmative defense, to provide 

representations in written Rule 

10b5-1 plans that, on the date 

of adoption of the plan, (i) they 

are not aware of any material 

nonpublic information about 

the security or issuer or any 

subsidiary of the issuer; and (ii) 

that they are adopting the 

contract, instruction, or plan in 

good faith and not as part of a 

plan or scheme to evade the 

prohibitions of this section. 

  

1.5 hour compliance burden per 

written Rule 10b5-1 plan. 

 



222 

Final Amendments Affected Forms or Schedules Estimated Burden Increase 

and/or Decrease 

 

 
Notes: 

* The burden estimate for Form 10-K assumes that Schedules 14A and 14C would be the primary disclosure 

documents for the information provided in response to Item 402(x) and Item 408(b) of Regulation S-K and the 

disclosure requirement under Form 10-K would be satisfied by incorporating the information by reference from 

the proxy or information statement. 

 

 

D. Burden and Cost Estimates Related to the Amendments 

 Below we estimate the incremental and aggregate increase in paperwork burden as a 

result of the final amendments. These estimates represent the average burden for all respondents, 

both large and small. In deriving our estimates, we recognize that the burdens will likely vary 

among individual respondents based on a number of factors. 

 We do not believe that the final amendments will change the frequency of responses to 

the existing collections of information; rather, we estimate that the proposed amendments would 

change only the burden per response. For the new collection of information, we estimate that 

there would be 8,700 responses based on the staff’s analysis, discussed in Section V.B.1, of 

beneficial ownership filings on Forms 3, 4, and 5 made in the 2021 calendar year.578 Based on 

the data from these filings, approximately 5,800 officers and directors reported a transaction 

pursuant to a Rule 10b5-1 trading arrangement. As noted above, the number of officers and 

directors using a Rule 10b5-1 trading arrangement is likely larger. Accordingly, we adjusted the 

estimate upward by 50 percent.  

 The burden estimates were calculated by multiplying the estimated number of responses 

by the estimated average amount of time it would take a respondent to prepare and review the 

disclosures that will be required under the final amendments. For purposes of the PRA, the 

                                                 

578 See supra note 377 and accompanying text. 



223 

information collection burden is allocated between internal burden hours and outside 

professional costs.  

 The table below sets forth the percentage estimates we typically use for the burden 

allocation for each form.579 We also estimate that the average cost of retaining outside 

professionals is $600 per hour.580  

PRA Table 2.  Standard Estimated Burden Allocation for Specified Forms and Schedules. 

 

Form / Schedule Type Internal Outside Professionals 

Forms 10-K, 10-Q, and Schedules 

14A and 14C 

75% 25% 

Form 20-F 25% 75% 

Forms 4 and 5 100% 

 

Rule 10b5-1 100%  

 

 The table below illustrates the incremental change to the total annual compliance burden 

of affected forms and schedules, in hours and in costs, as a result of the final amendments.581 

PRA Table 3.  Calculation of the Incremental Change in Burden Estimates of Current 

Responses Resulting from the Final Amendments 

                                                 

579  In the Proposing Release, we used a 75% company and 25% outside professional allocation for Form 20-F, but 

upon further consideration we believe that a 25% company and 75% outside professional allocation for Form 

20-F better reflects current practice for this form because FPIs rely more heavily on outside counsel for their 

preparation. 

580  We recognize that the costs of retaining outside professionals may vary depending on the nature of the 

professional services, but for purposes of this PRA analysis, we estimate that such costs would be an average of 

$600 per hour. At the proposing stage, we used an estimated cost of $400 per hour. We are increasing this cost 

estimate to $600 per hour to adjust the estimate for inflation from August 2006 to the present. The inflation-

adjusted hourly amount is $583.88, which we have rounded up to $600. 

581  The number of estimated affected responses is based on the number of responses in the Commission’s current 

OMB PRA filing inventory. The OMB PRA filing inventory represents a three-year average. These averages 

may not align with the actual number of filings in any given year. 

Form or 

Schedule 

Number of 

Estimated 

Affected 

Responses  

(A) 

Estimated 

Burden 

Hour  

Increase 

/Affected 

Response 

(B) 

Total 

Incremental 

Increase in 

Burden Hours 

(C) 

 

= (A) x (B) 

 

Estimated  

Increase in 

Internal 

Burden Hours 

(D) 

= (C) x 

(Allocation %) 

Estimated  

Increase in 

Outside 

Professional 

Hours  

(E) 

= (C) x 

(Allocation %) 

Total Increase 

in Outside 

Professional 

Costs 

(F) 

= (E) x $600 



224 

 

 PRA Table 4 illustrates the change to the annual cost burden of the affected forms as a 

result of the adjustment to the average cost of retaining outside professionals from $400 to $600 

per hour.582  

PRA Table 4.  Calculation of the Change in Costs of Current Responses Resulting from the 

Average Hourly Cost Adjustment 

 

 The following tables summarizes the requested paperwork burden changes to existing 

information collections, including the estimated total reporting burdens and costs, under the final 

amendments.583 

PRA Table 5. Requested Paperwork Burden Under the Final Amendments 
 

                                                 

582  See supra note 580. The table adjusts the average cost of retaining outside professionals from $400 to $600 per 

hour for the affected Exchange Act forms. 

583  Figures in this table have been rounded to the nearest whole number. Figures in column (I) are the sum of 

column (F) and the adjusted cost burdens for each affected form calculated in PRA Table 4 above. 

10-K 8,292 11 91,212 68,409 22,803 $13,681,800 

10-Q 22,925 10 229,250 171,937.5 57,312.5 $34,387,500 

20-F 729 4 2,916 729 2,187 $1,312,200 

14A  6,369 10 63,690 47,767.5 15,922.5 $9,553,500 

14C 569 10 5,690 4,267.5 1,422.5 $853,500 

4 338,207 0.5 169,103.5 169,103.5 0 0 

5 5,939 0   0 0 

Total    461,485  $59,788,500 

Form or Schedule 

 

Number of Affected 

Responses  

Current Cost Burden At 

$400 Per Hour 

Adjusted Cost Burden At $600 Per 

Hour 

10-K 8,292 $1,840,481,319 $2,805,092,400  

10-Q 22,925 $414,613,154 $626,150,400  

20-F 729 $576,927,825 $862,826,400  

14A 6,369 $101,958,512 $152,989,800  

14C 569 $7,350,144 $11,023,600  

  

Current Burden 

 

 

Program Change 

 

Requested Change in Burden 

Form 

or 

Sch. 

Current 

Annual 

Responses 

(A) 

Current 

Burden 

Hours 

(B) 

Current Cost 

Burden 

(C) 

Number 

of 

Affected 

Responses 

(D) 

Increase 

in Internal 

Hours 

(E) 

Increase in 

Outside 

Professional 

Costs 

(F) 

Annual 

Responses 

 (G) = (A) 

Burden 

Hours 

(H) = (B)     

+ (E) 

Cost Burden 

  (I)  



225 

 

 PRA Table 6 summarizes the requested paperwork burden for the collection of 

information for the representations that will be required under Rule 10b5-1(c)(1)(ii), including 

the estimated total reporting burdens and costs. For purposes of the PRA, we estimate that the 

Rule 10b5-1(c)(1)(ii) representation would entail a 1.5 compliance burden per response with 

8,700 annual responses. 

PRA Table 6.  Requested Paperwork Burden for the New Collection of Information 

 

VII. Final Regulatory Flexibility Act Analysis 

 This Final Regulatory Flexibility Analysis (“FRFA”) has been prepared in accordance 

with the Regulatory Flexibility Act (“RFA”).584 It relates to amendments to Rule 10b5-1(c)(1); 

Regulation S-K, Forms 10-K, 20-F, 10-Q, 4, and 5; and Schedules 14A and 14C. 

                                                 

584  5 U.S.C. 601 et seq. 

 

10-K 8,292 14,025,462 $1,840,481,319 8,292 68,409 $13,681,800 8,292 14,093,871 $2,818,774,200 

10-Q 22,925 3,130,752 $414,613,154 22,925 171,938 $34,387,500 22,925 3,302,690 $660,537,900  

20-F 729 479,348 $576,927,825 729 729 $1,312,200 729 480,077 $864,138,600  

14A 6,369 764,949 $101,958,512 6,369 47,768 $9,553,500 6,369 812,717 $162,543,300  

14C 569 55,118 $7,350,144 569 4,268 $853,500 569 59,386 $11,877,100  

4 338,207 169,104 0 338,207 169,104 0 338,207 338,208 0 

5 5,939 5,939 0 5,939 0 0 5,939 0 0 

 Paperwork Burden 
 

Collection of Information 

 

Annual Responses 

(A) 

 

Burden Hours 

(A) x 1.5 

 

 

Rule 10b5-1(c)(1)(ii) 

Representation 

 

8,700 13,050 



226 

A. Need for, and Objectives of, the Amendments 

 The purpose of the final amendments is to address potentially abusive practices 

associated with Rule 10b5-1 trading arrangements, grants of options and other equity instruments 

with similar option-like features and the gifting of securities. The final amendments are also 

intended to provide greater transparency to investors about issuer and insider trading 

arrangements and restrictions, as well as insider compensation and incentives, enabling more 

informed voting and investment and decisions about an issuer. The need for, and objectives of, 

the final rules are described in greater detail in Sections I and II above. We discuss the economic 

impact and potential alternatives to the amendments in Section V, and the estimated compliance 

costs and burdens of the amendments under the PRA in Section VI above. 

B. Significant Issues Raised by Public Comments 

 In the Proposing Release, the Commission requested comment on any aspect of the Initial 

Regulatory Flexibility Analysis (“IRFA”), including how the proposed amendments could 

achieve their objective while lowering the burden on small entities, the number of small entities 

that would be affected by the proposed rule and form amendments, the existence or nature of the 

potential effects of the proposed amendments on small entities discussed in the analysis, and how 

to quantify the effects of the proposed amendments. We did not receive any comments that 

specifically addressed the IRFA. However, some commentators addressed aspects of the 

proposals that could potentially affect small entities.585 In particular, one commenter supported 

exempting SRCs from proposed Item 408(a),586 while other commenters expressed support for 

                                                 

585  See Section II above. 

586  See letter from MD Bar. 



227 

requiring SRCs to provide the proposed disclosures.587 For the reasons discussed above, we have 

not adopted such an exception.588 

C. Small Entities Subject to the Amendments 

 The final amendments would apply to registrants that are small entities. The RFA defines 

“small entity” to mean “small business,” “small organization,” or “small governmental 

jurisdiction.”589 For purposes of the RFA, under our rules, a registrant, other than an investment 

company, is a “small business” or “small organization” if it had total assets of $5 million or less 

on the last day of its most recent fiscal year and is engaged or proposing to engage in an offering 

of securities that does not exceed $5 million.590 Under 17 CFR 270.0-10, an investment 

company, including a business development company, is considered to be a small entity if it, 

together with other investment companies in the same group of related investment companies, 

has net assets of $50 million or less as of the end of its most recent fiscal year. An investment 

company, including a business development company,591 is considered to be a “small business” 

if it, together with other investment companies in the same group of related investment 

companies, has net assets of $50 million or less as of the end of its most recent fiscal year.592 The 

Commission staff estimates that, as of January 2022, there were approximately 1,380 issuers and 

two business development companies that may be considered small entities that would be subject 

                                                 

587  See, e.g., letters from ICGN, and Cravath. 

588  See supra Section II.B.2.c. 

589  5 U.S.C. 601(6). 

590  See Exchange Act Rule 0-10(a) [17 CFR 240.0-10(a)]. 

591
  Business development companies are a category of closed-end investment company that are not registered 

under the Investment Company Act [15 U.S.C. 80a-2(a)(48) and 80a-53-64].  

592  17 CFR 270.0-10(a). 



228 

to the proposed amendments.593 

D. Projected Reporting, Recordkeeping, and Other Compliance Requirements 

 The final amendments to Rule 10b5-1(c) will apply to small entities to the same extent as 

other entities, irrespective of size. They also do not directly impose any recordkeeping or 

compliance requirements on small entities.  

 The amendments to Regulation S-K, Forms 10-K, 20-F, 10-Q, and Schedules 14A and 

14C are designed to provide greater transparency about officer and director trading 

arrangements; policies and procedures with respect to insider trading; and the timing of certain 

equity compensation awards to NEOs close in time to the release of material nonpublic 

information. These amendments generally will require: 

 Disclosure regarding the adoption and termination of Rule 10b5‑1 plans and non-Rule 

10b5-1 trading arrangements of officers (as defined in Rule 16a-1(f)) and directors, as 

well as the material terms of such trading arrangements (other than pricing terms); 

 Disclosure of whether the registrant has adopted (and if not, why) insider trading 

policies and procedures governing the purchase, sale, and other dispositions of the 

registrant’s securities by directors, officers and employees that are reasonably 

designed to promote compliance with insider trading laws, rules and regulations, and 

any listing standards applicable to the issuer, and filing such policies and procedures 

as an exhibit to the registrant’s annual report; 

                                                 

593  This estimate is based on staff analysis of Form 10-K filings on EDGAR, or amendments thereto, filed during 

the calendar year of Jan. 1, 2021 to Dec. 31, 2021, and on data from XBRL filings, Compustat, and Ives Group 

Audit Analytics. The staff noted that the estimated number of small entities includes approximately 344 entities 

that are special purpose acquisition companies (“SPACs”). A SPAC is typically a shell company that is 

organized for the purpose of merging with or acquiring one or more unidentified private operating companies 

within a certain time frame. Some of these small entities that are SPACs are unlikely to remain small entities 

once the SPAC has completed its initial business combination and becomes an operating company. 



229 

 Narrative disclosure of a registrant’s policies and practices on the timing of awards of 

stock options, SARs, and/or similar option-like instruments; and  

 Tabular disclosure of each such award granted to an NEO within four business days 

before and one business day after the filing of a periodic report or the filing or 

furnishing of a current report on Form 8-K that contains material nonpublic 

information (other than a current report on Form 8-K disclosing a material new option 

award grant under Item 5.02(e)). 

 In addition, the amendments to Forms 4 and 5 will: 

 Add a Rule 10b5-1 checkbox to these forms that will require a Form 4 or 5 filer to 

indicate whether a sale or purchase reported on that form was made pursuant to a 

contract, instruction or written plan that is intended to satisfy the affirmative defense 

conditions of Rule 10b5-1(c). Filers would also be required to provide the date of 

adoption of such trading arrangement; and  

 Require the reporting of dispositions of bona fide gifts of equity securities on Form 4. 

 We anticipate that the direct costs of preparing disclosures in response to the amendments 

will likely be relatively small as such information will be readily available to issuers. To the 

extent that the disclosure requirements have a greater effect on small filers relative to large filers, 

they could result in adverse effects on competition. The fixed component of the legal costs of 

preparing the disclosure could be one contributing factor. Compliance with certain provisions of 

the final amendments may require the use of professional skills, including accounting, legal, and 

technical skills. The final amendments are discussed in detail in Sections I and II above. We 

discuss the economic impact, including the estimated compliance costs and burdens of the final 

rules on all issuers, including small entities, in Sections V and VI above. 



230 

E. Agency Action to Minimize Effect on Small Entities 

 The RFA directs us to consider alternatives that would accomplish our stated objectives, 

while minimizing any significant adverse impact on small entities.  In connection with the 

amendments, we considered the following alternatives: 

 Establishing different compliance or reporting requirements that take into account the 

resources available to small entities; 

 Clarifying, consolidating, or simplifying compliance and reporting requirements 

under the rules for small entities; 

 Using performance rather than design standards; and 

 Exempting small entities from all or part of the requirements. 

Insider trading imposes costs on the investors in a company.594 The disclosure 

amendments and the amendments to Rule 10b5-1(c)(1) are intended to provide greater 

transparency to investors; decrease information asymmetries between corporate insiders and 

outside investors; and to deter abusive and problematic practices associated with the use of Rule 

10b5-1 plans, grants of option awards, and the gifting of securities. Importantly, we anticipate 

the final amendments will work in tandem to significantly reduce improper insider trading 

through Rule 10b5-1 plans. As discussed in above in Section V, deterring insider trading will 

result in benefits for investor protection, capital formation, and orderly and efficient markets. In 

addition, the amendments will disincentivize insider behavior that undermines investor 

confidence and harms the securities markets. For these reasons, we generally do not believe it 

would be appropriate to provide simplified or consolidated reporting requirements, a differing 

compliance timetable, or an exemption for small entities from all or part of the final 

                                                 

594  See supra Section V. 



231 

amendments, although the final amendments provide for scaled disclosure for SRCs under new 

Item 402(x), consistent with our scaled approach to executive compensation disclosure. 

However, to minimize the initial compliance burden on SRCs we are providing a six month 

transition period for compliance with the new issuer disclosure requirements to mitigate the 

compliance burdens that SRCs may experience.595 

 With respect to using performance rather than design standards, the final amendments use 

design standards to promote uniform compliance requirements for all registrants and to address 

the concerns underlying the amendments, which apply to entities of all sizes.  For example, the 

amendments set forth specific requirements that a trader must satisfy to rely on the Rule 10b5-

1(c)(1) affirmative defense. These design standards will better ensure that our concerns related to 

the misuse of Rule 10b5-1 plans are addressed and that traders understand how they can plan 

securities transactions in advance and satisfy the conditions of this defense. 

 Finally, we generally have not exempted small entities from all of part of the 

requirements, as some commenters requested, as the concerns related to insider trading that 

underlie these amendments apply to entities of all sizes. For example, as discussed in more detail 

above, 596 while we are sensitive to the potential that Item 408(a) could have a disproportionate 

impact on SRCs, we have not exempted SRCs from providing this disclosure as doing so would 

deprive investors in those issuers of material information about the use and potential abuse of 

Rule 10b5-1 plans and non-Rule 10b5-1 trading arrangements by an SRC’s officers or directors. 

We note, however, that, to remain consistent with the scaled approach to SRCs’ executive 

compensation disclosure, SRCs may limit the new tabular disclosure of option awards to the 

                                                 

595  See supra Section III. 

596  See supra Section II.B.2.c. 



232 

PEO, the two most highly compensated executive officers other than the PEO at fiscal year-end, 

and up to two additional individuals who would have been the most highly compensated but for 

not serving as executive officers at fiscal year-end. 

Statutory Authority  

 The amendments contained in this release are being adopted under the authority set forth 

in Sections 3(b), 6, 7, 10, 17, 19(a), and 28 of the Securities Act; Sections 3, 9, 10, 12, 13, 14, 

15(d), 16, 20A, 21A, 23(a), and 36 of the Exchange Act; and Sections 8, 20(a), 24(a), 30 and 38 

of the Investment Company Act; and 15 U.S.C. 7264. 

List of Subjects in 17 CFR Parts 229, 232, 240 and 249  

Reporting and recordkeeping requirements, Securities.  

Text of the Amendments  

 For the reasons set out in the preamble, the Commission- amends title 17, chapter II of 

the Code of Federal Regulations as follows: 

PART 229–STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES 

ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND 

CONSERVATION ACT OF 1975 – REGULATION S-K 

 1. The authority citation for part 229 continues to read as follows: 

 Authority:  15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 77z-3, 77aa(25), 77aa(26), 

77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 77nnn, 77sss, 78c, 78i, 78j, 78j-3, 78l, 78m, 78n, 78n-1, 

78o, 78u-5, 78w, 78ll, 78 mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-31(c), 80a-37, 80a-

38(a), 80a-39, 80b-11 and 7201 et seq.; 18 U.S.C. 1350; sec. 953(b), Pub. L. 111-203, 124 Stat. 

1904 (2010); and sec. 102(c), Pub. L. 112-106, 126 Stat. 310 (2012). 

 2. Section 229.402 is amended by adding paragraph (x) to read as follows: 



233 

§229.402 (Item 402) Executive compensation. 

*   *   *   *   * 

 (x) Disclosure of the registrant's policies and practices related to the grant of certain 

equity awards close in time to the release of material nonpublic information. 

 (1) Discuss the registrant’s policies and practices on the timing of awards of options in 

relation to the disclosure of material nonpublic information by the registrant, including how the 

board determines when to grant such awards (for example, whether such awards are granted on a 

predetermined schedule); whether the board or compensation committee takes material 

nonpublic information into account when determining the timing and terms of such an award, 

and, if so, how the board or compensation committee takes material nonpublic information into 

account when determining the timing and terms of such an award; and whether the registrant has 

timed the disclosure of material nonpublic information for the purpose of affecting the value of 

executive compensation.  

 (2) (i) If, during the last completed fiscal year, the registrant awarded options to a named 

executive officer in the period beginning four business days before the filing of a periodic report 

on Form 10-Q (§ 249.308a of this chapter) or Form 10-K (§ 249.310 of this chapter), or the filing 

or furnishing of a current report on Form 8-K (§ 249.308 of this chapter) that discloses material 

nonpublic information (other than a current report on Form 8-K disclosing a material new option 

award grant under Item 5.02(e) of that form), and ending one business day after the filing or 

furnishing of such report provide the information specified in paragraph (x)(2)(ii) of this section, 

concerning each such award for each of the named executive officers in the following tabular 

format: 

Table 13 to paragraph (x)(2)(i) 



234 

Name 

    

 

 

 

 

 

(a) 

Grant date  

 

 

 

 

 

 

(b) 

Number of 

securities 

underlying 

the award 

 

 

(c) 

Exercise  

price of the 

award ($/Sh) 

 

(d) 

Grant date fair 

value of the 

award 

 

 

 

 

(e) 

Percentage change in the 

closing market price of 

the securities underlying 

the award between the 

trading day ending 

immediately prior to the 

disclosure of material 

nonpublic information 

and the trading day 

beginning immediately 

following the disclosure 

of material nonpublic 

information 

 

(f)  

PEO      

PFO      

A      

B      

C      

 

 (ii) The Table shall include:   

 (A) The name of the named executive officer (column (a));  

 (B) On an award-by-award basis, the grant date of the option award reported in the table 

(column (b)); 

 (C) On an award-by-award basis, the number of securities underlying the options, 

(column (c)); 

 (D) On an award-by-award basis, the per-share exercise price of the options (column (d));  

 (E) On an award-by-award basis, the grant date fair value of each award computed using 

the same methodology as used for the registrant’s financial statements under generally accepted 

accounting principles (column (e)).  

 (F) For each instrument reported in column (b), disclose the percentage change in the 

market price of the underlying securities between the closing market price of the security one 

trading day prior to and the trading day beginning immediately following the disclosure of 

material nonpublic information (column (f)). 

 Instruction to paragraph (x)(2). A registrant that is a smaller reporting company or 



235 

emerging growth company may limit the disclosures in the table to its PEO, the two most highly 

compensated executive officers other than the PEO who were serving as executive officers at the 

end of the last completed fiscal year, and up to two additional individuals who would have been 

the most highly compensated but for the fact that the individual was not serving as an executive 

officer at the end of the last completed fiscal year. 

(3) The disclosure provided pursuant to this paragraph (x) must be provided in an 

Interactive Data File as required by 17 CFR 232.405 (Rule 405 of Regulation S-T) in accordance 

with the EDGAR Filer Manual. 

 3. Add §229.408 to read as follows: 

§229.408 (Item 408) Insider trading arrangements and policies. 

 (a)(1) Disclose whether, during the registrant’s last fiscal quarter (the registrant’s fourth 

fiscal quarter in the case of an annual report), any director or officer (as defined in § 240.16a-1(f) 

of this chapter) adopted or terminated: 

(i) Any contract, instruction or written plan for the purchase or sale of securities of the 

registrant intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) (§ 240.10b5-

1(c) of this chapter) (a “Rule 10b5-1 trading arrangement”); and/or  

(ii) Any “non-Rule 10b5-1 trading arrangement” as defined in paragraph (c) of this 

section.   

(2) Identify whether the trading arrangement is intended to satisfy the affirmative defense 

of Rule 10b5-1(c), and provide a description of the material terms, other than terms with respect 

to the price at which the individual executing the Rule 10b5-1 trading arrangement or non-Rule 

10b5-1 trading arrangement is authorized to trade, such as:  

 (A) The name and title of the director or officer;  



236 

 (B) The date on which the director or officer adopted or terminated the trading 

arrangement;  

 (C) The duration of the trading arrangement; and 

 (D) The aggregate number of securities to be purchased or sold pursuant to the trading 

arrangement. 

(3) The disclosure provided pursuant to paragraphs (a)(1) and (2) of this section must be 

provided in an Interactive Data File as required by 17 CFR 232.405 (Rule 405 of Regulation S-T) 

in accordance with the EDGAR Filer Manual. 

 (b)(1) Disclose whether the registrant has adopted insider trading policies and procedures 

governing the purchase, sale, and/or other dispositions of the registrant’s securities by directors, 

officers and employees, or the registrant itself, that are reasonably designed to promote 

compliance with insider trading laws, rules and regulations, and any listing standards applicable 

to the registrant. If the registrant has not adopted such policies and procedures, explain why it 

has not done so. 

 (2) If the registrant has adopted insider trading policies and procedures, the registrant 

must file such policies and procedures as an exhibit. If all of the registrant’s insider trading 

policies and procedures are included in its code of ethics (as defined in 17 CFR 229.406(b)) and 

the code of ethics is filed as an exhibit pursuant to 17 CFR 229.406(c)(1), that would satisfy the 

exhibit requirement of this paragraph. 

 (3) The disclosure provided pursuant to paragraph (b)(1) of this section must be provided in 

an Interactive Data File as required by 17 CFR 232.405 in accordance with the EDGAR Filer 

Manual.  



237 

 (c) For purposes of this Item 408, a director or officer (as defined in § 240.16a-1(f) of this 

chapter) (each a “covered person”) has entered into a non-Rule 10b5-1 trading arrangement 

where: 

 (1) The covered person asserts that at a time when they were not aware of material 

nonpublic information about the security or the issuer of the security they had adopted a written 

arrangement for trading the securities; and  

 (2) The trading arrangement: 

 (i) Specified the amount of securities to be purchased or sold and the price at which and 

the date on which the securities were to be purchased or sold; 

 (ii) Included a written formula or algorithm, or computer program, for determining the 

amount of securities to be purchased or sold and the price at which and the date on which the 

securities were to be purchased or sold; or 

 (iii) Did not permit the covered person to exercise any subsequent influence over how, 

when, or whether to effect purchases or sales; provided, in addition, that any other person who, 

pursuant to the trading arrangement, did exercise such influence must not have been aware of 

material nonpublic information when doing so. 

 4. Amend § 229.601 by:  

 a. In the exhibit table in paragraph (a), revising entry 19; and 

 b. Revising paragraph (b)(19). 

 The revisions read as follows: 

§ 229.601 (Item 601) Exhibits. 

 (a) *    *    * 

EXHIBIT TABLE 

 Securities Act Forms Exchange Act Forms 



238 

S-1 S-3 SF-1 SF-3 S-41 S-8 S-11 F-1 F-3 F-41 10 8-K2 10-D 10-Q 10-K 
ABS-

EE 

*   *   *   *   *   *   * 

(19) Insider trading policies and 

procedures              
 

 X 
 

*   *   *   *   *   *   * 

 

1An exhibit need not be provided about a company if: (1) With respect to such company an 

election has been made under Form S-4 or F-4 to provide information about such company at a 

level prescribed by Form S-3 or F-3; and (2) the form, the level of which has been elected under 

Form S-4 or F-4, would not require such company to provide such exhibit if it were registering a 

primary offering. 

 
2A Form 8-K exhibit is required only if relevant to the subject matter reported on the Form 8-K 

report. For example, if the Form 8-K pertains to the departure of a director, only the exhibit 

described in paragraph (b)(17) of this section need be filed. A required exhibit may be 

incorporated by reference from a previous filing. 

 

*    *    *    *    * 

 (b) *   *   * 

 (19) Insider trading policies and procedures. Any insider trading policies and 

procedures, or amendments thereto, that are the subject of the disclosure required by § 

229.408(b) (Item 408(b) of Regulation S-K). 

*    *    *    *    * 

PART 232 — REGULATION S-T — GENERAL RULES AND REGULATIONS FOR 

ELECTRONIC FILINGS  

 

 5. The general authority citation for part 232 continues to read as follows: 

 Authority:  15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s(a), 77z-3, 77sss(a), 78c(b), 78l, 78m, 

78n, 78o(d), 78w(a), 78ll, 80a-6(c), 80a-8, 80a-29, 80a-30, 80a-37, 80b-4, 80b-10, 80b-11,7201 

et seq.; and 18 U.S.C. 1350, unless otherwise noted. 

*    *    *    *    * 

 6. Amend §232.405 by adding paragraph (b)(4)(iii) to read as follows: 



239 

§232.405  Interactive Data File Submissions. 

*    *    *    *    * 

 (b) *    *    * 

   (4)  * * * 

 (iii) Any disclosure provided in response to: §229.402(x) of this chapter (Item 402(x) of 

Regulation S-K); §229.408(a)(1) and (2) of this chapter (Item 408(a)(1) and (2) of Regulation S-

K); §229.408(b)(1) of this chapter (Item 408(b)(1) of Regulation S-K); and Item 16J(a) of § 

249.220f of this chapter (Item 16J(a) of Form 20-F). 

*    *    *    *    * 

PART 240—GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE 

ACT OF 1934 

 7. The general authority citation for part 240 continues to read as follows: 

 Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 77eee, 77ggg, 77nnn, 77sss, 

77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 

78o, 78o-4, 78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm, 80a-20, 80a-23, 

80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 

5221(e)(3); 18 U.S.C. 1350; Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-106, 

sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted. 

*   *   *   *   * 

 8. Amend § 240.10b5-1 by: 

 a. Removing the Preliminary Note;  

 b. Revising paragraphs (a), (b), (c)(1), (c)(1)(i), and (c)(1)(ii); and  

 c. Adding new paragraph (c)(1)(iv). 



240 

 The revisions and additions read as follows: 

§ 240.10b5-1 Trading on the basis of material nonpublic information in insider trading 

cases. 

 (a) Manipulative or deceptive devices. The “manipulative or deceptive device[s] or 

contrivance[s]” prohibited by Section 10(b) of the Act (15 U.S.C. 78j) and § 240.10b-5 (Rule 

10b-5) thereunder include, among other things, the purchase or sale of a security of any issuer, 

on the basis of material nonpublic information about that security or issuer, in breach of a duty of 

trust or confidence that is owed directly, indirectly, or derivatively, to the issuer of that security 

or the shareholders of that issuer, or to any other person who is the source of the material 

nonpublic information. 

 (b) Awareness of material nonpublic information. Subject to the affirmative defenses in 

paragraph (c) of this section, a purchase or sale of a security of an issuer is on the basis of 

material nonpublic information for purposes of Section 10(b) and Rule 10b-5 if the person 

making the purchase or sale was aware of the material nonpublic information when the person 

made the purchase or sale. The law of insider trading is otherwise defined by judicial opinions 

construing Rule 10b-5, and Rule 10b5-1 does not modify the scope of insider trading law in any 

other respect. 

 (c) Affirmative defenses. (1) (i) Subject to paragraph (c)(1)(ii) of this section, a person’s 

purchase or sale is not on the basis of material nonpublic information if the person making the 

purchase or sale demonstrates that:  

 (A) Before becoming aware of the information, the person had:  

 (1) Entered into a binding contract to purchase or sell the security,  

 (2) Instructed another person to purchase or sell the security for the instructing person's241 

account, or  

 (3) Adopted a written plan for trading securities;  

 (B) The contract, instruction, or plan described in paragraph (c)(1)(i)(A) of this section:  

 (1) Specified the amount of securities to be purchased or sold and the price at which and 

the date on which the securities were to be purchased or sold;  

 (2) Included a written formula or algorithm, or computer program, for determining the 

amount of securities to be purchased or sold and the price at which and the date on which the 

securities were to be purchased or sold; or 

 (3) Did not permit the person to exercise any subsequent influence over how, when, or 

whether to effect purchases or sales; provided, in addition, that any other person who, pursuant to 

the contract, instruction, or plan, did exercise such influence must not have been aware of the 

material nonpublic information when doing so; and  

 (C) The purchase or sale that occurred was pursuant to the contract, instruction, or plan. 

A purchase or sale is not “pursuant to a contract, instruction, or plan” if, among other things, the 

person who entered into the contract, instruction, or plan altered or deviated from the contract, 

instruction, or plan to purchase or sell securities (whether by changing the amount, price, or 

timing of the purchase or sale), or entered into or altered a corresponding or hedging transaction 

or position with respect to those securities. 

 (ii) Paragraph (c)(1)(i) of this section is applicable only when: 

 (A) The contract, instruction, or plan to purchase or sell securities was given or entered 

into in good faith and not as part of a plan or scheme to evade the prohibitions of this section, 

and the person who entered into the contract, instruction, or plan has acted in good faith with 

respect to the contract, instruction or plan; 



242 

 (B) If the person who entered into the contract, instruction, or plan is: 

(1) A director or officer (as defined in § 240.16a-1(f) (Rule 16a-1(f)) of the issuer, no 

purchases or sales occur until expiration of a cooling-off period consisting of the later of: 

  (i) Ninety days after the adoption of the contract, instruction, or plan or  

 (ii) Two business days following the disclosure of the issuer’s financial results in a Form 

10-Q (§ 249.308a of this chapter) or Form 10-K (§ 249.310 of this chapter) for the completed 

fiscal quarter in which the plan was adopted or, for foreign private issuers, in a Form 20-F (§ 

249.220f of this chapter) or Form 6-K (§249.306 of this chapter) that discloses the issuer’s 

financial results (but, in any event, this required cooling-off period is subject to a maximum of 

120 days after adoption of the contract, instruction, or plan); or 

 (2) Not the issuer and not a director or officer (as defined in § 240.16a-1(f) (Rule 16a-

1(f)) of the issuer, no purchases or sales occur until the expiration of a cooling-off period that is 

30 days after the adoption of the contract, instruction or plan;   

 (C) If the person who entered into a plan as described in paragraph (c)(1)(i)(A)(3) of this 

section is a director or officer (as defined in Rule 16a-1(f) (§ 240.16a-1(f)) of the issuer of the 

securities, such director or officer included a representation in the plan certifying that, on the 

date of adoption of the plan: 

 (1) The individual director or officer is not aware of any material nonpublic information 

about the security or issuer; and  

 (2) The individual director or officer is adopting the plan in good faith and not as part of a 

plan or scheme to evade the prohibitions of this section;  

 (D) The person (other than the issuer) who entered into the contract, instruction, or plan 

has no outstanding (and does not subsequently enter into any additional) contract, instruction, or 



243 

plan that would qualify for the affirmative defense under paragraph (c)(1) of this section for 

purchases or sales of the issuer’s securities on the open market; except that: 

 (1) For purposes of this paragraph (c)(1)(ii)(D), a series of separate contracts with 

different broker-dealers or other agents acting on behalf of the person (other than the issuer) to 

execute trades thereunder may be treated as a single “plan,” provided that the individual 

constituent contracts with each broker-dealer or other agent, when taken together as a whole, 

meet all of the applicable conditions of and remain collectively subject to the provisions of this 

rule, including that a modification of any individual contract acts as modification of the whole 

contract, instruction of plan, as defined in paragraph (c)(1)(iv) of this section. The substitution of 

a broker-dealer or other agent acting on behalf of the person (other than the issuer) for another 

broker-dealer that is executing trades pursuant to a contract, instruction or plan shall not be a 

modification of the contract, instruction, or plan (as defined in paragraph (c)(1)(iv) of this 

section) as long as the purchase or sales instructions applicable to the substitute and substituted 

broker are identical with respect to the prices of securities to be purchased or sold, dates of the 

purchases or sales to be executed, and amount of securities to be purchased or sold; and  

 (2) The person (other than the issuer) may have one later-commencing contract, 

instruction, or plan for purchases or sales of any securities of the issuer on the open market under 

which trading is not authorized to begin until after all trades under the earlier-commencing 

contract, instruction, or plan are completed or expired without execution; provided, however, that 

if the first trade under the later-commencing contract, instruction, or plan is scheduled during the 

Effective Cooling-Off Period, the later-commencing contract, instruction, or plan may not rely 

on this paragraph (c)(1)(ii)(D)(2). For purposes of this paragraph (c)(1)(ii)(D)(2), “Effective 

Cooling-Off Period” means the cooling-off period that would be applicable under paragraph 



244 

(c)(1)(ii)(B) of this section with respect to the later-commencing contract, instruction, or plan if 

the date of adoption of the later-commencing contract, instruction, or plan were deemed to be the 

date of termination of the earlier-commencing contract, instruction, or plan; and 

 (3) A contract, instruction, or plan providing for an eligible sell-to-cover transaction shall 

not be considered an outstanding or additional contract, instruction, or plan under paragraph  

(c)(1)(ii)(D) of this section, and such eligible sell-to-cover transaction shall not be subject to the 

limitation under paragraph (c)(1)(ii)(D) of this section. A contract, instruction, or plan provides 

for an eligible sell-to-cover transaction where the contract, instruction, or plan authorizes an 

agent to sell only such securities as are necessary to satisfy tax withholding obligations arising 

exclusively from the vesting of a compensatory award, such as restricted stock or stock 

appreciation rights, and the insider does not otherwise exercise control over the timing of such 

sales; and 

 (E) With respect to persons (other than the issuer), if the contract, instruction, or plan 

does not provide for an eligible sell-to-cover transaction as described in paragraph 

(c)(1)(ii)(D)(3) of this section and is designed to effect the open-market purchase or sale of the 

total amount of securities as a single transaction, the person who entered into the contract, 

instruction, or plan has not during the prior 12-month period adopted a contract, instruction, or 

plan that: 

 (1) was designed to effect the open-market purchase or sale of all of the securities 

covered by such prior contract, instruction or plan, in a single transaction; and  

 (2) Would otherwise qualify for the affirmative defense under paragraph (c)(1) of this 

section.  

*   *   *   *   * 



245 

 (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. A plan modification, such as the 

substitution or removal of a broker that is executing trades pursuant to a Rule 10b5-1 

arrangement on behalf of the person, that changes the price or date on which purchases or sales 

are to be executed, is a termination of such plan and the adoption of a new plan. 

*   *   *   *   * 

 9. Amend § 240.14a-101 by revising paragraph (b) introductory text of Item 7 to read as 

follows: 

§ 240.14a-101 Schedule 14A.  Information required in proxy statement. 

*    *    *    *    * 

Item 7. *   *   * 

*   *   *   *   * 

 (b) The information required by Items 401, 404(a) and (b), 405, 407 and 408(b) of 

Regulation S-K (§§ 229.401, 229.404(a) and (b), 229.405, 229.407, and 229.408(b) of this 

chapter), other than the information required by: 

*   *   *   *   * 

 10. Amend § 240.16a-3 by revising paragraphs (f)(1)(i)(A) and (g)(1) to read as follows: 

§ 240.16a-3  Reporting transactions and holdings. 

*   *   *   *   * 

 (f) *   *   * 

 (1) *   *   * 



246 

 (i) *   *   * 

 (A) Exercises and conversions of derivative securities exempt under either § 240.16b-3 or 

§ 240.16b-6(b), dispositions by bona fide gifts exempt under § 240.16b-5, and any transaction 

exempt under § 240.16b-3(d), § 240.16b-3(e), or § 240.16b-3(f), (these are required to be 

reported on Form 4); 

*   *   *   *   * 

 (g)(1) A Form 4 must be filed to report: All transactions not exempt from section 16(b) of 

the Act; all transactions exempt from section 16(b) of the Act pursuant to § 240.16b-3(d), § 

240.16b-3(e), or § 240.16b-3(f); and dispositions by bona fide gifts and all exercises and 

conversions of derivative securities, regardless of whether exempt from section 16(b) of the Act. 

Form 4 must be filed before the end of the second business day following the day on which the 

subject transaction has been executed. 

*   *   *   *   * 

PART 249 — FORMS, SECURITIES EXCHANGE ACT OF 1934 

 11. The authority citation for part 249 continues to read, in part, as follows: 

 Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C. 5461 et seq.; 18 U.S.C. 

1350; Sec. 953(b) Pub. L. 111-203, 124 Stat. 1904; Sec. 102(a)(3) Pub. L. 112-106, 126 Stat. 309 

(2012), Sec. 107 Pub. L. 112-106, 126 Stat. 313 (2012), Sec. 72001 Pub. L. 114-94, 129 Stat. 

1312 (2015), and secs. 2 and 3 Pub. L. 116-222, 134 Stat. 1063 (2020), unless otherwise noted. 

*  *  *  *  * 

 Section 249.220f is also issued under secs. 3(a), 202, 208, 302, 306(a), 401(a), 401(b), 

406 and 407, Pub. L. 107-204, 116 Stat. 745, and secs. 2 and 3, Pub. L. 116-222, 134 Stat. 1063. 

*  *  *  *  * 



247 

 Section 249.308a is also issued under secs. 3(a) and 302, Pub. L. 107-204, 116 Stat. 745. 

*  *  *  *  * 

 Section 249.310 is also issued under secs. 3(a), 202, 208, 302, 406 and 407, Pub. L. 107-

204, 116 Stat. 745. 

*  *  *  *  * 

 12. Amend Form 4 (referenced in §249.104) by: 

 a. Adding new General Instruction 10; and  

 b. Adding text and one check box at the top of the first page immediately below the text 

“Check this box if no longer subject to Section 16. Form 4 or Form 5 obligations may continue. 

See Instruction 1(b).” 

 The additions read as follows: 

Note: The text of Form 4 does not, and this amendment will not, appear in the Code of 

Federal Regulations. 

FORM 4 

*    *    *    *    * 

General Instructions 

*    *    *    *    * 

 10. Rule 10b5-1(c) Transaction Indication 

 Indicate by check mark whether a transaction was made pursuant to a contract, 

instruction or written plan for the purchase or sale of equity securities of the issuer that is 

intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act 

[§240.10b5-1(c) of this chapter]. Provide the date of adoption of the Rule 10b5-1(c) plan in the 

“Explanation of Responses” portion of the Form. 



248 

*    *    *    *    * 

  Check this box to indicate that a transaction was made pursuant to a contract, instruction 

or written plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c). 

See Instruction 10. 

*    *    *    *    * 

 13. Amend Form 5 (referenced in §249.105) by: 

 a. Adding new General Instruction 10; and  

 b. Adding text and one check box at the top of the first page immediately below the text 

“Form 4 Transactions Reported”. 

 The additions read as follows: 

Note: The text of Form 5 does not, and this amendment will not, appear in the Code of 

Federal Regulations. 

FORM 5 

*    *    *    *    * 

General Instructions 

*    *    *    *    * 

 10. Rule 10b5-1(c) Transaction Indication 

 Indicate by check mark whether a transaction was made pursuant to a contract, 

instruction or written plan for the purchase or sale of equity securities of the issuer that is 

intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act 

[§240.10b5-1(c) of this chapter]. Provide the date of adoption of the Rule 10b5-1(c) plan in the 

“Explanation of Responses” portion of the Form.  

*    *    *    *    * 



249 

  Check this box to indicate that a transaction was made pursuant to a contract, instruction 

or written plan for the purchase or sale of equity securities of the issuer that is intended to satisfy 

the affirmative defense conditions of Rule 10b5-1(c). See Instruction 10. 

*    *    *    *    * 

 14. Amend Form 20-F (referenced in § 249.220f) by: 

a. Adding new Item 16J; and 

b. Revising exhibit 11. 

The additions read as follows: 

Note: The text of Form 20-F does not, and this amendment will not, appear in the Code of 

Federal Regulations. 

FORM 20-F 

*   *   *   *   * 

Item 16J. Insider trading policies 

 (a) Disclose whether the registrant has adopted insider trading policies and procedures 

governing the purchase, sale, and other dispositions of the registrant’s securities by directors, 

senior management, and employees that are reasonably designed to promote compliance with 

applicable insider trading laws, rules and regulations, and any listing standards applicable to the 

registrant. If the registrant has not adopted such policies and procedures, explain why it has not 

done so. 

 (b) If the registrant has adopted insider trading policies and procedures, the registrant 

must file such policies and procedures as an exhibit. If all of the registrant’s insider trading 

policies and procedures are included in its code of ethics (as defined in Item 16B(b)) and the 

code of ethics is filed as an exhibit pursuant to Item 16B(c)(1), the registrant may satisfy the 



250 

exhibit requirement of this paragraph by filing the code of ethics that would satisfy the exhibit 

requirement of Item 16B(c)(1). 

 (c) The disclosure provided pursuant to Item 16J(a) must be provided in an Interactive Data 

File as required by Rule 405 of Regulation S-T (17 CFR 232.405) in accordance with the 

EDGAR Filer Manual. 

 Instruction to Item 16J: Item 16J applies only to annual reports, and does not apply to 

registration statements, on Form 20-F. 

*    *    *    *    * 

INSTRUCTIONS AS TO EXHIBITS 

*    *    *    *    * 

 11. (a) Any code of ethics, or amendment thereto, that is the subject of the disclosure 

required by Item 16B of Form 20-F, to the extent that the registrant intends to satisfy the Item 

16B requirements through filing of an exhibit 

 (b) Any insider trading policies and procedures that is the subject of the disclosure 

required by Item 16J. If all of the registrant’s insider trading policies and procedures are included 

in its code of ethics and the code of ethics is filed as an exhibit, that exhibit filing would satisfy 

the exhibit requirement of this paragraph (b). 

*    *    *    *    * 

 15. Amend Form 10-Q (referenced in § 249.308a) by adding paragraph (c) to Item 5 in 

Part II to read as follows: 

Note: The text of Form 10-Q does not, and this amendment will not, appear in the Code of 

Federal Regulations. 

FORM 10-Q 



251 

*    *    *    *    * 

Part II—Other Information 

*    *    *    *    * 

Item 5. Other Information. 

*    *    *    *    * 

 (c) Furnish the information required by Item 408(a) of Regulation S-K (17 CFR 

229.408(a)). 

*    *    *    *    * 

 16. Amend Form 10-K (referenced in § 249.310) by revising Item 9B in Part II and Item 

10 in Part III to read as follows: 

Note:  The text of Form 10-K does not, and this amendment will not, appear in the Code of 

Federal Regulations. 

FORM 10-K 

*    *    *    *    * 

PART II 

Item 9B. Other Information. 

*    *    *    *    * 

 Furnish the information required by Item 408(a) of Regulation S-K (§ 229.408(a) of this 

chapter). 

*    *    *    *    * 

PART III 

*    *    *    *    * 

Item 10. Directors, Executive Officers and Corporate Governance. 



252 

 Furnish the information required by Items 401, 405, 406, 407(c)(3), (d)(4), (d)(5), and 

408(b) of Regulation S-K (§ 229.401, § 229.405, § 229.406, § 229.407(c)(3), (d)(4), (d)(5), and § 

229.408(b) of this chapter). 

*   *   *   *   * 

By the Commission. 

Dated: December 14, 2022. 

 

 

Vanessa A. Countryman, 

Secretary.

1 

Conformed to Federal Register version 

SECURITIES AND EXCHANGE COMMISSION  

17 CFR Parts 229, 232, 240, and 249 

[Release Nos. 33-11138; 34-96492; File No. S7-20-21] 

RIN 3235-AM86 

Insider Trading Arrangements and Related Disclosures 

AGENCY: Securities and Exchange Commission. 

ACTION: Final rule. 

SUMMARY: We are adopting amendments to the rule under the Securities Exchange Act of 

1934 (“Exchange Act”) that provides affirmative defenses to trading on the basis of material 

nonpublic information in insider trading cases. The amendments add new conditions to this rule 

that are designed to address concerns about abuse of the rule to trade securities opportunistically 

on the basis of material nonpublic information in ways that harm investors and undermine the 

integrity of the securities markets. We are also adopting new disclosure requirements regarding 

the insider trading policies and procedures of issuers, the adoption and termination (including 

modification) of plans that are intended to meet the rule’s conditions for establishing an 

affirmative defense, and certain other similar trading arrangements by directors and officers. In 

addition, we are adopting amendments to the disclosure requirements for director and executive 

compensation regarding equity compensation awards made close in time to the issuer’s 

disclosure of material nonpublic information. Finally, we are adopting amendments to Forms 4 

and 5 to require filers to identify transactions made pursuant to a plan intended to meet the 

rule’s conditions for establishing an affirmative defense, and to require disclosure of bona fide 

gifts of securities on Form 4. 



2 

DATES: Effective date: The final rules are effective on February 27, 2023.  

Compliance dates: See Section III for further information on transitioning to the final rules. 

FOR FURTHER INFORMATION CONTACT: Sean Harrison, Special Counsel,  Office of 

Rulemaking, at (202) 551-3430, Division of Corporation Finance, 100 F Street NE, Washington, 

DC 20549. 

SUPPLEMENTARY INFORMATION: We are amending: 

Commission Reference CFR Citation  

(17 CFR) 

Regulation S-K 

[17 CFR 229.10 through 229.1305] 

 

 Item 402 § 229.402 

 Item 408 § 229.408 

 Item 601  § 229.601 

Regulation S-T 

[17 CFR 232.11 through 232.903] 

 

 Item 405 § 232.405 

Securities Exchange Act of 1934 (Exchange Act) 

[15 U.S.C. 78a et seq.] 

 

 Rule 10b5-1 § 240.10b5-1 

 Schedule 14A § 240.14a-101 

 Rule 16a-3 §240.16a-3 

 Form 4 § 249.104 

 Form 5 § 249.105 

 Form 20-F §249.220f 

 Form 10-Q § 249.308a 

 Form 10-K § 249.310 

 

  



3 

Table of Contents 

 

I. Introduction ........................................................................................................................... 5 

II. Discussion of the Final Amendments ................................................................................. 12 
A. Amendments to Rule 10b5-1 ................................................................................................. 12 

1. Cooling-off Period.......................................................................................................... 15 
2. Director and Officer Certifications ................................................................................ 37 
3. Restricting Multiple Overlapping Rule 10b5-1 Trading Arrangements and    Single-

Trade Arrangements....................................................................................................... 47 
4. The Amended Good Faith Condition ............................................................................. 63 

B. Additional Disclosures Regarding Rule 10b5-1 Trading Arrangements .............................. 68 

1. Quarterly Reporting of Rule 10b5-1 and Non-Rule 10b5-1 Trading  Arrangements .... 70 
2. Disclosure of Insider Trading Policies and Procedures ................................................. 80 
3. Identification of Rule 10b5-1 and non-Rule 10b5-1 Transactions on Forms 4 and 5 .... 88 

C. Disclosure Regarding Option Grants and Similar Equity Instruments Made Close in Time to 

the Release of Material Nonpublic Information ............................................................... 93 
1. Proposed Amendments ................................................................................................... 93 

2. Comments on the Proposed Amendments ..................................................................... 98 
3. Final Amendments ....................................................................................................... 101 

D. Structured Data Requirements ............................................................................................. 105 
1. Proposed Amendments ................................................................................................. 105 
2. Comments on the Proposed Amendments ................................................................... 106 

3. Final Amendments ....................................................................................................... 106 

E. Reporting of Gifts on Form 4 .............................................................................................. 108 
1. Proposed Amendments ................................................................................................. 108 
2. Comments on the Proposed Amendments ................................................................... 109 

3. Final Amendments ....................................................................................................... 111 
III. Transition Matters ............................................................................................................ 114 

IV. Other Matters .................................................................................................................... 116 
V. Economic Analysis ............................................................................................................... 116 
A. Broad Economic Considerations ............................................................................................ 117 

B. Amendments to Rule 10b5-1(c)(1) ........................................................................................ 127 
1. Baseline and Affected Parties .......................................................................................... 128 

2. Benefits ............................................................................................................................ 140 
3. Costs ................................................................................................................................ 150 

4. Effects on Efficiency, Competition, and Capital Formation ........................................... 161 
5. Reasonable Alternatives .................................................................................................. 162 

C. Disclosure of Trading Arrangements and Policies and Procedures in New Item 408 of 

Regulation S-K and Mandatory Rule 10b5-1 Checkbox in Amended Forms 4 and 5 ... 169 
1. Baseline and Affected Parties .......................................................................................... 170 

2. Benefits ............................................................................................................................ 171 
3. Costs ................................................................................................................................ 176 
4. Effects on Efficiency, Competition, and Capital Formation ........................................... 181 
5. Reasonable Alternatives .................................................................................................. 184 

D. Additional Disclosure of the Timing of Option Grants and Related Company Policies and 



4 

Practices .......................................................................................................................... 189 
1. Baseline and Affected Parties .......................................................................................... 192 
2. Benefits ............................................................................................................................ 194 

3. Costs ................................................................................................................................ 201 
4. Effects on Efficiency, Competition, and Capital Formation ........................................... 205 
5. Reasonable Alternatives .................................................................................................. 207 

E. Additional Disclosure of Insider Gifts of Stock ..................................................................... 211 
1. Baseline and Affected Parties .......................................................................................... 211 

2. Benefits ............................................................................................................................ 211 
3. Costs ................................................................................................................................ 213 
4. Effects on Efficiency, Competition, and Capital Formation ........................................... 214 

5. Reasonable Alternatives .................................................................................................. 215 
VI. Paperwork Reduction Act ................................................................................................ 215 
A. Summary of the Collections of Information ........................................................................ 215 
B. Summary of Comment Letters ............................................................................................ 217 

C. Summary of Collections of Information Requirements ...................................................... 217 
D. Burden and Cost Estimates Related to the Amendments .................................................... 222 

VII. Final Regulatory Flexibility Act Analysis ....................................................................... 225 
A. Need for, and Objectives of, the Amendments ................................................................... 226 

B. Significant Issues Raised by Public Comments .................................................................. 226 
C. Small Entities Subject to the Amendments ......................................................................... 227 
D. Projected Reporting, Recordkeeping, and Other Compliance Requirements ..................... 228 

E. Agency Action to Minimize Effect on Small Entities ......................................................... 230 

Statutory Authority .................................................................................................................. 232 
 

 

  



5 

I. Introduction 

 Congress enacted the Federal securities laws to promote fair and transparent securities 

markets, “avoid[] frauds,” and “substitute a philosophy of full disclosure for the philosophy of 

caveat emptor and thus to achieve a high standard of business ethics in the securities industry.”1 

The securities laws’ antifraud prohibitions that proscribe certain insider trading, including 

Section 10(b) of the Exchange Act,2 play an essential role in maintaining the fairness and 

integrity of our securities markets. The Securities and Exchange Commission (the 

“Commission”) has long recognized that insider trading3 and the fraudulent misuse of material 

nonpublic information by corporate insiders4 harms not only individual investors but also 

undermines the foundations of our markets by eroding investor confidence.5 Congress has 

recognized the harmful impact of insider trading on multiple occasions, such as by providing for 

enhanced civil penalties specifically for insider trading.6 

                                                 

1  Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 151 (1972); accord Lorenzo v. SEC, 139 S. Ct. 

1094, 1103 (2019).  

2  15 U.S.C. 78j(b). 

3  “Insider trading” as used in this release refers to the purchase or sale of a security of any issuer, on the basis of 

material nonpublic information about that security or issuer, in breach of a duty of trust or confidence that is 

owed directly, indirectly, or derivatively, to the issuer of that security or the shareholders of that issuer, or to 

any other person who is the source of the material nonpublic information. See Rule 10b5-1(a). 

4  We use the terms “insider” and “corporate insider” in this release to refer to persons (other than issuers) for 

whom the purchase or sale of a security of any issuer, on the basis of material nonpublic information about that 

security or issuer, would represent a breach of a fiduciary duty or a duty of trust or confidence that is owed 

directly, indirectly, or derivatively, to the issuer of a security or the shareholders of that issuer, or to any other 

person who is the source of the material nonpublic information. See Rule 10b5-1(a). 

5  See In re Cady, Roberts & Co., 40 S.E.C. 907, 1961 WL 60638, at *4 n. 15 (1961) (“A significant purpose of 

the Exchange Act was to eliminate the idea that the use of inside information for personal advantage was a 

normal emolument of corporate office.”); see also United States v. O’Hagan, 521 U.S. 642, 658 (1997) (The 

insider trading prohibition is consistent with the “animating purpose” of the Federal securities laws: “to insure 

honest securities markets and thereby promote investor confidence.”) 

6  See Insider Trading Sanctions Act of 1984, Pub. L. No. 98-376, 98 Stat. 1264; Insider Trading and Securities 

Fraud Enforcement Act of 1988, Pub. L. No. 100-704, 102 Stat. 4677, codified at Section 21A of the Exchange 

Act, 15 U.S.C. 78u-1. Congress has enacted other laws that build on the insider trading prohibition. See, e.g., 

Section 20(d) of the Exchange Act, 15 U.S.C. 78t(d); Section 20A of the Exchange Act, 15 U.S.C. 78t-1; 

STOCK Act, Pub. L. No. 112-105, 126 Stat. 291 (2012). 



6 

 Section 10(b) is one of the securities laws’ primary antifraud provisions. This provision 

makes it unlawful “[t]o use or employ, in connection with the purchase or sale of any security. . . 

any manipulative or deceptive device or contrivance in contravention of such rules and 

regulations as the Commission may prescribe.”7 The Supreme Court has recognized that the 

“manipulative or deceptive device[s] or contrivance[s]” prohibited by Section 10(b) and Rule 

10b-5 include the purchase or sale of a security of any issuer on the basis of material nonpublic 

information about that security or its issuer, in breach of a duty owed directly, indirectly, or 

derivatively to the issuer of that security, to the shareholders of that issuer, or to any person who 

is the source of the material nonpublic information.8 

 The Commission adopted Rule 10b5-1 in 2000 to provide more clarity regarding the 

meaning of “manipulative or deceptive device[s] or contrivance[s]” prohibited by Section 10(b) 

and Rule 10b-5 with respect to trading on the basis of material nonpublic information.9 At the 

                                                 

7  Rule 10b-5, adopted pursuant to Section 10(b), prohibits the use of “any device, scheme, or artifice to defraud”; 

the making of “any untrue statement of a material fact” or the “omi[ssion]” of “a material fact necessary in 

order to make the statements made, in the light of the circumstances under which they were made, not 

misleading”; or “any act, practice, or course of business which operates or would operate as a fraud or deceit 

upon any person” [17 CFR 240.10b-5]. In addition to potential insider trading liability, issuers—and those 

acting on their behalf—are also subject to other prohibitions under the Federal securities laws.  

8  See Salman v. United States, 137 S.Ct. 420, 425 n. 2 (2016) (explaining that, under the classical theory of 

insider-trading liability, an insider who trades in the securities of his corporation on the basis of material 

nonpublic information “breaches a duty to, and takes advantage of, the shareholders of his corporation” while, 

under the misappropriation theory, “a person commits securities fraud ‘when he misappropriates confidential 

information for securities trading purposes, in breach of a duty owed to the source of the information,’ such as 

an employer or client”); O’Hagan, 521 U.S. at 651-53 (“Under the ‘traditional’ or ‘classical theory’ of insider 

trading liability, §10(b) and Rule 10b–5 are violated when a corporate insider trades in the securities of his 

corporation on the basis of material, nonpublic information,” and “the misappropriation theory outlaws trading 

on the basis of nonpublic information by a corporate ‘outsider’ in breach of a duty owed not to a trading party, 

but to the source of the information.”); Chiarella v. United States, 445 U.S. 222, 228-29 (1980); see also 15 

U.S.C. 78u-1(a)(1); 17 CFR 240.10b5-2 (setting forth a non-exclusive definition of circumstances in which a 

person has the requisite duty for purposes of the “misappropriation” theory of insider trading liability). Liability 

for insider trading under Section 10(b) and Rule 10b-5 requires “scienter,” i.e., “an intent on the part of the 

defendant to deceive, manipulate or defraud.” Aaron v. SEC, 446 U.S. 680, 686 & n. 5 (1980); see also 

Selective Disclosure and Insider Trading, Release No. 33-7881 (Aug. 15, 2000) [65 FR 51716 (Aug. 24, 2000)] 

(“2000 Adopting Release”) at 51727. 

9  See 2000 Adopting Release, supra note 8. 

https://advance.lexis.com/document/teaserdocument/?pdmfid=1000516&crid=4391a125-d04f-4c86-9896-e82bb282f826&pddocfullpath=%2Fshared%2Fdocument%2Fadministrative-codes%2Furn%3AcontentItem%3A5JKM-HSR0-006W-84MW-00000-00&pddocid=urn%3AcontentItem%3A5JKM-HSR0-006W-84MW-00000-00&pdcontentcomponentid=41356&pdteaserkey=h2&pditab=allpods&ecomp=yzt4k&earg=sr0&prid=f5e42f4d-625a-4e4d-8c2c-ad0145d35dc7


7 

time, Federal appellate courts diverged on the issue of what, if any, connection must be shown 

between a trader’s possession of material nonpublic information and his or her trading to 

establish liability under Section 10(b) and Rule 10b-5. The Commission addressed this issue by 

providing that a purchase or sale of an issuer’s security is on the basis of material nonpublic 

information about that security or issuer for purposes of Section 10(b) and Rule 10b-5 if the 

person making the purchase or sale was aware of the material nonpublic information when the 

person made the purchase or sale.10 In addition, Rule 10b5-1(c) established an affirmative 

defense to liability under Section 10(b) and Rule 10b-5 for insider trading, which the 

Commission intended “to cover situations in which a person can demonstrate that the material 

nonpublic information did not factor into the trading decision.”11 To that end, this defense 

provided that the trading was not made on the basis of material nonpublic information if the 

person can demonstrate, among other things, that the trade was made pursuant to a binding 

contract, an instruction to another person to execute the trade for the instructing person’s 

account, or a written plan for the trading of securities (each a “trading arrangement” and 

collectively “trading arrangements”) adopted at a time that the person was not aware of material 

                                                 

10  See Rule 10b5-1(b) (emphasis added). The final amendments do not alter the “awareness” standard, which 

courts have held is “entitled to deference.”  United States v. Royer, 549 F.3d 886, 899 (2d Cir. 2008) (applying 

Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843-44 (1984)), cert. denied, 558 U.S. 

934, and 558 U.S. 935 (2009); see also United States v. Rajaratnam, 719 F.3d 139, 157-61 (2d Cir. 2013), cert. 

denied, 134 S. Ct. 2820 (2014). Under that standard, a person is aware of material nonpublic information if they 

know, consciously avoid knowing, or are reckless in not knowing that the information is material and 

nonpublic.  See SEC v. Obus, 693 F.3d 276, 286-88, 293 (2d Cir. 2012); United States v. Gansman, 657 F.3d 

85, 91 n.7, 94 (2d Cir. 2011). The decision in Fried v. Stiefel Labs., Inc., 814 F.3d 1288, 1295 (11th Cir. 2016), 

which concerned a private action that did not involve Rule 10b5-1, erroneously suggests that a person must 

“use” the inside information to purchase or sell securities. See also infra at p. 45 n. 145.  

11  2000 Adopting Release, supra note 8 at 51728. 



8 

nonpublic information.12 The Commission believed that this defense would “provide appropriate 

flexibility to those who would like to plan securities transactions in advance, at a time when they 

are not aware of material nonpublic information, and then carry out those pre-planned 

transactions at a later time, even if they later become aware of material nonpublic information.”13 

Rule 10b5-1(c)(2) provides a separate affirmative defense designed solely for non-natural 

persons (e.g., entities) that trade.14  

 Since the adoption of the Rule 10b5-1(c)(1) affirmative defense, courts,15 commenters,16 

and members of Congress17 have expressed concern that traders have sought to benefit from its 

                                                 

12  Rule 10b5-1 does not modify or address any other aspect of insider trading law. It also does not provide an 

affirmative defense for other securities fraud claims, such as a claim under Rule 10b-5 for an “untrue statement 

of a material fact.” 17 CFR 240.10b-5(b).    

13  2000 Adopting Release, supra note 8 at 51728. 

14  See Rule 10b5–1(c)(2) [17 CFR 240.10b5–1(c)(2)]. This affirmative defense is available to a person other than 

a natural person that can demonstrate that the individual making the investment decision on behalf of the person 

was not aware of the material nonpublic information, and the person had implemented reasonable policies and 

procedures to prevent insider trading. 

15  District courts in private securities law actions have “acknowledge[d] the possibility that a clever insider might 

‘maximize’ their gain from knowledge of an impending [stock] price drop over an extended amount of time, 

and seek to disguise their conduct with a 10b5-1 plan.” In re Immucor Inc. Sec. Litig., 2006 WL 3000133, at 

*18 n.8 (N.D. Ga. Oct. 4, 2006); accord Nguyen v. New Link Genetics Corp., 297 F. Supp. 3d 472, 494–96 

(S.D.N.Y. 2018); Freudenberg v. E*Trade Fin. Corp., 712 F. Supp. 2d 171, 200 (S.D.N.Y. 2010); Malin v. XL 

Cap. Ltd., 499 F. Supp. 2d 117, 156 (D. Conn. 2007), aff’d, 312 F. App’x 400 (2d Cir. 2009).   

16  In Dec. 2020, the Commission proposed to amend Forms 4 and 5 to add a checkbox to permit filers to indicate 

that the reported transaction satisfied Rule 10b5-1. See Rule 144 Holding Period and Form 144 Filings, Release 

No. 33-10991 (Dec. 22, 2020) [85 FR 79936]. The Commission received several comment letters in response 

expressing concern about potential abuse of Rule 10b5-1. See, e.g., letter from David Larcker et al. (Mar. 10, 

2021), https://www.sec.gov/comments/s7-24-20/s72420-8488827-229970.pdf; letter from Council of 

Institutional Investors (“CII”) (Apr. 22, 2021), https://www.sec.gov/comments/s7-14-20/s71420-8709408-

236962.pdf; letter from CII (Mar. 18, 2021), https://www.sec.gov/comments/s7-24-20/s72420-8519687-

230183.pdf. In response to its Fall 2018 semiannual regulatory agenda, the Commission also received a letter 

requesting that the Commission amend Rule 10b5-1 to address potential abuses of Rule 10b5-1 plans. See letter 

from CII (Dec. 13, 2018), https://www.sec.gov/comments/s7-20-18/s72018-4766666-176839.pdf.  

17  See, e.g., “Waters and McHenry Introduce Bipartisan Legislation to Curb Illegal Insider Trading,” U.S. House 

Committee on Financial Services, (Jan. 18, 2019) 

https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=401725; letter from Senators 

Elizabeth Warren, Sherrod Brown and Chris Van Hollen (Feb. 10, 2021), 

https://www.warren.senate.gov/imo/media/doc/02.10.2021%20Letter%20from%20Senators%20Warren,%20Br

own,%20and%20Van%20Hollen%20to%20Acting%20Chair%20Lee.pdf. 

https://www.sec.gov/comments/s7-24-20/s72420-8488827-229970.pdf
https://www.sec.gov/comments/s7-24-20/s72420-8519687-230183.pdf
https://www.sec.gov/comments/s7-24-20/s72420-8519687-230183.pdf
https://www.sec.gov/comments/s7-20-18/s72018-4766666-176839.pdf
https://www.warren.senate.gov/imo/media/doc/02.10.2021%20Letter%20from%20Senators%20Warren,%20Brown,%20and%20Van%20Hollen%20to%20Acting%20Chair%20Lee.pdf
https://www.warren.senate.gov/imo/media/doc/02.10.2021%20Letter%20from%20Senators%20Warren,%20Brown,%20and%20Van%20Hollen%20to%20Acting%20Chair%20Lee.pdf


9 

liability protections while trading securities opportunistically on the basis of material nonpublic 

information. Furthermore, some academic studies have found that corporate insiders trading 

pursuant to Rule 10b5-1 plans18 consistently outperform the trading of corporate insiders that is 

not conducted under such plans. These studies raise concerns that corporate insiders may be 

trading under Rule 10b5-1 in ways that harm investors and undermine the integrity of the 

securities markets.19 Practices that have raised public concern include corporate insiders adopting 

multiple overlapping plans and subsequently selectively canceling certain trades under such 

plans while they are aware of material nonpublic information (allowing such insiders to buy or 

sell securities under the plans that provide the most advantageous price) or commencing trades 

pursuant to a new plan shortly after the adoption of such plan (in some cases on the same day as 

said adoption, which, when combined with comparatively larger trades made closer in time to 

adoption of a plan, suggests that those trades may be on the basis of material nonpublic 

information).20 In September 2021, the Commission’s Investor Advisory Committee (“IAC”)21 

                                                 

18  We use the terms “Rule 10b5-1 plan” and “Rule 10b5-1 trading arrangement” throughout this release to refer to 

a contract, instruction or written plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-

1(c)(1). 

19  See, e.g., Alan D. Jagolinzer, SEC Rule 10b5-1 and Insiders’ Strategic Trade, 55 MGMT. SCI. 224 (2009); M. 

Todd Henderson et al., Offensive Disclosure: How Voluntary Disclosure Can Increase Returns from Insider 

Trading, 103 GEO. L.J. 1275 (2015); Taylan Mavruk & H. Nejat Seyhun, Do SEC’s 10b5-1 Safe Harbor Rules 

Need to Be Rewritten?, 2016 COLUM. BUS. L. REV. 133 (2016); Artur Hugon & Yen-Jung Lee, SEC Rule 10b5-

1 Plans and Strategic Trade Around Earnings Announcements, (2016), https://ssrn.com/abstract=2880878. 

20   See, e.g., John P. Anderson, Anticipating a Sea Change for Insider Trading Law: From Trading Plan Crisis to 

Rational Reform, 2015 UTAH L. REV. 339 (2015); David Larcker et al., Gaming the System: Three “Red Flags” 

of Potential 10b5-1 Abuse, STAN. CLOSER LOOK SERIES (Jan. 2021) (“Gaming the System”) (noting from their 

analysis of a sample of sales transactions made pursuant to Rule 10b5-1 plans between Jan. 2016 and May 2020 

that trades occurring within 30 days of adoption of a Rule 10b5-1 plan are approximately 50 percent larger than 

trades made six or more months later); see also infra note 40 and accompanying text. 

21  The IAC was established in Apr. 2012 pursuant to Section 911 of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act [Pub. L. 111-203, sec. 911, 124 Stat. 1376, 1822 (2010)] to advise and make 

recommendations to the Commission on regulatory priorities, the regulation of securities products, trading 

strategies, fee structures, the effectiveness of disclosure, and initiatives to protect investor interests and to 

promote investor confidence and the integrity of the securities marketplace.  

https://ssrn.com/abstract=2880878


10 

recommended that we “take the necessary steps to establish meaningful guardrails around the 

adoption, modification, and cancellation of Rule 10b5-1 trading plans,” by addressing certain 

gaps in the rule that allow corporate insiders to unfairly exploit informational asymmetries.22  

 On January 13, 2022, the Commission proposed several rule and form amendments to 

address potentially abusive practices associated with Rule 10b5-1 plans, grants of options and 

other equity instruments with similar features, and the gifting of securities.23 We received over 

160 comment letters on the proposals, which we discuss in context below.24 Having considered 

these comments, we are adopting the following amendments, which include modifications from 

the proposal in response to the comments:  

 Amend the affirmative defense of Rule 10b5-1(c)(1) to: (1) include a cooling-off period 

applicable to directors and “officers” (as defined by 17 CFR 240.16a-1(f) (“Rule 16a-

1(f)”) and a shorter cooling off period applicable to all other persons other than the 

issuer; (2) include a certification condition for directors and officers; (3) limit the ability 

                                                 

22  See Recommendations of the Investor Advisory Committee Regarding Rule 10b5-1 Plans (Sept. 9, 2021) (“IAC 

Recommendations”), at https://www.sec.gov/spotlight/investor-advisory-committee-2012/20210916-10b5-1-

recommendation.pdf. The IAC also held a panel discussion regarding Rule 10b5-1 plans at its June 10, 2021 

meeting. See IAC, Meeting Minutes (June 10, 2021), https://www.sec.gov/spotlight/investor-advisory-

committee-2012/iac061021-minutes.pdf. 

23  See Rule 10b5-1 and Insider Trading, Release No. 33–11013 (Jan. 13, 2022) [87 FR 8686 (Feb. 15, 2022)] 

(“Proposing Release”). 

24  The public comments we received are available at https://www.sec.gov/comments/s7-20-21/s72021.htm. Unless 

otherwise indicated, the comment letters cited herein are those received in response to the Proposing Release. 

One comment letter, dated Jan. 10, 2022, urged that the comment period for this proposal, among others, be 

extended to at least 60 days. See letter from Senator Pat Toomey and Representative Patrick McHenry. The 

Commission voted to issue the proposal at an open meeting on Dec. 15, 2021. The release was posted on the 

Commission website that day, and comment letters were received beginning that same date. On Jan. 13, 2022, 

the Commission voted to approve and issue a revised release that reflected certain, limited changes to the 

Paperwork Reduction Act and Initial Regulatory Flexibility Act Analysis sections.  This proposal was posted on 

the Commission’s website that same day, superseding the Dec. 15, 2021 release, and was published in the 

Federal Register on Feb. 15, 2022. The comment period closed on Apr. 1, 2022. We have considered all 

comments received since Dec. 15, 2021, and do not believe an extension of the comment period was necessary. 

Another comment letter raised concerns about the rulemaking process at the agency more broadly.  See letter 

from Senator Thom Tillis. The process followed in adopting these amendments has complied with the 

Administrative Procedure Act and other legal requirements. 

https://www.sec.gov/comments/s7-20-21/s72021.htm


11 

of persons other than the issuer to use multiple overlapping Rule 10b5-1 plans; (4) limit 

the ability of these persons to rely on the affirmative defense for a single-trade plan to 

one single-trade plan during any consecutive 12-month period; and (5) add a condition 

that all persons entering into a Rule 10b5-1 plan must act in good faith with respect to 

that plan;25  

 Require: (1) quarterly disclosure by registrants regarding the use of Rule 10b5-1 plans 

and certain other trading arrangements by a registrant’s directors and officers for the 

trading of its securities; and (2) annual disclosure regarding a registrant’s insider trading 

policies and procedures in new Item 408 of Regulation S-K and corresponding 

amendments to Forms 10-Q and 10-K; 

 Add a mandatory Rule 10b5-1(c) checkbox to Forms 4 and 5; 

 Require certain tabular and narrative disclosures regarding awards of options, stock 

appreciation rights (“SARs”), and/or similar option-like instruments granted to corporate 

insiders shortly before and immediately after the release of material nonpublic 

information in new paragraph (x) to Item 402 of Regulation S-K;  

 Require registrants to tag the information specified by new Items 402(x), 408(a), and 

408(b)(1) in Inline XBRL; and 

 Require reporting of dispositions of equity securities by bona fide gifts on Form 4, rather 

than on Form 5. 

These amendments are intended to improve investor confidence in the securities markets, and by 

extension enhance liquidity and capital formation, while continuing to provide appropriate 

                                                 

25  We use the term “the issuer” in this release to refer to the issuer of the particular security or securities that are 

the subject of trades for which a person seeks the benefit of the affirmative defense under Rule 10b5-1(c)(1).  



12 

flexibility to traders who would like to plan securities transactions in advance, when they are not 

aware of material nonpublic information. To achieve these goals, the amendments are designed 

to significantly reduce opportunities for corporate insiders to misuse Rule 10b5-1 to trade on 

material nonpublic information. Further, the amendments will increase transparency regarding 

the use of Rule 10b5-1 plans, issuers’ insider trading policies and procedures, and their policies 

and practices with respect to awards of options, SARs, and/or similar option-like instruments 

close in time to the release of material nonpublic information. 

II. Discussion of the Final Amendments 

A. Amendments to Rule 10b5-1 

 Rule 10b5-1(c)(1) provides an affirmative defense to Section 10(b) and Rule 10b-5 

liability if a person satisfies its conditions. First, the person must demonstrate that, before 

becoming aware of the material nonpublic information, they entered into a binding contract to 

purchase or sell the security, provided instruction to another person to execute the trade for the 

instructing person’s account, or adopted a written plan for trading the securities.26 Second, the 

person must demonstrate that the contract, instruction, or plan: 

 Specified the amount of securities to be purchased or sold and the price at which and the 

date on which the securities were to be purchased or sold;  

 Included a written formula or algorithm, or computer program, for determining the 

amount of securities to be purchased or sold and the price at which and the date on which 

the securities were to be purchased or sold; or  

 Did not permit the person to exercise any subsequent influence over how, when, or 

whether to effect purchases or sales; provided, in addition, that any other person who, 

                                                 

26  Rule 10b5-1(c)(1)(i)(A). 



13 

pursuant to the contract, instruction, or plan, did exercise such influence must not have 

been aware of the material nonpublic information when doing so.27 

Third, the person must demonstrate that the purchase or sale was pursuant to this contract, 

instruction, or plan.28 A purchase or sale is not pursuant to a contract, instruction, or plan if, 

among other things, the person who entered into the contract, instruction, or plan altered or 

deviated from the contract, instruction, or plan (whether by changing the amount, price, or timing 

of the purchase or sale), or entered into or altered a corresponding or hedging transaction or 

position with respect to the securities.29 Finally, this defense is only available if the contract, 

instruction, or plan “was given or entered into in good faith and not as part of a plan or scheme to 

evade the prohibitions” of Rule 10b-5.30  

 We are concerned that some corporate insiders use Rule 10b5-1 plans in ways that are not 

consistent with the objectives of the rule, and that harm investors and undermine the integrity of 

the securities markets. As the use of Rule 10b5-1 plans has become more widespread,31 

commentators have raised concerns that the design of Rule 10b5-1(c)(1) has enabled corporate 

insiders to trade on the basis of material nonpublic information while avoiding liability under 

                                                 

27  Rule 10b5-1(c)(1)(i)(B). 

28  Rule 10b5-1(c)(1)(i)(C). 

29  Id. 

30  Rule 10b5-1(c)(1)(ii). 

31   According to one survey, corporate insiders at 51% of S&P 500 companies used Rule 10b5-1 trading 

arrangements in 2015. See Morgan Stanley & Shearman & Sterling LLP, “Defining the Fine Line: Mitigating 

Risk with 10b5-1 Plans” (2018) https://advisor.morganstanley.com/austin.cornish/documents/field/a/au/austin-

cornish/Mitigating%20Risk%20with%2010b5-1%20Plans.pdf. Rule 10b5-1 plans are also used by issuers. See 

Skadden Insights: Share Repurchases 4-6 (Mar. 16, 2020) 

https://www.skadden.com/insights/publications/2020/03/share-repurchases (discussing the use of Rule 10b5-1 

plans for issuer share repurchases). 

https://advisor.morganstanley.com/austin.cornish/documents/field/a/au/austin-cornish/Mitigating%20Risk%20with%2010b5-1%20Plans.pdf
https://advisor.morganstanley.com/austin.cornish/documents/field/a/au/austin-cornish/Mitigating%20Risk%20with%2010b5-1%20Plans.pdf
https://www.skadden.com/insights/publications/2020/03/share-repurchases


14 

Section 10(b) and Rule 10b-5.32 Several commenters on the proposals reiterated those 

concerns.33 These concerns stem from, among other things, the ability of corporate insiders to 

adopt multiple Rule 10b5-1 plans at a time when they lack material nonpublic information, and 

subsequently terminate some of the plans based on later-obtained material nonpublic information 

(notwithstanding the provision of the current affirmative defense that it is applicable only when 

the contract, instruction, or plan was entered into in good faith). For example, such plans might 

take financial positions that authorize trades at price points above and/or below the issuer’s 

current stock price. When the insider becomes aware of material nonpublic information 

indicating likely future changes in the company’s stock price, the insider could cancel the less 

advantageous plan or plans. Corporate insiders also could adopt multiple Rule 10b5-1 plans that 

direct trades only at price points above the current share price, anticipating that they will 

subsequently learn material nonpublic information that would reveal which of the plans would be 

most profitable. Then, when they become aware of material non-public information, they might 

cancel the less profitable ones. We are concerned that, in these situations, an insider’s awareness 

of material nonpublic information may still “factor into the trading decision,” even if the 

insider’s plans appear to satisfy the requirements of Rule 10b5-1(c)(1).34  

 Furthermore, multiple studies examining Rule 10b5-1 plans have identified potentially 

abusive activity, including when trades occur shortly after adoption of a plan. Some of these 

                                                 

32  See Tom McGinty & Mark Maremont, CEO Stock Sales Raise Questions about Insider Trading, Wall St. J. 

(June 29, 2022) (retrieved from Factiva database); see also Jean Eaglesham & Rob Barry, Trading Plans Under 

Fire: Despite 2007 Warning, Experts Say Loopholes Remain for Corporate Insiders, WALL ST. J. (Dec. 13, 

2012) (retrieved from Factiva database). 

33  See, e.g., letters from American Federation of Labor and Congress of Industrial Organizations (“AFL-CIO”), 

Colorado Public Employees’ Retirement Association (“CO PERA”), Council of Institutional Investors (“CII”), 

International Corporate Governance Network (“ICGN”), Better Markets (“Better Markets”), Public Citizen 

(“Public Citizen”), and North American Securities Administrators Association, Inc. (“NASAA”). 

34  See 2000 Release, supra note 8, at 51728. 



15 

studies have observed, among other things, that trades that occur shortly after adoption of a Rule 

10b5-1 plan demonstrate abnormal profitability, which suggests that some corporate insiders 

may be aware of material nonpublic information at the time of adoption of a Rule 10b5-1 plan 

that otherwise appears to meet the existing requirements of Rule 10b5-1.35  

 To address all of these concerns, we are amending Rule 10b5-1(c)(1) to apply a cooling-

off period on persons other than the issuer, impose a certification requirement on directors and 

officers, limit the ability of persons other than the issuer to use multiple-overlapping Rule 10b5-1 

plans, limit the use of single-trade plans by persons other than the issuer to one such single-trade 

plan in any 12-month period, and add a condition that all persons entering into a Rule 10b5-1 

plan must act in good faith with respect to that plan.  

 1. Cooling-off Period 

 a. Proposed Amendments 

 Rule 10b5-1(c)(1) does not currently impose a waiting period between the date that a 

trading plan is adopted and the date of the first transaction to be executed under the plan. A 

trader can therefore adopt a Rule 10b5-1 plan and execute a trade under it as early as the day of 

adoption. Investors and other commentators have suggested that requiring a minimum waiting 

                                                 

35  See, e.g., Gaming the System, supra note 19 (observing that trades under Rule 10b5-1 plans systematically 

avoid losses and foreshadow considerable stock declines over the subsequent six months when: (1) trades 

executed under the plan occur as much as 60 days after plan adoption; or (2) a Rule 10b5-1 plan is adopted in a 

given quarter and begins trading before that quarter’s earnings announcement); Yen-Jun Lee, Insiders’ 

Foreknowledge of Earnings Results and Rule 10b5-1 Sales Trades, 38 J. ACCTG., AUDITING & FIN. 1, 9, 17, 19 

(2020) (finding that insiders utilizing 10b5-1 plans tend to sell before negative earnings results, and that insiders 

particularly apt to engage in this behavior are also more likely to begin trading within three months of 

establishing the plan); Mavruk & Seyhun, supra note 19, at 165 (observing that first trade pursuant to a Rule 

10b5-1 plan showed abnormal profitability, suggesting that insiders set up Rule 10b5-1 plans when in 

possession of material nonpublic information); McGinty & Maremont, supra note 32; see also Jagolinzer, supra 

note 19, at 234-35 (finding that Rule 10b5-1 plans appear to allow insiders to trade close in time to earnings 

releases, and that there is a statistical relationship between plan adoption and upcoming negative news events). 

We provide additional discussion of these sources, including potential caveats about the data they analyze, infra 

Section V.B.1. 



16 

period (a “cooling-off period”) between the adoption of a Rule 10b5-1 plan and the date on 

which trading can commence reduces the risk that corporate insiders could benefit from any 

material nonpublic information of which they may have been aware when adopting the plan.36 

The Commission proposed to amend Rule 10b5-1(c)(1) to add the following cooling-off periods 

as conditions of the affirmative defense: (1) a minimum 120-day cooling-off period after the date 

of adoption of any Rule 10b5-1 plan (including adoption of a modified trading arrangement) by a 

director or “officer” (as defined in Rule 16a-1(f))37 before any purchases or sales under the new 

or modified trading arrangement; and (2) a minimum 30-day cooling-off period after the date of 

adoption of any Rule 10b5-1 plan by an issuer before any purchases or sales under the new or 

modified trading arrangement.   

The Commission proposed the cooling-off periods to address concerns that some insiders 

may be adopting Rule 10b5-1 plans while aware of material nonpublic information, such as an 

issuer’s upcoming quarterly earnings results, and then shortly thereafter trading before the 

information becomes public. We understand that corporate insiders are often aware of material 

nonpublic information. Although Rule 10b5-1(c)(1) precludes reliance on the affirmative defense 

when a person is aware of such information at the time of adoption of a Rule 10b5-1 plan, in 

practice, it is difficult for an outside party to determine whether the insider satisfied this 

                                                 

36  See Rulemaking petition regarding Rule 10b5-1 Trading Plans, File No. 4-658 (Jan. 2, 2013) (“CII Rulemaking 

Petition”) at https://www.sec.gov/rules/petitions/2013/petn4-658.pdf; Alan D. Jagolinzer et al, How the SEC 

Can and Should Fix Insider Trading Rules, The Hill (Dec. 17, 2020), 

https://thehill.com/opinion/finance/530668-how-the-sec-can-and-should-fix-insider-trading-rules; IAC 

Recommendations, supra note 22. 

37  Exchange Act Rule 16a-1(f) provides that the term “officer” “shall mean an issuer’s president, principal 

financial officer, or 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. Officers of the issuer’s parent(s) or subsidiaries shall be 

deemed officers of the issuer if they perform such policy-making functions for the issuer.” 

https://www.sec.gov/rules/petitions/2013/petn4-658.pdf
https://thehill.com/opinion/finance/530668-how-the-sec-can-and-should-fix-insider-trading-rules


17 

condition.38 With cognizance of this difficulty, some corporate insiders may use Rule 10b5-1 

plans to execute trades on the basis of material nonpublic information and seek to assert the 

affirmative defense to avoid potential liability. The academic studies discussed above suggest 

that this may be the case as researchers have observed that trades made under Rule 10b5-1 plans 

that occur before the next earnings announcement are abnormally profitable.39 Some corporate 

insiders also undertake other actions, such as cancellation of sales scheduled under Rule 10b5-1 

plans ahead of favorable issuer disclosures, which appears consistent with an effort to exploit 

material nonpublic information.40 

 To address concerns that certain corporate insiders misuse Rule 10b5-1 by adopting and 

trading under trading arrangements despite their awareness of material nonpublic information, 

and in light of the evidence that suggests that trading arrangements that commence close in time 

to the plan’s adoption and prior to an earnings announcement are more likely to result in 

abnormal returns, the Commission proposed requiring insiders to wait a period of time before 

trading under a new (or modified) plan could commence. Although many companies already 

impose such a cooling-off period for their own insiders,41 not all do so, and, furthermore, among 

those that have a cooling-off period, there is little uniformity with respect to the duration of such 

                                                 

38  See Henderson et al., supra note 19, at 1289. 

39  See Gaming the System, supra note 19 (“[P]lans that execute a trade in the window between when the plan is 

adopted and that quarter’s earnings announcement anticipate large losses and  foreshadow considerable stock 

price declines”). 

40   See Jagolinzer, supra note 19, at 235 (observing that there is evidence “that participants terminate sales plans 

before positive shifts in firm returns”); Mavruk & Seyhun, supra note 19, at 120, 125 (noting patterns of trading 

consistent with cancellation of some planned trades are abnormally profitable). Based on our review of the data 

sources used in the sources cited, we understand them to use the term “earnings announcement” to refer to the 

earliest of quarterly or annual reporting or other earnings announcements for which the issuer furnishes a 

corresponding Form 8-K.   

41  This practice suggests that many companies have concluded that in general a cooling-off period, rather than 

individualized efforts to identify instances where an executive is aware of material nonpublic information, 

strikes an appropriate balance of precision, cost of implementation, and investor confidence. 



18 

periods. The Commission proposed a 120-day cooling-off period for officers and directors 

because such a period would extend beyond the fiscal quarter42 in which the trading arrangement 

is established, meaning that trading generally would not occur under a Rule 10b5-1 plan adopted 

during a particular quarter until after the registrant announced its financial results for that 

quarter. Although the cooling-off period proposed by the Commission for officers and directors 

may have been longer than the cooling-off period used by many issuers or recommended by 

certain financial advisors, the Commission believed that the proposed duration would deter 

insiders from exploiting material nonpublic information for the relevant quarter. In addition, the 

Commission noted that a 120-day cooling-off period would align with the recommendations of a 

wide range of commentators.43  

 Under the proposed amendments, the cooling-off periods would have applied to directors 

and “officers” (as defined in Rule 16a-1(f)) of the issuer, as well as to an issuer that structures a 

share repurchase plan as a Rule 10b5-1 plan, although in the latter case the Commission 

proposed a shorter, 30-day cooling-off period. This requirement would prevent directors, 

officers, and issuers who might be aware of material nonpublic information from adopting or 

modifying a trading arrangement and trading immediately pursuant to the arrangement. The 

proposed cooling-off period also was intended to discourage issuers, directors, and officers from 

selectively terminating or cancelling a planned trade under a Rule 10b5-1 plan because any 

                                                 

42  Quarters are about 90 days long and public reporting companies are required to disclose their quarterly results 

no later than 40 or 45 days after the end of their fiscal quarter, depending on their filing status. See 17 CFR 

249.308(a). Nevertheless, companies on average disclose their quarterly results within 30 days of the end of the 

fiscal quarter. See Morgan Stanley & Shearman & Sterling LLP, supra note 29.  

43  See IAC Recommendations, supra note 14 (recommending a cooling off period of four months); Gaming the 

System, supra note 12, at 3 (recommending a minimum cooling-off period and noting that “[a] cooling-off 

period of four to six months . . . is supported by the data in our sample”); letter from Senators Elizabeth Warren, 

Sherrod Brown and Chris Van Hollen supra note 17 (recommending a cooling off period of four to six months). 



19 

subsequent trades upon the adoption of a new or modified plan would also be subject to a new 

cooling-off period.  

 The Commission noted that applying a cooling-off period to directors and “officers” as 

defined in Rule 16a-1(f) was appropriate because such individuals are more likely than others to 

be aware of material nonpublic information in the general course of events, and also more likely 

to be involved in making or overseeing key corporate decisions that have the potential to affect 

the issuer’s stock price, including decisions about the timing of the disclosure of such 

information.44 The Commission also requested comment, however, on whether the Rule 16a-1(f) 

definition was the appropriate definition of “officer” for purposes of the proposed amendment 

and further inquired whether the cooling-off period should apply to all traders who rely on the 

Rule 10b5-1(c)(1) affirmative defense.45  

In addition, the Commission stated that applying a cooling-off period to issuers may help 

address the concern that issuers may conduct stock buybacks while aware of material nonpublic 

information. For example, corporate insiders who are aware of positive material nonpublic 

information can cause the issuer to buy its stock at a lower price from current shareholders who 

are unaware of this information because, once the information is publicly disclosed, the issuer’s 

share price may increase. The Commission proposed a 30-day cooling-off period for issuers to 

help reduce the likelihood of this potential abuse and promote investor confidence. 

 The Commission also proposed a note to Rule 10b5-1(c)(1) stating that any modification 

or amendment to a prior contract, instruction, or written plan would be deemed to be the 

                                                 

44  See O’Hagan, 521 U.S. at 651-52; Chiarella, 445 U.S. at 227; Steginsky v. Xcelera Inc., 741 F.3d 365, 370 n.5 

(2d Cir. 2014); see also Colby v. Klune, 178 F.2d 872 (2d Cir. 1949). 

45  Proposing Release, supra note 22, at 17. 



20 

termination of such prior contract, instruction, or written plan, and the adoption of a new 

contract, instruction, or written plan.46 

 b. Comments on the Proposed Amendments 

 Commenters expressed a range of views on the proposed cooling-off periods. Many 

commenters expressed general support for a cooling-off period for directors and officers.47 

Several of these commenters supported the proposed cooling-off period of 120 days.48 For 

example, one commenter agreed that the proposed 120-day cooling-off period would deter 

officers and directors from adopting or modifying a Rule 10b5-1 plan while aware of material 

nonpublic information and prevent insiders from gaming Rule 10b5-1 plans by opportunistically 

canceling trades or modifying plans.49 In addition, in expressing the view that this duration was 

appropriate, another commenter stated the concern that, given that directors and officers are 

more likely than other traders to be aware of material nonpublic information and involved in 

making or overseeing key corporate decisions that could affect the stock price, they could be 

involved with decisions regarding the timing of a range of issuer disclosures, including 

disclosures related to a merger or acquisition, departure of a named executive officer, or the 

                                                 

46  The proposed note would have codified prior Commission guidance on Rule 10b5-1(c)(1)(i)(C). See infra note 

122 and accompanying text. 

47  See, e.g., letters from American Federation of Labor and Congress of Industrial Organizations (“AFL-CIO”), 

Better Markets, Colorado Public Employees’ Retirement Association (“CO PERA”), Council of Institutional 

Investors (“CII”), Cravath, Swaine & Moore LLP (“Cravath”), Davis Polk & Wardwell LLP (“Davis Polk”), 

DLA Piper (“DLA”), Fenwick & West (“Fenwick”), International Corporate Governance Network (“ICGN”), 

Craig M. Lewis et al. (“Lewis”), Manulife Financial Corp. (“Manulife”), Committee on Securities Law of the 

Business Law Section of the Maryland State Bar (“MD Bar”), North American Securities Administrators 

Association, Inc. (“NASAA”), New York City Comptroller (“NYCC”), NYSE Group, Inc. (“NYSE”), PNC 

Financial Services Group, Inc. (“PNC”), Public Citizen, Anthony O'Reilly (“O’Reilly”), Securities Industry and 

Financial Markets Association (“SIFMA”) (letter dated Apr. 1, 2022, from Kevin Carroll, “SIFMA 3”), and 

Sullivan & Cromwell LLP (“Sullivan”). 

48  See, e.g., letters from AFL-CIO, CII, CO PERA, ICGN, Public Citizen, O’Reilly, and NASAA. 

49  See letter from CII.21 

financial statements.50 Finally, another commenter, who did not support the proposed duration of 

the cooling-off period, nonetheless asserted that a cooling-off period would increase investor 

confidence that insiders were not using Rule 10b5-1 plans to benefit from nonpublic material 

information.51  

 At the same time, many commenters, including several commenters that expressed 

support for a cooling-off period for directors and officers, contended that the duration of the 

proposed cooling-off period was unnecessarily long.52 For example, some of these commenters 

asserted that a 120-day cooling-off period would discourage insiders from adopting Rule 10b5-1 

plans53 and therefore result in larger, more concentrated volumes of insider-directed trades taking 

place during trading windows rather than being spread out under a Rule 10b5-1 plan, which 

                                                 

50  See letter from ICGN. 

51  See letter from Manulife. 

52  See, e.g., letters from Federal Regulation of Securities Committee of the Business Law Section of the American 

Bar Association (“ABA”); ACCO Brands Corp. (“ACCO”); Chevron Corp. (“Chevron”); Cravath; Davis Polk; 

DLA; Dow Inc. (“Dow”); Empire State Realty Trust (“Empire Trust”); FedEx Corporation (“FedEx”); Fenwick; 

HR Policy Association Center on Executive Compensation (“HRPA”); Jones Day; Kirkland & Ellis 

(“Kirkland”); Manulife, National Association of Manufacturers (“NAM”); National Venture Capital 

Association (“NVCA”); New York City Bar Association (“NYC Bar”); NYSE; Paul, Weiss, Rifkind, Wharton 

& Garrison LLP (“Paul Weiss”); PNC; Quest Diagnostics Inc. (“Quest”); William Quinn (“Quinn”); US 

Chamber of Commerce (letter dated Apr. 1, 2022) (“Chamber of Chamber 2”); American Property Casualty 

Insurance Association, American Securities Association, Center On Executive Compensation, U.S. Chamber of 

Commerce, Nareit, National Association of Manufacturers, and NIRI: The Association for Investor Relations 

(“Coalition Letter”); Shearman & Sterling LLP (“Shearman”); SIFMA 3; Simpson Thacher & Bartlett LLP 

(“Simpson”); Sullivan; and Wilson, Sonsini, Goodrich & Rosati (“Wilson Sonsini”).  

53  See letter from NYC Bar. This comment letter was initially submitted in Apr. 2022 and posted on the 

Commission website on Oct. 2022. The delayed posting of this comment letter to the website is unrelated to the 

technological error that resulted in the Oct. 2022 reopening of the comment files of certain other Commission 

releases.  See Resubmission of Comments and Reopening of Comment Periods for Several Rulemaking Releases 

Due to a Technological Error in Receiving Certain Comments, Release Nos. 33-11117, 34-96005, IA-6162, IC-

34724; File Nos. S7-32-10, S7-18-21, S7-21-21, S7-22-21, S7-03-22, S7-08-22, S7-09-22, S7-10-22, S7-13-22, 

S7-16-22, S7-17-22, S7-18-22 (Oct. 7, 2022). In Apr. 2022, the submitter of this comment letter withdrew the 

comment letters submitted on this rule and the proposing release for another rule and submitted replacement 

comment letters. Staff posted the replacement comment letter on the other rule, but inadvertently failed to post 

the replacement comment letter for the Proposing Release until the submitter of the comment letter again 

contacted Commission staff in Oct. 2022. 



22 

could increase market volatility.54  

 Some of these commenters recommended alternative durations for the cooling-off period 

for directors and officers.55 Shorter alternatives ranged from a cooling-off period of 30 days from 

the date of adoption of a Rule 10b5-1 plan,56 which some commenters asserted is a common 

practice many issuers have implemented,57 to a maximum cooling-off period of 90 days after the 

adoption of a Rule 10b5-1 plan.58 Other commenters recommended shortening the cooling-off 

period, in part, by taking into account when the issuer publishes its earnings announcement or 

results. These commenters suggested that the cooling-off period last until: (1) the earlier of 60 

days or one business day after the earnings release for the fiscal quarter of adoption;59 (2) the 

earlier of 60 days or 48 hours after the next release of annual or quarterly results;60 (3) 90 days or 

fewer or, if the officer or director enters into the Rule 10b5-1 plan within five trading days of an 

earnings release, 30 days;61 (4) the earlier of 90 days or the publication of results for the quarter 

during which the plan was adopted;62 (5) one trading day after the next earnings announcement 

covering at least one fiscal quarter and filed or furnished with an Exchange Act report;63 and (6) 

                                                 

54  See, e.g., letters from Chamber of Commerce 2, Davis Polk, DLA, Fenwick, NYSE, SIFMA 3, Simpson, and 

Sullivan. 

55  See, e.g., letters from ACCO, Chamber of Commerce 2, Dow, DLA, Fenwick, NAM, NYSE, Paul Weiss, 

Quinn, Simpson, and Sullivan. 

56  See, e.g., letters from ACCO, Chamber of Commerce 2, DLA, Fenwick, NYC Bar, NYSE, Paul Weiss, Quinn, 

and Sullivan. 

57  See, e.g., letters from Chamber of Commerce 2, NYSE, Paul Weiss, and Simpson. 

58  See, e.g., letters from Chevron, Dow, and Cleary, Gottlieb, Steen & Hamilton LLP (“Cleary”). 

59 See letter from ABA.  

60  See letter from Manulife. 

61  See letter from Dow. 

62  See letter from Cleary. 

63  See letter from Davis Polk. 



23 

the earlier of 30 days or the release of quarterly earnings with an exception for plans entered into 

within five business days after an earnings release.64 Another commenter, however, urged the 

Commission to consider lengthening the cooling-off period to 180 days.65 

 Among commenters who recommended that we link the end of the cooling-off period to 

the release of earnings or other financial results, most did not specify whether the end of the 

cooling-off period should be tied to the publication of such results in the form of a quarterly 

report on Form 10-Q or annual report on Form 10-K, or instead to the announcement of such 

results in a Form 8-K, that is filed or furnished with the Commission.66 Some commenters 

suggested that the end of the cooling-off period should be tied to the “next” (relative to the 

adoption or modification of the Rule 10b5-1 plan) such release;67 we understand that if an 

earnings announcement accompanied by a Form 8-K is made, it typically precedes the filing of a 

Form 10-Q or Form 10-K. One commenter suggested that the end of the cooling-off period 

should be tied to the earlier of the release of financial results or the start of the issuer’s open 

trading window under the insider’s trading policy.68  

 Finally, some commenters asked the Commission to provide exceptions from the cooling-

off period. For example, one commenter asked that the cooling-off period not apply in cases of 

financial hardship for the officer or director, such as an unanticipated financial liability that is 

                                                 

64  See letter from NAM. 

65  See letter from Senators Elizabeth Warren, Chris Van Hollen, Tammy Baldwin, and Bernard Sanders (“Sen. 

Warren et al.”). 

66  See, e.g., letters from ABA, Cleary, and PNC.  

67  See, e.g., letters from Davis Polk, DLA, and Simpson.  

68  See letter from DLA; see also letter from Quest (suggesting that there is no incremental material nonpublic 

information disclosed in a Form 10-Q when an issuer has already released an earnings announcement).  



24 

unrelated to the trading of securities.69 Another commenter asked the Commission to exclude 

venture capital funds from the cooling-off period condition, or to provide a shorter cooling-off 

period for venture capital funds.70 

 Many commenters opposed a cooling-off period for issuers,71 largely due to issuers’ use 

of Rule 10b5-1 plans in connection with share repurchase plans under Exchange Act Rule 10b-

18.72 One of these commenters stated that Rule 10b5-1 plans allow issuers to more effectively 

coordinate and execute their share repurchases during open and closed trading windows.73 Given 

this practice, several commenters contended that the proposed cooling-off period would limit the 

usefulness of Rule 10b5-1 plans and impede the ability of issuers to effectively carry out share 

repurchases and other transactions used by issuers to manage their capital.74 Some of these 

commenters stated the concern that a cooling-off period for issuers could increase market 

volatility as issuer repurchase activity would be limited to much shorter trading windows.75 

                                                 

69  See letter from Wilson Sonsini. 

70   See letter from NVCA. 

71  See, e.g., letters from the Bank Policy Institute and the American Bankers Association (“BPI”), Home Depot, 

Inc. (“Home Depot”), Dow, Chevron, Empire Trust, FedEx, International Bancshares Corporation (“IBC”), 

Manulife, NYSE, HudsonWest LLC (“HudsonWest”), Guzman & Company (“Guzman”),Quest, Coalition 

Letter, Chamber of Commerce 2, HRPA, Lewis, NAM, NVCA, NYC Bar, Society for Corporate Governance 

(“SCG”), SIFMA (letter dated Apr. 1, 2022, from Joseph P. Corcoran) (“SIFMA 2”), ABA, Cravath, Davis 

Polk, Dorsey & Whitney LLP (“Dorsey”), Fenwick, Jones Day, Kirkland, Paul Weiss, Simpson, Shearman, 

Sullivan, Wilson Sonsini, and Vistra Corp. (“Vistra”). 

72  17 CFR 240.10b-18. Rule 10b-18 provides issuers with a safe harbor from liability for manipulation under 

Sections 9(a)(2) and 10(b) of the Exchange Act [15 U.S.C. 78i(a)(2) and 78j(b)] when they repurchase their 

common stock in the market in accordance with the Rule’s manner, timing, price, and volume conditions. 

73  See letter from Simpson. 

74  See, e.g., letters from BPI, Home Depot, Dow, Chevron, FedEx, Quest, Chamber of Commerce 2, Coalition 

Letter, NAM, SCG, SIFMA 2, ABA, Cravath, Davis Polk, Jones Day, Paul Weiss, Simpson, Shearman, and 

Wilson Sonsini. 

75   See, e.g., letters from NYSE and Sullivan. 



25 

In addition, several of these commenters asserted that a cooling-off period for issuers was 

unnecessary because existing safeguards under the Federal securities laws and market practices 

protect investors from issuer abuse of Rule 10b5-1 plans.76 Some commenters contended the 

Commission did not set forth any evidence of issuers abusing Rule 10b5-1 trading arrangements 

to justify this cooling-off period.77  

In contrast, other commenters supported a cooling-off period for issuers.78 One of these 

commenters contended that the proposed 30-day period was too short to address the concerns 

underlying the proposal and advocated for a 120-day cooling-off period for issuers, similar to the 

proposed cooling-off period for directors and officers.79 

 Several commenters urged the Commission to clarify that immaterial or administrative 

modifications to an existing Rule 10b5-1 trading arrangement would not constitute a 

modification that triggers a new cooling-off period.80 For example, some commenters asserted 

that modifications should not trigger the cooling-off period unless they address the pricing, 

amount of securities to be purchased or sold, and/or the timing of purchases or sales.81 In 

addition, another commenter urged the Commission not to trigger a new cooling-off period upon 

a modification of a Rule 10b5-1 plan.82 

                                                 

76  See, e.g., letters from Cravath, Davis Polk, Dow, FedEx, Fenwick, Lewis, NAM, Paul Weiss, Quest, SCG, 

SIFMA 2, and Wilson Sonsini. 

77  See, e.g., letters from BPI, Davis Polk, Cravath, and Wilson Sonsini. 

78  See, e.g., letters from CO PERA, CII, ICGN, NYCC, Better Markets, Public Citizen, Stern Tannenbaum Bell 

LLP (“Stern”), ACCO, PNC, NASAA, and Sen. Warren et al. 

79  See letter from NASAA. 

80  See, e.g., letters from Chamber of Commerce 2, NAM, SIFMA 2, ABA, Cleary, Cravath, Davis Polk, DLA, 

Fenwick, and Sullivan. 

81  See, e.g., letters from Cravath, Cleary, Davis Polk, and DLA. 

82  See letter from NAM. 



26 

We also received comment on whether some or all of the proposed amendments should 

apply only to directors and officers, as defined in Rule 16a-1(f), or whether they should also 

apply to other insiders or traders more broadly. Several commenters indicated that the proposed 

cooling-off period and limitations on overlapping and single-trade plans should apply to all 

traders or all natural persons.83 One of these commenters generally observed that the limitations 

should apply broadly because other officers and employees can potentially have access to and 

trade on material nonpublic information.84 Another commenter suggested that any individual 

involved in a company’s trading program or “corporate decisions” should be subject to the 

cooling-off requirement.85 Two commenters also suggested that we extend the new Item 408(a) 

reporting obligation to cover any employee who adopts a 10b5-1 plan.86  

 Other commenters opposed any expansion of the amendments beyond directors and Rule 

16a-1(f) officers.87 Some of these commenters agreed with our observation that these officers 

were those most likely to have access to material nonpublic information.88 Two commenters 

argued that trading by employees other than Rule 16a-1(f) officers is unlikely to adversely affect 

financial markets because of the limited authority of these employees over corporate decisions.89 

One of these commenters further observed that because other employees do not generally file 

Form 4, their trading activities are unlikely to affect public confidence in a company’s 

                                                 

83  See letters from Better Markets, NASAA; see also letter from Sen. Warren et al. (suggesting the limitation 

apply to “all employees”). 

84  See letter from NASAA.  

85  See letter from ICGN.  

86  See letters from BrilLiquid LLC (“BrilLiquid”) and NASAA.  

87  See letters from Chamber of Commerce 2, CII, Cravath, Davis Polk, NAM, SCG, and SIFMA.  

88  See letters from CII, Cravath, and SIFMA.  

89  See letters from Cravath and Davis Polk. 



27 

securities.90 Two other commenters suggested that non-executive employees are particularly 

likely to need to liquidate and diversify their company stock holdings, and so would be 

disproportionately harmed by limitations such as the cooling-off period.91 One commenter also 

stated that making the affirmative defense more difficult to establish would reduce the likelihood 

that companies would require their non-executive employees to use Rule 10b5-1 plans, reducing 

the benefits of the rule.92  

 c. Final Amendment 

 After consideration of the comments, we are adopting a modified cooling-off period that 

will apply to all persons other than the issuer, with directors and “officers” (as defined in Rule 

16a-1(f))93 of the issuer subject to a longer cooling-off period than applies to other persons (other 

than the issuer) who rely on the Rule 10b5-1(c)(1) affirmative defense.  

 Under the final rule, a director or “officer” (as defined in Rule 16a-1(f)) who adopts 

(including a modification of) a Rule 10b5-1 plan would not be able to rely on the Rule 10b5-1 

affirmative defense unless the plan provides that trading under the plan will not begin until the 

later of (1) 90 days after the adoption of the Rule 10b5-1 plan or (2) two business days following 

the disclosure of the issuer’s financial results in a Form 10-Q or Form 10-K for the fiscal quarter 

in which the plan was adopted or, for foreign private issuers, in a Form 20-F or Form 6-K that 

                                                 

90  See letter from Davis Polk.  

91  See letters from Chamber of Commerce 2 and NAM. 

92  See letter from Davis Polk.  

93  We are declining the request from one commenter to adopt a definition of “officer or director” that would 

expressly exclude certain venture capital funds whose partners may serve as a director on the board of an issuer. 

As we have noted, Rule 10b5-1 does not alter the law of insider trading and any potential liability under the 

circumstances described by the commenter would be determined according to established principles. We also 

are not convinced that the business circumstances of such a director are unique and thus warrant a distinctive set 

of affirmative defense requirements. We further note that Rule 10b5-1(c)(2) can provide an alternative 

affirmative defense for persons other than natural persons. 



28 

discloses the issuer’s financial results (but in any event, the required cooling-off period is subject 

to a maximum of 120 days after adoption of the plan).94   

 This cooling-off period is intended to deter opportunistic trading that may be occurring 

under the current rule and, by extension, as noted by commenters, it may increase investor 

confidence that directors and officers are not using Rule 10b5-1 plans for such purposes.95 The 

purpose of a cooling-off period is to provide a separation in time between the adoption of the 

plan and the commencement of trading under the plan so as to minimize the ability of an insider 

to benefit from any material nonpublic information. In addition, academic studies documenting 

abnormal trading results indicate that opportunistic trading may be occurring notwithstanding 

current Rule 10b5-1(c)(1) and that certain corporate insiders are earning profits unavailable to 

others.96 For example, directors, officers, and other corporate insiders commonly have access to 

preliminary quarterly financial data before it is released to the public. As academic commentary 

has observed, “[q]uarterly earnings announcements . . . offer the most important and frequent 

dates of material information disclosure by firms.”97 A cooling-off period could serve to avoid a 

situation in which, for example, an insider adopts a Rule 10b5-1 plan while aware of likely 

directional trends in quarterly results and trades under the plan before the disclosure of such 

information.  

 In addition, as the Proposing Release indicated, we are concerned that this type of 

opportunistic trading could occur in contexts other than in connection with quarterly results. For 

                                                 

94  The good faith requirement in Rule 10b5-1(c)(1)(ii) will continue to apply as a condition of the affirmative 

defense. 

95  See, e.g., letters from AFL-CIO, CII, and Manulife. 

96  See supra note 35 and accompanying text. 

97  See U. Ali & D. Hirshleifer, Opportunism as a Firm and Managerial Trait: Predicting Insider Trading Profits 

and Misconduct, 126 J. FIN. ECON. 490, 491 (2017). 



29 

example, as a commenter noted, corporate insiders may be aware of material nonpublic 

information related to other types of upcoming events, such as a potential merger, acquisition, or 

departure of a named executive officer, and, with such information, adopt a Rule 10b5-1 plan 

and trade under it before that information is made public.98 

 Accordingly, the cooling-off period for officers and directors that we are adopting 

includes both a fixed (90-day) and a variable (two business days after the disclosure of the 

issuer’s financial results) component. This cooling-off period is targeted at reducing information 

asymmetries in general as well as providing separation in time between adoption of the plan and 

trading under the plan so as to reduce the ability of corporate insiders to trade on material 

nonpublic information.  

 The approach we are adopting takes into account considerations raised by commenters. 

Some commenters observed that we could accomplish our goals by linking the end of the 

cooling-off period to the release of earnings results for the current quarter instead of a fixed 

period of days, and suggested that we adopt a variable cooling-off period that ends one or two 

business days following the issuer’s next reporting of quarterly results.99 Others suggested that 

we adopt a cooling-off period that would be the earlier of this date or some other fixed period, 

such as 60 days.100 In addition, while several commenters supported a 120-day cooling-off 

period,101 other commenters expressed concerns that this duration would discourage the use of 

                                                 

98  See letter from ICGN; see also Henderson et al., supra note 19, at 1301 (noting that 25% of the price changes 

observed in their data are the results of corporate news events other than earnings). 

99  See supra note 63. 

100  See supra note 59. 

101  See, e.g., letters from AFL-CIO, CII, CO PERA, ICGN, Public Citizen, O’Reilly, and NASAA. 



30 

Rule 10b5-1 plans.102 We agree that, in some cases, a full 120-day cooling-off period would be 

longer than needed to prevent the opportunistic trading with which we are concerned. Therefore, 

we have shortened the cooling off period for officers and directors from 120 days to the later of 

90 days or the second business day following disclosure of the issuer’s financial results for the 

fiscal quarter in which the plan was adopted.103 This will result in a shortened cooling-off period, 

relative to what was proposed, when such results are disclosed sooner than 120 days following 

adoption of the plan.  

In addition, to enhance clarity, the final rule provides 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, files a Form 20-F or furnishes a Form 6-K that discloses the financial 

results. We disagree with commenters who suggested that there cannot be material nonpublic 

information contained in a Form 10-Q or similar filing when the issuer has already announced its 

earnings results.104 For example, some academic researchers have found that information in 

periodic filings affects stock prices for issuers that also made an earlier earnings announcement 

for the same quarter.105  

                                                 

102  See, e.g., letters from Chamber of Commerce 2, Davis Polk, DLA, Fenwick, SIFMA 3, Simpson, and Sullivan. 

103  If financial results are disclosed more than 120 days after adoption of the plan, 120 days would be the maximum 

duration of the required cooling-off period. In those circumstances, we agree with commenters who asserted 

that a 120-day cooling-off period would be an appropriate duration to better ensure that a corporate insider 

would not benefit from material nonpublic information related to earnings. See, e.g., letters from AFL-CIO, and 

CII. The final rule would not foreclose issuers that may choose to impose a longer cooling-off period. 

104  See letters from DLA and Quest. 

105  See Erik R. Holzman et al., Is All Disaggregation Bad for Investors? Evidence from Earnings Announcements, 

26 REV. ACCTG. STUDIES 520, 540-41 (2021); Yifan Li et al., Opportunity Knocks But Once: Delayed 

Disclosure of Financial Items in Earnings Announcements and Neglect of Earnings News, 25 REV. ACCTG. 

STUDIES 159 (2020); Bin Miao et al., Limited Attention, Statement of Cash Flow Disclosure, and the Valuation 

of Accruals, 21 REV. ACCTG. STUDIES 473 (2016). Some earlier work finds that there are incremental market 

responses to Form 10-K filings but not to Form 10-Q filings. Edward Xuejun Li & K. Ramesh, Market Reaction 

Surrounding the Filing of Periodic SEC Reports, 84 ACCTG. REV. 1171 (2009). 



31 

 Further, the cooling-off period for officers and directors includes a two-business day 

period following the disclosure of the issuer’s financial results, which provides a short interval 

for investors and other market participants to analyze those results.106 Although some 

commenters suggested that the next business day after results are released would be adequate to 

ensure that market participants have access to the same information as the corporate insider, we 

have adopted a cooling-off period that extends to the second business day after results are 

released, as other commenters suggested.107 We disagree with those commenters who suggested 

that a next-day approach would provide all market participants with the same access as the 

corporate insider, as it may be challenging to obtain and analyze the full details of an issuer’s 

quarterly results within one day. In some cases, allowing trading such a short period after release 

would effectively authorize the director or officer to trade in the first minutes after that 

information’s availability to the market. 

 While some commenters suggested that the cooling-off period need only take into 

account the publication of an issuer’s quarterly results, we find that including a minimum 

duration of 90 days for the cooling-off period is necessary to deter the full scope of opportunistic 

trading that we intend to address and appropriately balances the comments, academic studies, 

and the purpose of an affirmative defense. This minimum period is a reduction from the 

proposed 120-day cooling-off period, in response to comments received stating that the length of 

the proposed cooling-off period could discourage corporate insiders from using Rule 10b5-1 

plans, although we acknowledge that some of these commenters requested a shorter period than 

                                                 

106  See SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 854 & n.18 (2d Cir. 1968) (noting that the “permissible 

timing of insider transactions after disclosures of various sorts is one of the many areas of expertise for 

appropriate exercise of the SEC’s rule-making power”). 

107  See supra note 63. 



32 

we are adopting.108 Given that directors and officers may be aware of material nonpublic 

information related to upcoming events other than quarterly results, a cooling-off period based 

solely on the timing of the publication of quarterly results would be too narrow to accomplish the 

objective of assuring that trading under these plans is not on the basis of material nonpublic 

information.109 For example, as noted above, directors and officers may be aware of material 

nonpublic information about a potential merger, acquisition, or departure of a named executive 

officer.110  

 Further, a cooling-off period that is linked only to the release of the next quarterly results 

(plus two business days) would in some cases cause the time between plan adoption and initial 

trading to be very short, such as two to three days, raising the risk that directors and officers 

could easily adopt and trade under a Rule 10b5-1 plan while aware of material nonpublic 

information that is unrelated to the earnings information that has been released. For all of these 

reasons, we are requiring a minimum cooling-off period of 90 days for officers and directors 

regardless of the date of the release of the subsequent quarter’s results.111  

 We acknowledge that the cooling-off period that we are adopting for directors and 

officers is longer than many of the cooling-off periods recommended by several commenters and 

that academic studies do not provide a precise estimate of the length of time a cooling-off period 

                                                 

108  See, e.g., letters from Fenwick, Simpson, and Sullivan. 

109  See letter from ICGN. 

110  See Jagolinzer, supra note 18, at 234 (finding that 10b5-1 plan adoption is associated with adverse news events 

occurring an average of 72.2 days after adoption). 

111  We also note that, consistent with this view, many commenters stated that a cooling-off period for a fixed 

period of days (i.e., one which in some cases would necessarily extend beyond release of the next quarter’s 

results) is a common industry practice. 



33 

should be to prevent insiders from realizing abnormal returns on their trades.112 However, we 

have tailored the cooling-off period to provide a greater separation in time between plan adoption 

and commencement of trading under the plan to better ensure that the affirmative defense is 

available only in situations in which material nonpublic information, including information other 

than earnings information, did not factor into the trading decision. Finally, although a commenter  

recommended increasing the length of the cooling-off period,113 we decline to do so to minimize 

the risk of excessively long cooling-off periods, which, as commenters stated, may discourage 

the use of Rule 10b5-1 plans.  

 Moreover, while we recognize that some issuers impose their own cooling-off periods, 

those cooling-off periods are voluntary and vary in duration. Including a cooling-off period as a 

condition of the affirmative defense will provide greater consistency for Rule 10b5-1 plans and 

thereby help address the investor protection concerns that motivated the adoption of Rule 10b5-

1.  

 In choosing an appropriate cooling-off period for officers and directors, we are mindful 

of some commenters’ concerns that a cooling-off period might reduce the appeal of Rule 10b5-1 

                                                 

112  One study found that abnormal returns persist on average among all observed Rule 10b5-1 plans for up to 60 

days after plan adoption, but that abnormal returns for single-trade plans, which represent about half of the 

observed Rule 10b5-1 plans, persist for 120 days or more. See Gaming the System, supra note 20, at 2-3. The 

authors conclude that a cooling-off period of four to six months would be “supported by our data,” id. at 3, 

although the study did not consider whether this would still be the case if there were also limits on single-trade 

plans. A second study consistently found abnormal returns for the 60-day period after a Rule 10b5-1 plan is 

adopted, and found such returns under two of the three statistical methods employed for the 90-day period after 

plan adoption. See McGinty & Maremont supra note 32. Another study reported evidence that insiders trade on 

information that on average has value for between three and six months, and the authors suggest that a cooling-

off period of that length would curtail these trades. See Mavruk & Seyhun, supra note 19 at 136, 163, 179. And 

another study found that insiders continue to earn abnormal returns after the fifth planned trade over a 350-day 

period, suggesting that Rule 10b5-1 plans do not on average involve very short-run information. See Jagolinzer, 

supra note 19, at 234-35. It also found that Rule 10b5-1 plans are statistically associated with negative news 

items occurring an average of 72.2 days after a plan is established. 

113  See supra note 65. 



34 

plans, which could have undesirable effects on investor confidence.114 We expect, however, that 

the period we are adopting will not have a significant impact on directors’ and officers’ desire to 

satisfy the requirements of the affirmative defense. Directors and officers have strong incentives 

to rely on a Rule 10b5-1 plan, due to the potential effects of the affirmative defense on the 

likelihood and outcome of any litigation. In addition, many issuers maintain trading windows 

that may restrict the trading activity of corporate insiders during an issuer’s “closed window” 

period except through the use of a Rule 10b5-1 plan, and such periods may cover significant 

portions of the year. Similarly, Section 306 of the Sarbanes-Oxley Act,115 and our implementing 

regulations,116 prohibit most trades during issuer pension blackout periods other than through the 

use of a plan that satisfies the affirmative defense conditions of Rule 10b5-1(c).117 Accordingly, 

for these reasons, we have selected a cooling-off period for officers and directors that we 

conclude strikes the proper balance in deterring insider trading without unduly discouraging the 

adoption of Rule 10b5-1 plans.  

 We are not imposing the same cooling-off period required for directors and officers to 

other persons, as some commenters suggested,118 Instead, we are requiring a cooling-off period 

of 30 days for persons other than directors, officers or the issuer. We generally agree that persons 

other than directors and officers often have access to material nonpublic information. At the 

same time, we recognize that each of the proposed requirements of the affirmative defense may 

                                                 

114  See, e.g., letters from Chamber of Commerce 2, NAM and SIFMA. 

115  15 U.S.C. 7244. 

116  See 17 CFR 245.100 et seq.  

117  See 17 CFR 245.101(c)(2). Our rules also provide trades made pursuant to a Rule 10b5-1 plan more flexibility 

with respect to when an insider must report the trade on Form 4. See 17 CFR 240.16a-3(g)(2); 17 CFR 240.16a-

3(g)(4). 

118  See letters from Better Markets, NASAA, and Senator Warren et al. 



35 

impose costs on such persons, whose needs for diversification and liquidity may differ from 

those of officers and directors, as some commenters noted.119  In particular, we recognize that 

some persons will experience meaningful delays in their ability to liquidate a stock position, 

which may cause some financial strain particularly for employees who may lack the resources 

and access to alternative liquidity sources available to directors and officers. Therefore, we 

disagree with commenters who urged us to impose the same cooling-off period required for 

directors and officers to all other traders. 

 The 30-day cooling-off period we are adopting for persons other than directors, officers, 

or the issuer reflects a balancing of the considerations we have outlined above. We believe that 

when any insider enters into a Rule 10b5-1 plan, a period of time should elapse before trading 

under the plan can commence to help ensure that a trade is not on the basis of material nonpublic 

information. At the same time, we recognize the heightened burdens a cooling-off period may 

impose on insiders who are not directors or officers, and who may have more limited financial 

resources. In light of these considerations, we have adopted a shorter cooling-off period for 

persons other than officers and directors that is still long enough to reduce the potential for some 

opportunistic trades.120 

 We are not implementing commenters’ suggestions to adopt a financial hardship 

exception from the cooling-off period due to the practical difficulties of administering this type 

                                                 

119  See letters from Chamber of Commerce 2 and NAM. 

120  We recognize that we have previously observed that the affirmative defense would be available to an employee 

who acquires company stock through an employee stock purchase plan or a Section 401(k) plan. See 2000 

Adopting Release, supra note8, at 51728. We do not believe that a 30-day cooling-off period will significantly 

affect non-officer employees’ use of such plans, as we think that employees employ these plans primarily to 

make relatively regular purchases over long periods of time, such that a waiting period of two biweekly pay 

periods before planned trades can begin will not appreciably affect the employees’ preferences.       



36 

of exception.121 Assessing financial hardship would require careful scrutiny and balancing of 

each insider’s assets, liabilities, and obligations, and this fact-intensive inquiry would undermine 

the predictability that the affirmative defense is intended to provide.  

 In addition, we agree with commenters that only certain types of modifications of an 

existing Rule 10b5-1 plan should trigger a new cooling-off period. We therefore are adopting a 

new paragraph to Rule 10b5-1(c)(1) that specifically provides that a modification or change to 

the amount, price, or timing of the purchase or sale of the securities (or a modification or change 

to a written formula or algorithm, or computer program that affects the amount, price, or timing 

of the purchase or sale of the securities) underlying a contract, instruction, or written plan as 

described in Rule 10b5-1(c)(1)(i)(A) is a termination of such contract, instruction, or written 

plan, and the adoption of a new contract, instruction, or written plan, and such new adoption will 

trigger a new cooling-off period. The final amendment codifies prior Commission guidance on 

existing Rule 10b5-1(c)(1)(i)(C) about the effect of modifications.122 Under the final amendment, 

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 Rule 10b5-1 plan (such as 

an adjustment for stock splits or a change in account information) will not trigger a new cooling-

off period. We disagree with the commenter that urged us to not trigger a new cooling-off period 

upon a modification, because a corporate insider could easily change the key terms of an existing 

plan at a time when they are aware of material nonpublic information, such as by increasing the 

sales price to take advantage of favorable news, allowing the insider to profit from such 

information.123  

                                                 

121  See supra note 69. 

122  See 2000 Adopting Release, supra note 8, at 51718 n 111. 

123  See letter from NAM. 



37 

 Finally, we are not adopting a cooling-off period for the issuer at this time. In light of the 

comments we received on this aspect of the proposed rules, we believe that further consideration 

of potential application of a cooling-off period to the issuer is warranted.124 Although we are 

aware that many issuers currently use cooling-off periods in connection with their securities 

transactions and that such cooling-off periods may significantly mitigate the risk of investor 

harm, we are also mindful that the use and length of such cooling off periods is not uniform and 

that the misuse of material nonpublic information by issuers when trading in their own securities 

can result in significant investor harm because transactions by issuers often involve substantial 

quantities of securities. We are continuing to consider whether regulatory action is needed to 

mitigate any risk of investor harm from the misuse of Rule 10b5-1 plans by the issuer, such as in 

the share repurchase context. We note that, in general, a corporation is considered an insider with 

regard to its duty to either disclose or abstain when purchasing its own shares on the basis of 

material, nonpublic information.125 

 2. Director and Officer Certifications 

 a. Proposed Amendments 

                                                 

124  See supra note 71 and accompanying text. 

125  See, e.g., McCormick v. Fund Am. Cos., 26 F.3d 896 (9th Cir. 1994) (“Numerous authorities have held or 

otherwise stated that the corporate issuer in possession of material nonpublic information must, like other 

insiders in the same situation, disclose that information to its shareholders or refrain from trading with them.”) 

(citations omitted); Shaw v. Digital Equip. Corp., 82 F.3d 1194, 1203-04 (1st Cir. 1996) (“Courts … have 

treated a corporation trading in its own securities as an ‘insider’ for purposes of the ‘disclose or abstain’ rule.”) 

(citations omitted); Rogen v. Ilikon Corp., 361 F.2d 260, 266-68 (1st Cir. 1966); Levinson v. Basic Inc., 786 

F.2d 741, 746 (6th Cir. 1986), vacated on other grounds, 485 U.S. 224, 108 S. Ct. 978 (1988) (“[c]ourts have 

held that a duty to disclose [merger] negotiations arises in situations, such as where the corporation is trading in 

its own stock”); Kohler v. Kohler Co., 319 F.2d 634, 638 (7th Cir. 1963) (the “underlying principles” regarding 

trading on inside information “apply not only to majority stockholders of corporations and corporate insiders, 

but equally to corporations themselves”). Other rules promulgated pursuant to Section 10(b) demonstrate that 

issuers trading in their own stock have a duty to disclose or abstain. For example, Exchange Act Rule 10b-18 

provides an issuer with a “‘safe harbor’ from liability” under Rule 10b-5 under certain circumstances when the 

issuer is repurchasing its own stock. [17 CFR 240.10b-18]. But, as the Commission has explained, Rule 10b-18 

“confers no immunity from possible Rule 10b-5 liability where the issuer engages in repurchases while in 

possession of favorable, material non-public information concerning its securities.” Purchases of Certain Equity 

Securities by the Issuer and Others, Release No. 33-6434, 1982 WL 33916 at *2, *16 n.5 (Nov. 17, 1982). 



38 

 The Commission proposed to amend Rule 10b5-1(c)(1)(ii) to impose a certification 

requirement as a condition to the affirmative defense. Under the proposed amendment, if a 

director or officer (as defined in Rule 16a-1(f)) of the issuer of the securities adopts a new 

written Rule 10b5-1 plan, such director or officer would be required, as a condition to the 

affirmative defense, to promptly furnish to the issuer a separate written certification, certifying 

that at the time of the adoption of the plan:  

 They are not aware of material nonpublic information about the issuer or its securities; 

and  

 They are adopting the plan in good faith and not as part of a plan or scheme to evade the 

prohibitions of Exchange Act Section 10(b) and Exchange Act Rule 10b-5.   

 In doing so, the Commission indicated that the use of the term “officer” as defined in 

Rule 16a-1(f) is appropriate for the reasons discussed above with respect to the cooling-off 

period (i.e., these individuals are more likely to be aware of material nonpublic information 

regarding the issuer and its securities, as well as more likely to be involved in making or 

overseeing corporate decisions about whether and when to disclose information).  

 The Commission intended the proposed certification requirement to reinforce directors’ 

and officers’ cognizance of their obligation not to trade or adopt a trading plan while aware of 

material nonpublic information, their responsibility to determine whether they are aware of 

material non-public information when adopting Rule 10b5-1 plans, and the fact that the 

affirmative defense under Rule 10b5-1 requires them to act in good faith and not to adopt such 

plans as part of a plan or scheme to evade the insider trading laws. The Commission noted in the 

Proposing Release that the proposed certification involves important considerations, especially 

because directors and officers are often aware of material nonpublic information.  



39 

 In addition, the Commission clarified that, subject to their confidentiality obligations, 

directors and officers can consult with experts to determine whether they can make this 

representation truthfully. Legal counsel can assist directors and officers in understanding the 

meaning of the terms “material” and “nonpublic information.”126 The Commission stated, 

however, that the issue of whether a director or officer has material nonpublic information is an 

inherently fact-specific analysis. Thus, a director’s or officer’s completion of the proposed 

certification would reflect their personal determination that they do not have material nonpublic 

information at the time of adoption of a Rule 10b5-1 plan.  

 The proposed amendment also included an instruction that a director or officer seeking to 

rely on the affirmative defense should retain a copy of the certification for a period of ten years. 

The proposed amendments would not require a director, officer, or the issuer to file the 

certification with the Commission, and the proposed certification would not be an independent 

basis of liability for directors or officers under Section 10(b) and Rule 10b-5. Rather, the 

Commission intended the proposed certification to underscore the certifiers’ awareness of their 

                                                 
126  As the Commission has stated previously, we rely on existing definitions of the terms “material” and 

“nonpublic” established in case law. Information is material if “there is a substantial likelihood” that its 

disclosure “would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of 

information made available.” See Basic v. Levinson, 485 U.S. 224, 231 (1988) (quoting and applying TSC 

Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976) to the Section 10(b) and Rule 10b-5 context); Rule 

405 [17 CFR 230.405] of the Securities Act of 1933 (the “Securities Act”) [15 U.S.C. 77a et seq.]; Exchange 

Act Rule 12b-2 [17 CFR 240.12b-2]. Information is nonpublic until the information is broadly disseminated in a 

manner sufficient to ensure its availability to the investing public generally, without favoring any special person 

or group. See Dirks v. SEC, 463 U.S. 646, 653-54 & n.12 (1983); SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 

854 (2d Cir. 1968), cert. denied, 394 U.S. 976 (1969); Regulation FD [17 CFR 243.101(e)]. For purposes of 

insider trading law, insiders must wait a “reasonable” time after disclosure before trading. What constitutes a 

reasonable time depends on the circumstances of the dissemination. In re Faberge, Inc., 45 S.E.C. 249, 255 

(1973) (citing Texas Gulf Sulphur, 401 F.2d at 854). Under the misappropriation doctrine, a recipient of inside 

information must make a “full disclosure” to the sources of the information that they plan to trade on or tip the 

information within a reasonable time before doing so. O’Hagan, 521 U.S. at 655, 659 n.9; see also SEC v. 

Rocklage, 470 F.3d 1, 11-12 (1st Cir. 2006). 



40 

legal obligations under the Federal securities law related to trading in the issuer’s securities.127   

 b. Comments on the Proposed Amendments 

 Commenters were divided on the certification requirement. Several commenters 

generally supported the proposed certification requirement for directors and officers.128 Some of 

these commenters agreed that the proposed certification could reinforce directors’ or officers’ 

awareness of their legal obligations under the Federal securities law.129 Another commenter 

noted that the certification should increase investor confidence.130 

 A number of commenters, however, did not support the proposed certification 

requirement.131 Many of these commenters contended that the certification was unnecessary 

because broker-dealers who execute Rule 10b5-1 plans usually require the director or officer to 

make similar representations.132 Several commenters stated that any final rules should clearly 

provide that the certification does not establish an independent basis of liability for directors or 

officers under Section 10(b) and Rule 10b-5.133 Another commenter expressed concern that the 

language included in the proposed certification indicating that the director or officer is “not 

aware of material nonpublic information about the issuer or its securities” at the time of adoption 

of a Rule 10b5-1 plan is inconsistent with Rule 10b-5 and insider trading jurisprudence.134 This 

commenter asserted that, for trading activity to be unlawful under Exchange Act Section 

                                                 
127  See, e.g., O’Hagan, 521, U.S. at 651-52; Chiarella, 445 U.S. at 227; Steginsky v. Xcelera Inc., 741 F.3d 365, 

370 n.5 (2d Cir. 2014).  

128  See, e.g., letters from CII, CO PERA, ICGN, NYSE, and O’Reilly. 

129 See letters from CII and O’Reilly. 

130  See letter from ICGN. 

131 See, e.g., letters from ACCO, Cravath, Davis Polk, DLA, Kirkland, MD Bar, NAM, Quinn, SGC, Shearman, 

Sullivan, and Wilson Sonsini.  

132  See, e.g., letters from ACCO, Cravath, DLA, Kirkland, Shearman, and Sullivan. 

133  See, e.g., letters from Cravath, DLA, Kirkland, Shearman, and Sullivan. 

134  See letter from MD Bar.41 

10(b)(5), the person trading must not have been aware of material nonpublic information at the 

time that they made the purchase or sale. This commenter claimed that the affirmative defense 

should be available if either: (1) the person trading was not aware of any material nonpublic 

information about the issuer or the security when they entered into the Rule 10b5-1 trading 

arrangement; or (2) any such material nonpublic information is either public or no longer 

material at the time of the trade. 

 Several commenters suggested alternatives to requiring a separate certification. A few 

commenters suggested that the proposed amendment should provide that the certification should 

instead be included in the documentation for the Rule 10b5-1 plan.135 Another commenter 

recommended that the Commission rely on the representations that traders make to the broker 

executing the Rule 10b5-1 plan.136 

 c. Final Amendment 

 We are adopting Rule 10b5-1(c)(1)(ii)(C) largely as proposed, but with certain 

modifications. Under the final rule, if a director or “officer” (as defined in Rule 16a-1(f)) of the 

issuer of the securities adopts a Rule 10b5-1 plan, as a condition to the availability of the 

affirmative defense, such director or officer will be required to include a representation in the 

plan certifying that at the time of the adoption of a new or modified Rule 10b5-1 plan:  (1) they 

are not aware of material nonpublic information about the issuer or its securities; and (2) they are 

adopting the contract, instruction, or plan in good faith and not as part of a plan or scheme to 

evade the prohibitions of Rule 10b-5.137  

                                                 

135  See, e.g., letters from Cravath and SIFMA 3. 

136  See letter from ACCO. 

137  The rule will not require these personal certifications where a director or officer terminates an existing Rule 

10b5-1 plan and does not adopt a new/modified trading arrangement for which the affirmative defense is 



42 

Since its adoption, Rule 10b5-1(c)(1) has required, as a condition of the affirmative 

defense, that a person “demonstrate[]” that they adopted their trading plan before becoming 

aware of material nonpublic information. The rule has also provided that the affirmative defense 

only applies when the trading arrangement was entered into in good faith. As discussed above, 

we are concerned that, notwithstanding these requirements, corporate insiders may be using Rule 

10b5-1 plans in ways that are not consistent with the affirmative defense and that harm investors 

and undermine the integrity of the securities markets.138  

 The certification condition is intended to reinforce directors’ and officers’ cognizance of 

their obligation not to trade or enter into a trading plan while aware of material nonpublic 

information about the issuer or its securities, that it is their responsibility to determine whether 

they are aware of material non-public information when adopting Rule 10b5-1 plans, and that the 

affirmative defense under Rule 10b5-1 requires them to act in good faith and not to adopt such 

plans as part of a plan or scheme to evade the insider trading laws. As noted in the Proposing 

Release, we recognize that this certification involves important considerations, especially 

because directors and officers are often aware of material nonpublic information. Subject to their 

confidentiality obligations, directors and officers can consult with experts to determine whether 

they can make this representation truthfully. Legal counsel can assist directors and officers in 

understanding the meaning of the terms “material” and “nonpublic information.”139 However, the 

                                                 
sought.  However, new Item 408 of Regulation S-K will require registrants to disclose whether any director or 

officer has terminated a Rule 10b5-1 plan or non-Rule 10b5-1 trading arrangement. See infra Section II.B.1.  

An issuer’s insider trading policies and procedures may otherwise govern such plan terminations.  See infra at 

Section II.B.2.  Finally, whether an inference can be drawn that an individual unlawfully traded on the basis of 

inside information may be informed by the manner in which they trade (see, e.g., SEC v. Warde, 151 F.3d, 42, 

47 (2d Cir.1998), including where termination of a Rule 10b5-1 trading arrangement is soon followed by non-

Rule 10b5-1 trades in the same security or issuer. 

138  See supra Section II.A. 

139  See supra note 126. 



43 

issue of whether a director or officer has material nonpublic information is an inherently fact-

specific analysis. Thus, a director or officer’s completion of the proposed certification would 

reflect their personal determination that they do not have material nonpublic information at the 

time of adoption of a Rule 10b5-1 plan.   

 As suggested by some commenters,140 however, we have modified the final amendment 

to require that the certification be included in the Rule 10b5-1 plan as representations, rather than 

prepared as a separate document to be presented to the issuer. Consistent with the intent behind 

the proposal, this approach will reinforce directors’ and officers’ cognizance of their obligations 

discussed above, but will eliminate any additional burden that separate documentation may 

create.  

 We are not persuaded, however, that any representations that corporate insiders may 

already make to broker-dealers obviate the need for a certification. While we note that broker-

dealers may require similar representations from directors and officers before executing a Rule 

10b5-1 plan, given that there is no requirement that they do so, such practices may not be 

universal, and the requirement may differ among the various broker-dealers that do require such 

representations. This rule therefore will better ensure that corporate insiders provide these 

representations. Further, because issuers must provide disclosure regarding the material terms 

(other than price) of their directors’ and officers’ Rule 10b5-1 plans under new Item 408(a) of 

Regulation S-K as described below, any representation made as part of such plans will also likely 

be requested by and made available to the issuer to facilitate its compliance with the disclosure 

requirement. To the extent that directors and officers provide issuers with these representations, 

they would likely have a greater effect on investor confidence that the officer or director in fact 

                                                 

140  See, e.g., letters from Cravath and SIFMA 3. 



44 

was not aware of material nonpublic information when making the representation due to the 

issuer’s close relationship to its officers and directors.  

 In addition, we are not adopting the proposed instruction that a director or officer seeking 

to rely on the affirmative defense should retain a copy of the certification for a period of ten 

years. The burden of establishing that the requirements of the affirmative defense have been met 

will fall on the corporate insider who wishes to rely on it. As a result, we find that the proposed 

instruction is unnecessary as directors and officers already have reason to keep accurate records, 

including the representations, to establish that they have satisfied the conditions of the 

affirmative defense. 

 Finally, we disagree with the commenter who argued that requiring directors or officers 

to certify that they lack material nonpublic information at the time of adopting a Rule 10b5-1 

plan would be inconsistent with insider trading jurisprudence.141 Specifically, the commenter 

argued that the certification should instead allow a trader to certify that any material nonpublic 

information the trader holds at the time the plan is entered into will be either public or no longer 

material at the time of the trade.142 We concur with this commenter that, in general, liability 

under Rule 10b-5 and Section 10(b) requires a showing that a covered individual was aware of 

material nonpublic information at the time that a trade was executed. Rule 10b5-1, however, is 

intended to provide an affirmative defense against liability under circumstances where it is 

                                                 

141  See letter from MD Bar. 

142  The Commission is not adopting this alternative because of the difficulties a trader would face in assessing at 

the time of certification whether the information will become nonpublic or no longer material at the time of 

their future trading.  For example, a trader may not be able to make a determination about whether and when 

other persons will disclose nonpublic information on behalf of an issuer by a certain time in the future. See 2000 

Adopting Release, supra note 8 (noting that public companies frequently “designat[e] a limited number of 

persons who are authorized to make disclosures” that can be considered as made “on behalf of an issuer” to 

comply with the securities laws); see also 17 CFR 243.100, 101(c). The certification condition that the 

Commission is adopting permits traders to make the relatively more straightforward determination whether they 

are aware of material nonpublic information at a given point in time.   



45 

relatively unlikely that a trader will be able to trade on material nonpublic information. As noted 

earlier, this defense is designed to cover situations where a person can demonstrate that a trade 

was not based on material nonpublic information. Requiring a representation that a director or 

officer was not aware of material nonpublic information when adopting a Rule 10b5-1 plan as a 

condition of the affirmative defense better ensures that the defense is available only in those 

circumstances. Moreover, by its nature, an affirmative defense does not affect the substance of 

the underlying prohibition. Individuals who cannot satisfy this condition because they are aware 

of material nonpublic information at the time that they enter into a Rule 10b5-1 plan may still be 

able to trade without liability if they lack material nonpublic information at the time that their 

trade is actually executed. In such circumstances, however, they would not be able to benefit 

from the affirmative defense provided by Rule 10b5-1(c)(1). We also disagree with the 

commenter’s suggestion that the representation condition we are adopting is a substantive change 

in what knowledge an individual may possess when adopting a plan that satisfies the conditions 

of Rule 10b5-1(c)(1).143 The representation condition rather adds a requirement about how that 

knowledge is documented for purposes of the affirmative defense.  

 Finally, the Commission also proposed a technical change to incorporate the Preliminary 

Note to Rule 10b5-1 into Rule 10b5-1(b).144 The Preliminary Note to Rule 10b5-1 states that the 

rule defines when a purchase or sale constitutes trading “on the basis of” material nonpublic 

information in insider trading cases brought under Section 10(b) of the Exchange Act and Rule 

                                                 
143  The 2000 adopting release made clear that a person could adopt a plan “while the person was not aware of any 

inside information.” 2000 Adopting Release at 51737 (emphasis added); accord Selective Disclosure and 

Insider Trading, Release No. 33-7787 (Dec. 20, 1999) [64 FR 72590 (Dec. 28, 1999)] at 72601 (“If the insider 

provides the instructions without awareness of any material nonpublic information, the Rule would permit him 

or her to complete the previously instructed sales plan even if he or she later became aware of inside 

information.”) (emphasis added).  

144   See Proposing Release at 8689.  

https://advance.lexis.com/document/teaserdocument/?pdmfid=1000516&crid=4391a125-d04f-4c86-9896-e82bb282f826&pddocfullpath=%2Fshared%2Fdocument%2Fadministrative-codes%2Furn%3AcontentItem%3A5JKM-HSR0-006W-84MW-00000-00&pddocid=urn%3AcontentItem%3A5JKM-HSR0-006W-84MW-00000-00&pdcontentcomponentid=41356&pdteaserkey=h2&pditab=allpods&ecomp=yzt4k&earg=sr0&prid=f5e42f4d-625a-4e4d-8c2c-ad0145d35dc7


46 

10b-5 thereunder, that the law of insider trading is otherwise defined by judicial opinions 

construing Rule 10b-5, and that Rule 10b5-1 does not modify the scope of insider trading law in 

any other respect.145 We are adopting this change as proposed.  

 The existing law of insider trading provides an established legal framework that makes 

directors and officers liable if they fraudulently purchase or sell securities on the basis of 

material nonpublic information in breach of a duty of trust or confidence. Rule 10b5-1 provides 

that a purchase or sale of a security of an issuer is on the basis of material nonpublic information 

for purposes of Section 10(b) and Rule 10b-5 if the person making the purchase or sale was 

aware of the material nonpublic information when the person made the purchase or sale. Rule 

10b5-1 expressly “does not modify the scope of insider trading law in any other respect.” We 

think it is sufficiently clear that the certification would not create an independent basis of 

liability for insider trading and do not believe it is necessary to amend the rule in this regard, as 

                                                 

145  See 2000 Adopting Release supra note 8 at 51727. The Commission adopted an “awareness” standard in 2000 

that provides that a purchase or sale of a security of an issuer is on the basis of material nonpublic information 

about that security or issuer “if the person making the purchase or sale was aware of the material nonpublic 

information when the person made the purchase or sale.” 17 CFR 240.10b5-1(b) (2000). The Commission 

explained at that time that one view was that a trader may be liable for trading while in “knowing possession of 

information,” while a contrary view was that a trader is not liable unless it is shown that the trader “used” the 

information for trading. Selective Disclosure and Insider Trading, 65 FR 51716-01, 51726-27 (Aug. 24, 2000).  

The Commission ultimately adopted the “awareness” standard that balanced considerations of both views while 

being “closer” to the “knowing possession” standard than to the “use” standard. Id. One commenter suggested 

that the Commission lacked authority “in the year 2000” to adopt Rule 10b5-1(b)’s awareness standard. See 

letter from Pacific Legal Foundation. However, none of the modifications the Commission is adopting in this 

Release would alter the “awareness” standard that the Commission adopted in 2000. See supra at p.8 n. 9. In 

any event, by prohibiting any manipulative or deceptive device or contrivance “in contravention of such rules 

and regulations as the Commission may prescribe as necessary or appropriate in the public interest or the 

protection of investors” (Exchange Act Section 10(b)), Congress thereby authorized the Commission to 

“prescribe legislative rules” like Rule 10b5-1, and courts must accord Rule 10b5-1 “controlling weight.”  

O’Hagan, 521 U.S. at 673 (quoting Chevron, 467 U.S. at 844). Since its adoption in 2000, courts have 

appropriately deferred to the Commission’s “awareness” standard, holding that the Commission’s determination 

is “entitled to deference.”  Royer, 549 F.3d at 899 (applying Chevron); see also United States v. Rajaratnam, 

719 F.3d 139, 157-61 (2d Cir. 2013), cert. denied, 134 S. Ct. 2820 (2014).  Furthermore, Congress has 

expressly authorized the Commission to seek and district courts to impose civil monetary penalties where a 

person has violated the securities laws by purchasing or selling a security “while in possession of” material 

nonpublic information.  Exchange Act Section 21A(a)(1) [15 U.S.C. 78u–1(a)(1)]; see also Exchange Act 

Section 20(d) (liability for trading “while in possession of” material nonpublic information) [15 U.S.C. 78t(d)]. 



47 

suggested by several commenters.146  

3. Restricting Multiple Overlapping Rule 10b5-1 Trading Arrangements and 

Single-Trade Arrangements 

 

 a. Proposed Amendments 

 Currently, a person is not entitled to the Rule 10b5-1(c)(1) affirmative defense for a trade 

if they enter into or alter a “corresponding or hedging transaction or position” with respect to the 

planned transactions.147 In proposing this requirement, the Commission explained that it was 

designed to prevent persons from devising schemes to exploit material nonpublic information by 

setting up pre-existing hedged trading programs, and then canceling execution of the unfavorable 

side of the hedge, while permitting execution of the favorable transaction.148  

 In the Proposing Release, the Commission recognized that multiple overlapping plans can 

be used for these hedging purposes and in other ways that might allow material nonpublic 

information to “factor into the trading decision” of an insider who had complied with the other 

provisions of Rule 10b5-1. In particular, currently, a person can adopt and employ multiple 

overlapping Rule 10b5-1 trading arrangements and exploit material nonpublic information by 

setting up trades timed to occur around dates on which they expect that the issuer will likely 

release material nonpublic information (such as earnings releases) and then selectively cancel 

trades or terminate plans on the basis of material nonpublic information before the information is 

publicly disclosed. In this same vein, the Commission noted its concern that a person could 

circumvent the proposed cooling-off period by setting up multiple overlapping Rule 10b5-1 

                                                 

146  See, e.g., letters from Cravath, DLA, Kirkland, Shearman, and Sullivan. 

147  See Rule 10b5-1(c)(1). 

148   See Selective Disclosure and Insider Trading, Release No. 33-7787 (Dec. 20, 1999) [64 FR 72590 (Dec. 28, 

1999)]. 



48 

trading arrangements, and deciding later which trades to execute and which to cancel after they 

become aware of material nonpublic information, but before its release.  

 To address these concerns, the Commission proposed to amend Rule 10b5-1(c)(1) to 

provide as a condition of the affirmative defense that the person who has entered the plan has no  

outstanding (and does not subsequently enter into another) Rule 10b5-1 plan for open market 

purchases or sales of the same class of securities. The Commission also requested comment on 

whether it was appropriate to exclude multiple trading arrangements for open market purchases 

or sales of the same class of securities, and specifically asked commenters to weigh in on 

whether allowing a concurrent trading arrangement for each class of securities would “create 

incentives for corporate insiders to own different classes of stock.”149 

 This proposed limitation was designed to eliminate the ability of traders to use multiple 

plans to strategically execute trades based on material nonpublic information and still claim the 

protection of the affirmative defense for such trades. 

 The proposed amendment would not apply to transactions where a person acquires (or 

sells) securities through participation in employee stock ownership plans (“ESOPs”) or dividend 

reinvestment plans (“DRIPs”), which are not executed by the person on the open market. 

Participation in these programs is sometimes effected through Rule 10b5-1 plans, and because 

these transactions are directly with the issuer, the Commission concluded they were less likely to 

give rise to insider trading concerns.150 Thus, the Commission proposed this exception to 

                                                 

149  Proposing Release, supra note 22, at 8692 (request for comment number 13).  

150  However, the Supreme Court has explained that lower courts “should consider the extent to which an ERISA-

based obligation either to refrain on the basis of inside information from making a planned trade or to disclose 

inside information to the public could conflict with the complex insider trading and corporate disclosure 

requirements imposed by the federal securities laws or with the objectives of those laws.”  Fifth Third Bancorp 

v. Dudenhoeffer, 573 U.S. 409, 429 (2014). Officers and directors also need to follow Regulation Blackout 

Trading Restrictions, see 17 CFR 245.100 through 245.104.  



49 

preserve the benefits of flexibility for plan participants with respect to such plans.  

 In addition to restricting the use of multiple overlapping trading arrangements, the 

Commission proposed to amend Rule 10b5-1(c)(1)(ii) to limit the availability of the affirmative 

defense for a trading arrangement designed to cover a single trade, by providing that the 

affirmative defense would only be available for one single-trade plan during any 12-month 

period. Under the proposed amendment, the affirmative defense would not be available for a 

single-trade plan if the trader had purchased or sold securities pursuant to another single-trade 

plan within the preceding 12-month period. In proposing this amendment, the Commission noted 

that some recent research indicated that single-trade plans are consistently loss-avoiding and 

their adoption often precedes stock price declines.151 At the same time, the Commission 

recognized the use of single–trade plans to address one-time liquidity needs. The proposed 

limitation on single-trade plans was intended to balance accommodating the use of single-trade 

plans for one-time liquidity needs against the potential for abuse of such plans.  

 b. Comments on the Proposed Amendments 

 Several commenters generally supported both the proposed restriction on multiple 

overlapping trading arrangements, and the limitation on single-trade plans.152 One commenter 

expressed support for the prohibition on multiple overlapping trading arrangements, but did not 

address single-trade plans.153 A few commenters supported the proposed prohibition on multiple 

overlapping trading arrangements but asked the Commission to limit the prohibition to directors 

and officers, noting that individuals have many legitimate reasons to have overlapping plans, 

                                                 

151  See Gaming the System, supra note 20; see also infra Section V.B. 

152  See, e.g., letters from AFL-CIO, Better Markets, CO PERA, MD Bar, NYCC, NASAA, and Public Citizen. 

153  See letter from Kirkland. 



50 

such as gifts and estate-planning transactions, and that directors and officers are the group most 

likely to have material nonpublic information.154  

 With respect to single-trade plans specifically, commenters had mixed responses. One 

commenter expressed support for the limitation on single-trade plans,155 while another 

commenter recommended that the Commission eliminate the availability of the Rule 10b5-1 

affirmative defense for all single-trade plans.156 On the other hand, some commenters noted that 

single-trade plans often have legitimate uses.157 For example, one commenter maintained that, if 

adopted, the Commission should provide exceptions for derivative transactions, gifts, estate-

planning transactions, and employee benefit plan transactions.158 Other commenters indicated 

that the proposed restriction could be evaded by splitting one trade that would be authorized 

under such a plan into two trades.159 

 In addition, several commenters expressed concern that the proposed restrictions on 

multiple overlapping and single-trade Rule 10b5-1 plans would negatively impact certain 

employee compensation plan transactions that are structured as Rule 10b5-1 plans, such as sales 

of securities used to generate funds to cover the withholding taxes associated with equity vesting 

and elections under 401(k) plans or employee stock purchase plans that may be structured as 

Rule 10b5-1 plans (“sell-to-cover transactions”).160 Some of these commenters asserted that 

                                                 

154  See, e.g., letters from SIFMA 3 and Sullivan. 

155  See letter from NYSE. 

156  See letter from Sen. Warren et al. 

157  See, e.g., letters from Monday.com Ltd (“Monday.com”), BioNJ, SCG, SIFMA 3, Davis Polk, Fenwick, Jones 

Day, Shearman, and Wilson Sonsini 

158  See letter from Sullivan. 

159  See letter from Cravath and Davis Polk. 

160  See, e.g., letters from Fenwick, HP, Monday.com, SCG, Sullivan, and Wilson Sonsini. 



51 

these transactions do not implicate the concerns that the proposed amendment is intended to 

address because a corporate insider has limited discretion as to the timing or the number of 

shares sold to cover the tax liability.161 Other commenters generally stated that under the 

proposed limitations, insiders could not maintain both a traditional Rule 10b5-1 plan and a plan 

designed to execute sell-to-cover transactions.162  

With respect to the aspect of the proposed definition of “multiple concurrent trading 

arrangements” under which an insider could establish a separate arrangement for each “class of 

securities,” several commenters generally supported the limitation on multiple overlapping plans 

as proposed.163 One commenter, however, argued that the proposed definition would encourage 

insiders to establish parallel trading arrangements for common stock, preferred stock, and 

options.164 Because the values of these instruments are all highly correlated, the commenter 

stated, the proposed rule would still allow insiders to opportunistically use material nonpublic 

information by establishing such parallel arrangements and then cancelling one or more of them. 

 Many commenters did not support the proposed restriction on multiple overlapping Rule 

10b5-1 plans.165 Some commenters asserted that this limitation was unnecessary, because, given 

that the affirmative defense already does not permit adoption of hedged plans in which a person 

takes offsetting financial positions, there is no additional abusive conduct to address.166  

                                                 

161  See, e.g., letters from BioNJ, Monday.com, and Simpson Thatcher. 

162  See, e.g., Sullivan and Wilson Sonsini. 

163  See letters from Better Markets, CII, and CO PERA. 

164  See letter from NASAA. 

165  See, e.g., letters from ABA, ACCO, BioNJ, Chamber of Commerce 2, Chevron, Coalition Letter, Cravath, 

Davis Polk, DLA, Dow, FedEx, Fenwick, HP, HRPA, HudsonWest, Jones Day, K&L Gates, Kirkland, 

Manulife, Monday.com, NAM, NVCA, NYC Bar, Paul Weiss, PNC, Quest, Quinn, SCG, Shearman, Simpson, 

and Wilson Sonsini. 

166  See, e.g., letters from Davis Polk and Shearman. 



52 

 As with single-trade plans, a number of commenters indicated that there are legitimate, 

common uses of multiple, overlapping Rule 10b5-1 plans.167 Some commenters noted, for 

example, that issuers often use multiple concurrent Rule 10b5-1 plans with different brokers to 

execute share repurchase transactions.168 Other commenters indicated that directors and officers 

often employ multiple Rule 10b5-1 plans because they hold shares in different accounts with 

multiple financial institutions.169 They noted, for example, that a corporate insider may hold 

shares received upon the exercise of stock options in an account with the financial institution that 

is the administrator of the issuer’s incentive equity plan, and hold shares acquired through open 

market transactions or other means in a separate account with a different financial institution.  

 A number of commenters expressed concern that the wording of the proposed 

amendment regarding multiple overlapping plans was overly broad as it could encompass every 

open market transaction, including transactions that are not executed under a Rule 10b5-1 

plan.170 Several commenters urged the Commission to clarify that this provision would not 

prohibit the adoption of a new Rule 10b5-1 plan while an existing plan is in effect as long as no 

trades could commence under the new plan until the existing plan has expired.171 

Finally, several commenters contended that the proposed cooling-off period for Rule 

10b5-1 plans was a more effective method to address the concerns over potential abusive uses of 

multiple overlapping and single-trade Rule 10b5-1 plans.172 

                                                 

167  See, e.g., letters from Chamber of Commerce 2, Cravath, Davis Polk, Dow, FedEx, HP, Jones Day, Manulife, 

Monday.com, NVCA, NYC Bar, Quest, Shearman, Sullivan, and Wilson Sonsini. 

168  See, e.g., letters from Cravath, Davis Polk, Dow, FedEx, Quest, Shearman, and Sullivan. 

169  See, e.g., letters from Quest, and Wilson Sonsini. 

170  See, e.g., letters from Dow, SCG, ABA, Cleary, Paul Weiss, Shearman, Sullivan, and Wilson Sonsini. 

171  See, e.g., letters from Jones Day, Kirkland, Paul Weiss, Simpson, Shearman, and Wilson Sonsini. 

172  See, e.g., letters from Manulife, Cravath, NAM, and Cleary. 



53 

 c. Final Amendments 

After considering the comments, we are adopting the proposed amendment addressing 

multiple overlapping Rule 10b5-1 plans with certain modifications. With respect to multiple 

overlapping Rule 10b5-1 contracts, instructions or plans, the final amendment will add a 

condition to the Rule 10b5-1(c)(1) affirmative defense that persons, other than issuers, may not 

have another outstanding (and may not subsequently enter into any additional) contract, 

instruction or plan that would qualify for the affirmative defense under the amended Rule 10b5-1 

for purchases or sales of any class of securities of the issuer on the open market during the same 

period. We disagree with commenters who urged us to limit these provisions only to directors 

and officers.173 While it is true, as commenters note and as we observed in the Proposing 

Release, that officers and directors are most likely to have access to material nonpublic 

information,174 other traders may at times also have such access. Trading by these other persons 

can impact investors and investor confidence in much the same ways as trading by officers and 

directors. For example, we think it could undermine investor confidence to learn that insiders 

who are not Section 16 officers were able to opportunistically manipulate their trading after 

receiving material nonpublic information, so that the insider could profit at the expense of 

uninformed investors. As we explain below, we think that any financial impact on insiders other 

than officers and directors resulting from these limitations will be more limited than in the case 

of the cooling-off period.  

 Accordingly, we disagree with those commenters who suggested that trades by 

individuals other than officers and directors would not affect the integrity of securities 

                                                 

173  See letters from Sullivan and SIFMA 3. 

174  See Proposing Release at 17; letters from CII, Cravath, and SIFMA. 



54 

markets.175 While other traders may not necessarily control corporate trading or disclosure 

decisions, they still may stand to profit substantially from trading on any material nonpublic 

information to which they have access. Further, because Form 4 may reveal potentially 

opportunistic trades to the public, we think the fact that most persons, other than Section 16 

officers, do not file Form 4 is a reason for more safeguards with respect to their trading, not 

fewer.   

In reaching our determination, we are mindful that some traders, such as rank-and-file 

employees, may have liquidity and diversification needs that are greater than those of more 

highly compensated officers, as commenters noted.176 In recognition of these needs, we are 

adopting a modification to the proposed limitations, described in more detail below, under which 

traders may employ multiple plans to satisfy certain tax obligations incident to equity 

compensation. For insiders who are already trading under an existing plan when such liquidity 

needs arise, meeting those needs will typically require the insider to modify the existing plan, as 

our limitation on multiple plans will prevent the insider from adopting an additional plan to 

cover the newly planned transactions. This modification will in turn likely require the insider to 

pause trading under the preexisting plan for the duration of the insider's cooling-off period. 

Because the cooling-off period for insiders other than officers and directors is 30 days, however, 

we believe that any resulting impact on the insider should be limited. While we agree that it is 

possible this cost, or other barriers, may reduce the appeal of requiring non-officers to make use 

of a Rule 10b5-1 plan, as one commenter noted,177 we think on balance that it is better to ensure 

that any Rule 10b5-1 plans that are adopted in fact impose meaningful limits on opportunistic 

                                                 

175  See letters from Cravath and Davis Polk. 

176  See letters from Chamber of Commerce 2 and NAM. 

177  See letter from Davis Polk. 



55 

trading. More widespread adoption of Rule 10b5-1 plans is unlikely to be helpful to investors or 

markets if such plans do not constrain many opportunistic trades. 

We are modifying the original proposal by removing the reference to “same class of 

securities,” so that the multiple overlapping plans restriction will apply to contracts, instructions 

or plans for any class of securities of the issuer. We agree with the commenter who argued that, 

given the strong likelihood that the values of different classes of securities of a given issuer are 

highly correlated, allowing the use of multiple plans for trading in the securities of one issuer 

would allow for significant possibility of opportunistic behavior.178 As a result, persons (other 

than the issuer) may only have one such contract, instruction or plan, rather than one contract, 

instruction or plan for each class of securities. 

 This condition is intended to address the concerns discussed above about an insider’s use 

of multiple overlapping plans in ways that could allow material nonpublic information to factor 

into the trading decision. Because these concerns are not limited to hedged plans where a trader 

takes offsetting financial positions, we disagree with those commenters who asserted that the 

existing hedging restriction of the Rule 10b5-1 affirmative defense renders this limitation 

unnecessary. With a sufficient number of different plans, an insider could achieve a desired 

trading outcome. For example, an insider could adopt several plans to sell their company stock at 

varying prices in excess of the current share price, and then cancel the plans authorizing trades at 

the lowest of these prices upon learning nonpublic information that the insider expects to 

substantially increase the share price. For similar reasons, we disagree with commenters that the 

cooling-off period sufficiently addresses our concerns given that an insider could maintain 

multiple overlapping plans that satisfy the cooling-off period and then cancel plans based on 

                                                 

178  See letter from NASAA.  



56 

later-obtained material nonpublic information. 

 In light of comments received, we are making three further modifications to this 

condition. The first addresses an insider’s use of multiple brokers to execute trades pursuant to a 

single Rule 10b5-1 plan that covers securities held in different accounts. Specifically, a series of 

separate contracts with different broker-dealers or other agents acting on behalf of the person 

(other than the issuer) to execute trades thereunder may be treated as a single “plan,” provided 

that the contracts with each broker-dealer or other agent, when taken together as a whole, meet 

all of the applicable conditions of and remain collectively subject to the provisions of Rule 10b5-

1(c)(1). A modification of any such contract will be a modification of each other contract or 

instruction such single plan. We agree with commenters that in circumstances where a corporate 

insider holds securities in separate accounts with different financial institutions, the execution of 

trades by multiple brokers under a Rule 10b5-1 plan is less likely to raise the concerns 

underlying this condition of the rule. We recognize that a trader will typically enter into a 

formally distinct contract or agreement with each agent authorized to conduct trades. Thus, for 

purposes of the multiple overlapping plans restriction, a series of formally distinct such contracts 

may be treated as a single “plan” where taken together the contracts otherwise satisfy the 

conditions of the rule. As we have described, the overlapping-plans condition is intended to 

prevent selective alteration or cancellation of Rule 10b5-1 plans to achieve a particular trading 

outcome when an insider is aware of material nonpublic information, and for that reason, we are 

providing that modification (as defined in the Rule) of a contract with any given agent will also 

be treated as a modification of the other contracts making up the plan.  

 In addition, the final amendment provides that a broker-dealer or other agent executing 

trades on behalf of the insider pursuant to the Rule 10b5-1 plan may be substituted by a different 



57 

broker-dealer or other agent as long as the purchase or sales instructions applicable to the 

substituted broker and the substitute are identical, including with respect to the prices of 

securities to be purchased or sold, dates of the purchases or sales to be executed, and amount of 

securities to be purchased or sold. Under this provision, an insider will not lose the benefit of the 

affirmative defense where the insider closes a securities account with a financial institution and 

transfers the securities to a different financial institution. If an insider provides instructions to the 

new broker-dealer in accordance with this provision, there is more limited possibility for 

selective cancellation because substituting a broker authorized to trade under a Rule 10b5-1 plan 

would not change the remaining trades in ways that likely would allow the insider to profit on 

material nonpublic information. We note, however, that a plan modification, such as the 

substitution or removal of a broker that is executing trades pursuant to a Rule 10b5-1 

arrangement on behalf of the insider that changes the purchase or sale amount, price or date on 

which purchases or sales are to be executed is a termination of such plan and the adoption of a 

new plan. This will further limit opportunities for opportunistic manipulation of broker-dealers 

executing trades on behalf of the insider.  

 The second change permits persons (other than the issuer) to maintain two separate Rule 

10b5-1 plans at the same time so long as trading under the later-commencing plan is not 

authorized to begin until after all trades under the earlier-commencing plan are completed or 

expire without execution.179 This provision would not be available for the later-commencing 

                                                 

179  See Rule 10b5-1(c)(1)(ii)(D) which provides that a contract, instruction, or plan that would meet the other 

requirements of Rule 10b5-1(c)(1)(i) may still qualify for the affirmative defense where the director or officer 

has one other contract, instruction, or plan that would qualify for the affirmative defense for purchases or sales 

of the same class of securities on the open market and trading under one contract, instruction, or plan (“later-

commencing plan”) is not authorized to begin until after all trades under the other contract, instruction, or plan 

(“earlier-commencing plan”) are completed. 



58 

plan, however, if the first trade under the later-commencing plan is scheduled to begin during the 

“effective cooling-off period”—namely, the cooling-off period that would be applicable under 

paragraph (c)(1)(ii)(B) to the later-commencing plan if the date of adoption of the later-

commencing plan were deemed to be the date of termination of the earlier-commencing plan.180 

Absent this qualification, an insider might cancel the earlier-commencing plan before its 

scheduled completion but still trade under the later-commencing plan in fewer than the minimum 

90 days (or 30 days) that would otherwise be required for a new plan that is established after a 

plan termination. Both plans must meet all other conditions of the affirmative defense, including 

the cooling-off period. Under these circumstances, we agree with commenters that there would 

be a much lower risk of a corporate insider who is aware of material nonpublic information 

profiting by opportunistically canceling a trading plan as the Rule 10b5-1 plans would not 

authorize trading during the same period of time.   

 Third, we are adopting a modification for plans authorizing certain “sell-to-cover” 

transactions in which an insider instructs their agent to sell securities in order to satisfy tax 

withholding obligations at the time an award vests. Under this modification, an insider will not 

lose the benefit of the affirmative defense with respect to an otherwise eligible Rule 10b5-1 plan 

if the insider has in place another plan that would qualify for the affirmative defense, so long as 

the additional plan or plans only authorize qualified sell-to-cover transactions. Such plans that 

authorize only such qualified sell-to-cover transactions are eligible for the affirmative defense 

                                                 

180  For example, an insider who is not an officer or director has in place an existing Rule 10b5-1 plan with a 

scheduled date for the latest authorized trade of May 31, 2023. On May 1, 2023, that insider adopts a later-

commencing plan, intended to qualify for the affirmative defense under Rule 10b5-1, with a scheduled date for 

the first authorized trade of June 1, 2023. If the insider terminates the earlier-commencing plan on May 15, the 

later-commencing plan will not receive the benefit of the affirmative defense, because June 1 is within 30 days 

of May 15, the date of termination of the earlier-commencing plan, and thus June 1 is during the “effective 

cooling-off period.” However, if the later-commencing plan were scheduled to begin trading on July 1, 2023, it 

could still receive the benefit of the affirmative defense because July 1, 2023 is more than 30 days after May 15 

and thus is outside the “effective cooling-off period.”   



59 

notwithstanding the fact that the insider may have another plan eligible for the affirmative 

defense in place. A plan authorizing sell-to-cover transactions is qualified for this provision 

where the plan authorizes an agent to sell only such securities as are necessary to satisfy tax 

withholding obligations incident to the vesting of a compensatory award, such as restricted stock 

or stock appreciation rights, and the insider does not otherwise exercise control over the timing 

of such sales.181   

 We are providing this modification because we agree with commenters who contended 

that under these limited circumstances, there is little danger of opportunistic trading. Because 

vesting schedules are generally set in advance by the issuer, the amount of securities to be sold 

would be determined by the value of the award and the taxes due on that value. We are further 

stipulating that eligible plans cannot provide the insider with control over the timing of any sales.  

For these reasons, we think it is highly unlikely that insiders would be able to make opportunistic 

use of such additional plans.  

 We are not extending this modification to include sales incident to the exercise of option 

awards because it could create a risk of opportunistic trading. Option exercises occur at the 

discretion of the insider, and such decisions could occur when the insider later obtains material 

nonpublic information. To the extent that commenters have suggested that an insider with a sell-

to-cover plan tied to an option exercise could not use the revised Rule 10b5-1 affirmative 

defense, we disagree.182 The revised affirmative defense would not prevent a corporate insider 

from entering into a Rule 10b5-1 plan that includes instructions directing a broker to sell 

                                                 

181  In our view, a plan that authorizes an agent to sell only such securities as are necessary to satisfy tax 

withholding obligations incident to the vesting of a compensatory award meets the requirement that the plan 

does “not permit the person to exercise any subsequent influence over how, when, or whether to effect …sales,” 

Rule 10b5-1(c)(1)(B)(3) [17 CFR 240.10b5-1(c)(1)(B)(3)]. 

182  See supra note 161. 



60 

securities sufficient to meet the tax withholding obligations incident to an option or similar 

award exercise. For example, the insider might provide that a designated agent is authorized to 

sell sufficient securities to cover any tax withholding obligations incident to an option exercise. 

Such instructions can be included in a single Rule 10b5-1 plan along with instructions to sell 

based on other financial variables. Accordingly, an officer or director may take advantage of the 

affirmative defense both for sell-to-cover transactions and other planned trades, provided that the 

conditions of the affirmative defense are met, including the cooling-off period.   

 In addition, we are not adopting the proposed limitation on multiple plans and single-

trade plans for the issuer at this time. As with the cooling-off period, we believe that further 

consideration of potential application to the issuer is warranted.  

 Finally, we are adopting the proposed limitation on single-trade plans with modifications. 

Consistent with the approach to multiple overlapping plans, the limitation will apply to the Rule 

10b5-1 plans of all persons, other than the issuer. As a result, the final rule provides that if the 

contract, instruction, or plan is designed to effect the open-market purchase or sale of the total 

amount of securities as a single transaction, the contract, instruction or plan will not receive the 

benefit of the affirmative defense unless: (1) the person who entered into the contract, 

instruction, or plan has not, during the prior 12-month period, adopted another contract, 

instruction, or plan that was designed to effect the open-market purchase or sale of the total 

amount of securities subject to that plan in a single transaction; and (2) such other contract, 

instruction, or plan in fact was eligible to receive the affirmative defense. A person (other than 

the issuer) will be able to rely on the Rule 10b5-1(c)(1)(ii) affirmative defense for only one 

single-trade plan during any 12-month period. The defense will only be available for a single-

trade plan if the person had not, during the preceding 12-month period, adopted another single-61 

trade plan, where the other plan qualified for the affirmative defense under Rule 10b5-1.183 We 

disagree with the commenter who argued that, due to the possibility that an insider might divide 

their planned single trade into multiple trades, any limit on single-trade plans would be 

ineffective.184 For example, certain insiders who divide a planned trade over several days are 

likely to realize reduced profits from trading after a Form 4 is filed, which at least in part, will 

reduce an insider’s incentives to engage in trading while aware of material nonpublic 

information. 

 For this purpose, a plan is “designed to effect” the purchase or sale of securities as a 

single transaction when the contract, instruction, or plan has the practical effect of requiring such 

a result. In contrast, a plan is not designed to effect a single transaction where the plan leaves the 

person’s agent discretion over whether to execute the contract, instruction, or plan as a single 

transaction. Similarly, a plan is also not designed to effect the purchase or sale of securities as a 

single transaction when (1) the contract, instruction, or plan does not leave discretion to the 

agent, but instead provides that the agent’s future acts will depend on events or data not known at 

the time the plan is entered into, such as a plan providing for the agent to conduct a certain 

volume of sales or purchases at each of several given future stock prices; and (2) it is reasonably 

foreseeable at the time the plan is entered into that the contract, plan, or instruction might result 

in multiple transactions. 

We are adopting the limitation on single-trade plans because we are concerned that trades 

under such plans may provide particularly profitable opportunities for insiders who are trading 

                                                 

183  We have added this qualification because we do not intend for a plan that is ineligible for the affirmative 

defense to preclude the affirmative defense for another plan, even if both trades are single-trade plans.  

184  See letter from Davis Polk. 



62 

while aware of material nonpublic information. As we described in the Proposing Release, a 

recent study found that trades under a single-trade plan avoid losses that appear statistically 

unlikely to be avoided by uninformed traders.185 This pattern persisted even when the first such 

trade occurred more than 120 days after adoption of the plan, suggesting that a cooling-off period 

alone may not be sufficient to prevent opportunistic single-trade plans.186 For these reasons, we 

disagree with the commenters who suggested that the cooling-off period would be sufficient to 

address the problem addressed by the single-trade limitation.187  

 Several commenters expressed concern about potential ambiguity or uncertainty around 

the concept of a single-trade plan and asked us to clarify the scope of this provision, such as its 

potential application to block trades of venture capital funds.188 We agree with those commenters 

who indicated that an insider should not be at risk of losing the benefit of the affirmative defense 

due to decisions outside the insider’s control when the insider did not design the Rule 10b5-1 

plan to effect the authorized purchases or sales in a single transaction, such as in the case where 

the insider’s agent exercises their own discretion to complete all authorized trading in a single 

transaction. For that reason, we have added the “designed to effect” provision discussed above. 

We are concerned, however, that further delineating what constitutes a single transaction for 

purposes of this rule could create incentives to design Rule 10b5-1 plans that avoid application 

of the single-trade plan limitation.  

 For reasons similar to those we have explained with respect to multiple overlapping 

trades, in response to comments, we are modifying the proposed single-trade limitation with 

                                                 

185  See Gaming the System, supra note 20 at 2, 14 (observing that “trades of single-trade plans are consistently 

loss-avoiding regardless of cooling-off period”). But see infra note 400. 

186  See id. 

187  See letters from Manulife, Cravath, NAM, and Cleary. 

188  See letters from Sullivan, SIFMA 3 and NVCA.  



63 

respect to qualified sell-to-cover transactions. This modification applies to the same plans 

eligible for the sell-to-cover provision of the overlapping trade limitation. Again, we think that 

such plans present little, if any risk, of opportunistic trading. 

Also for reasons similar to those we have explained with respect to multiple overlapping 

trades, we are applying the single-trade limitation to all persons other than the issuer. The single-

trade limitation helps to ensure that the affirmative defense provides meaningful constraints on 

the extent to which material nonpublic information affects an insider’s decision to trade. While 

we recognize that the limitation also may impose some moderate limitations on insiders’ ability 

to obtain liquidity and diversification, as noted, we think that there are alternative means for such 

insiders to achieve these goals.  

Because single-trade plans may have legitimate uses to address one-time liquidity needs, 

we also disagree with the commenter who suggested that the affirmative defense should not be 

available for any single-trade plan.189 Overall, the limitation we are adopting is intended to 

balance legitimate uses of single-trade plans against the potential for abuse. 

 4. The Amended Good Faith Condition  

 

 a. Proposed Amendments 

 The Rule 10b5-1(c)(1) affirmative defense is only available if a trading arrangement was 

entered into in good faith and not as part of a plan or scheme to evade the prohibitions of the 

rule. The Commission proposed to amend this condition to require that the contract, instruction, 

or plan also be “operated” in good faith.  

 In proposing this amendment, the Commission noted its concern that some corporate 

insiders may try to improperly influence the timing of corporate disclosures to benefit their 

                                                 

189  See letter from NASAA. 



64 

trades under a Rule 10b5-1 trading arrangement, such as by delaying or accelerating the release 

of material nonpublic information.190 The Commission also noted its concern that a Rule 10b5-1 

plan may be canceled or modified in an attempt to evade the prohibitions of the rule without 

affecting the availability of the affirmative defense. Moreover, the Commission stated that 

requiring that a trader both enter into and operate a Rule 10b5-1 plan in good faith would help 

deter fraudulent and manipulative conduct and enhance investor protection throughout the 

duration of the trading arrangement. Thus the Commission intended the proposed amendment to 

make clear that the affirmative defense would not be available to a trader who, for example, 

modifies their plan in an effort to evade the prohibitions of the rule or uses their influence to 

affect the timing of corporate disclosure to occur before or after a planned trade to make it more 

profitable or to avoid or reduce a loss.  

 b. Comments on the Proposed Amendments 

 Several commenters generally supported the proposed amendment.191 Some of these 

commenters indicated that the proposed amendment would deter opportunistic trading in 

connection with Rule 10b5-1 plans and increase investor confidence.192 One of these 

commenters also expressed the view that, among other things, this requirement would ensure that 

there is liability where persons attempt to manipulate the timing of corporate announcements to 

benefit trades made pursuant to a Rule 10b5-1 plan.193 Another commenter asserted that adding 

the “operate in good faith” requirement would be helpful in improving the insider trading 

                                                 

190  See Proposing Release, supra note 23, at 8693. 

191  See, e.g., letters from CII, AFL-CIO, Better Markets, CO PERA, NYCC, NASAA, NYSE, and O’Reilly. 

192  See, e.g., letters from AFL-CIO, Better Markets, CII, and NASAA. 

193  See letter from Better Markets. 



65 

compliance programs of issuers.194 

 A number of commenters, however, opposed adding the condition that a Rule 10b5-1 

plan be “operated” in good faith.195 Many of these commenters indicated that the concept of 

“operated in good faith” was not sufficiently clear and would lead to uncertainty surrounding the 

availability of the affirmative defense.196 Similarly, another commenter asked the Commission to 

clarify the extent to which a failure to operate a Rule 10b5-1 plan in good faith would invalidate 

the affirmative defense for transactions that were executed under the plan.197 Some commenters 

contended that, given that the scope of conduct or activity covered by the phrase was potentially 

extensive, this condition could inhibit the use of Rule 10b5-1 plans.198 Finally, another 

commenter suggested requiring that a Rule 10b5-1 plan be “modified in good faith” as an 

alternative.199 This commenter contended that “modified” is a clearer term and would cover 

circumstances where a trader amends or terminates a Rule 10b5-1 plan based on material 

nonpublic information.  

 c. Final Amendment 

 Having considered the comments received, we are adopting the amendment to Rule 

10b5-1(c)(1)(ii) with a modification in response to comments concerning the term “operated in 

good faith.” The final rules add the condition that the person who entered into the Rule 10b5-1 

                                                 

194  See letter from O’Reilly. 

195  See, e.g., letters from Dow, Quest, HRPA, Cleary, Cravath, Davis Polk, DLA, Fenwick, Shearman, Wilson 

Sonsini, PNC, SIFMA 2, and SIFMA 3. 

196  See, e.g., letters from Quest, Cleary, Cravath, Davis Polk, DLA, Fenwick, Shearman, Wilson Sonsini, and PNC, 

SIFMA 2, SIFMA 3 and Chamber of Commerce 2. 

197  See letter from PNC. 

198  See, e.g., letters from Dow, Quest, HRPA, Cleary, Cravath, Davis Polk, DLA, Fenwick, Shearman, Wilson 

Sonsini, PNC, SIFMA 2, and SIFMA 3. 

199  See letter from Fenwick. 



66 

contract, instruction, or plan “has acted in good faith with respect to” the contract, instruction, or 

plan. As discussed above, since the time that Rule 10b5-1 was adopted, we have become 

concerned that corporate insiders may take actions after adopting a Rule 10b5-1 plan to benefit 

from material nonpublic information the insider acquires after establishment of the plan. We 

therefore agree with commenters that this requirement will help ensure that traders do not engage 

in opportunistic trading in connection with Rule 10b5-1 plans, and will help deter corporate 

insiders from improperly influencing the timing of corporate disclosures to benefit their trades 

under such a plan.200  

Many commenters appeared to understand that the proposed “operated in good faith” 

language was intended to govern the behavior of the trader.201 Some commenters, however, 

expressed concern that the term “operated” could be ambiguous or cause confusion because it 

could be read to apply, or might apply only, to the insider’s agents, such as brokers who executed 

the trades authorized by the insider.202 To make clear that the good faith obligation applies to the 

activities of the insider (including the insider’s efforts to direct the activities of others), we have 

modified this language to state that the trader must “act[] in good faith with respect to the 

contract, instruction, or plan.” 

In adopting this amendment, we disagree with commenters that the expanded good faith 

requirement is not sufficiently clear. The concept of “good faith” should be familiar to corporate 

insiders as it has been a component of Rule 10b5-1 since its adoption two decades ago.203 This 

                                                 

200  See, e.g., letters from AFL-CIO, Better Markets, CII, and NASAA. 

201  See letters from Davis Polk, DLA Piper, Dow, Home Depot, and Shearman & Sterling. 

202  See letters from Cravath, Fenwick, and PNC. 

203  See 2000 Adopting Release, supra note 8. 



67 

amendment extends this familiar concept from the time of adoption through the duration of the 

Rule 10b5-1 plan to better ensure that material nonpublic information does not factor into the 

decision to trade under such plans, as it would when, for example, a corporate insider materially 

modifies a planned trade at their own direction and to their own benefit,204 based on material 

nonpublic information acquired after the plan was entered into. Indeed, a corporate insider would 

not be operating a Rule 10b5-1 plan in good faith if the corporate insider, while aware of 

material nonpublic information, directly or indirectly induces the issuer to publicly disclose that 

information in a manner that makes their trades under a Rule 10b5-1 plan more profitable (or less 

unprofitable). In such a scenario, notwithstanding that the Rule 10b5-1 plan may have been 

adopted or entered into in good faith, the corporate insider would not be entitled to the 

affirmative defense. Moreover, we disagree with commenters who argue that this requirement 

will deter adoption of Rule 10b5-1 plans by individuals who do not intend to misuse material 

nonpublic information. 

 Commenters also asked us to clarify whether the obligation to act in good faith would not 

be met in other factual settings, such as in the event an issuer halts any trading by insiders under 

Rule 10b5-1 plans due to a possible merger, or where it similarly blocks sales transactions after 

learning of material nonpublic information that it expects will lead to a decline in the market 

price of its securities.205 As we have stated, this amendment relates to activities within the 

control of the insider. Accordingly, we agree with the commenter that cancellations directed by 

                                                 

204  A modification of a Rule 10b5-1 plan in an effort to allow the individual to trade on the basis of material 

nonpublic information would not constitute acting in good faith. In light of our adoption of a limitation on 

multiple plans, however, we anticipate that an individual will generally not be able to engage in any trade under 

a Rule 10b5-1 plan following a cancellation of such a plan, and therefore the applicability of the affirmative 

defense will not be at issue in that situation. 

205  See, e.g., letters from Davis Polk, Shearman (requesting that we clarify that cancellations for legitimate reasons 

are not bad faith); and Wilson Sonsini (requesting we clarify that cancellations are not per se bad faith). 



68 

the issuer where such cancellations are outside the control or influence of the insider may not, by 

themselves, implicate the good faith condition.   

 Finally, we disagree with the commenter who recommended that we instead require good 

faith “modification” of a plan as this narrower condition would not address all of our concerns. 

For example, as we have noted, efforts to manipulate the timing of releases of corporate 

information to benefit an officer’s or a director’s planned trades may not involve a modification 

of a plan but would be inconsistent with established notions of good faith. While the condition 

that we are adopting would cover such efforts, the commenter’s alternative might not do so.   

B. Additional Disclosures Regarding Rule 10b5-1 Trading Arrangements 

 Currently, there are no mandatory disclosure requirements concerning the use of Rule 

10b5-1 trading arrangements or other trading arrangements by issuers or corporate insiders.206 

The lack of comprehensive public information about the use of these arrangements—whether 

pursuant to a Rule 10b5-1 plan or otherwise—creates an environment in which it is more 

difficult for investors to assess whether those parties may be misusing their access to material 

nonpublic information. This lack of transparency may allow improper trading to go undetected 

and thereby undermine the deterrent impact of our insider trading laws. In addition, the lack of 

public information about the use of these arrangements by corporate insiders limits investors’ 

ability to assess potential incentive conflicts and information asymmetries when making 

investment and voting decisions. Requiring more robust disclosure of particular trading 

                                                 

206  Form 144 (17 CFR 239.144) under the Securities Act contains a representation that is used by a filer of the form 

to indicate whether such person has adopted a written trading plan or given trading instructions to satisfy Rule 

10b5-1. Form 144 is a notice form that must be filed with the Commission by an affiliate of an issuer who 

intends to resell restricted or “control” securities of that issuer in reliance upon Securities Act Rule 144 (17 CFR 

230.144). In 2002, the Commission proposed amendments to Form 8-K that, among other things, would have 

required registrants to report on the form any adoption, modification or termination of a Rule 10b5-1 trading 

arrangement by any director and certain officers of the registrant. See Form 8-K Disclosure of Certain 

Management Transactions, Release No. 33-8090 (Apr. 12, 2002) [67 FR 19914 (Apr. 23, 2002)]. The 

Commission did not adopt this proposal. 



69 

arrangements should reduce potential abuse of the rule, and inform investors and the 

Commission regarding potential violations of Rule 10b-5. 

 In addition, issuers are currently not required to disclose their insider trading policies or 

procedures. In the Proposing Release, the Commission stated that information about insider 

trading policies and procedures is important, and would help investors to understand and assess 

how the registrant protects material nonpublic information from misuse. While the codes of 

ethics that registrants are required to disclose pursuant to Item 406 of Regulation S-K may 

address insider trading issues, they may lack the detail necessary for investors to assess actual 

practices surrounding potential insider trading. General statements such as that an issuer “has a 

policy regarding insider trading” or “prohibits insider trading” do not meaningfully assist 

investors in their assessments of whether an issuer’s efforts to prevent insider trading are likely 

to be effective. While not every individual component of an insider trading policy is necessarily 

material on its own, together, a comprehensive description of an insider trading policy can help 

investors to assess the thoroughness and seriousness with which the issuer addresses the 

prohibition of trading on the basis of material nonpublic information by its officers, directors and 

employees. More detailed disclosure about these policies and procedures could therefore 

improve investor confidence, and in turn, potentially contribute to market liquidity and capital 

formation. 

 To address these information gaps, the Commission proposed new Item 408 under 

Regulation S-K and corresponding amendments to Forms 10-Q and 10-K to require: (1) 

quarterly disclosure of the use of Rule 10b5-1 and other trading arrangements by a registrant, and 

its directors and officers for the trading of the issuer’s securities; and (2) annual disclosure of a 

registrant’s insider trading policies and procedures. The Commission also proposed new Item 



70 

16J to Form 20-F to require similar annual disclosure of a foreign private issuer’s insider trading 

policies and procedures. In addition, the Commission proposed amendments to Forms 4 and 5 to 

require insiders to identify whether a reported transaction was executed pursuant to a Rule 10b5-

1(c) trading arrangement.  

1. Quarterly Reporting of Rule 10b5-1 and Non-Rule 10b5-1 Trading Arrangements  

 

 a. Proposed Amendments 

 Proposed new Item 408(a) of Regulation S-K would require registrants to disclose: 

 Whether, during the registrant’s most recently completed fiscal quarter (the 

registrant’s fourth fiscal quarter in the case of an annual report), the registrant adopted 

or terminated any contract, instruction or written plan to purchase or sell securities of 

the registrant, whether or not intended to satisfy the affirmative defense conditions of 

Rule 10b5-1(c), and provide a description of the material terms of the contract, 

instruction or written plan, including: 

o The date of adoption or termination;207  

o The duration of the contract, instruction or written plan; and  

o The aggregate amount of securities to be sold or purchased pursuant to the 

contract, instruction or written plan. 

 Whether, during the registrant’s last fiscal quarter, any director or “officer” (as 

defined in Rule 16a-1(f)) has adopted or terminated any contract, instruction or 

written plan for the purchase or sale of securities of the registrant, whether or not 

intended to satisfy the affirmative defense conditions of Rule 10b5-1(c), and provide 

                                                 

207  As discussed above, the Commission also proposed to state explicitly in the rule that any modification or 

amendment of an existing Rule 10b5-1 trading arrangement would be the equivalent of terminating the existing 

arrangement and adopting a new arrangement. See supra note 46.  



71 

a description of the material terms of the contract, instruction or written plan, 

including: 

o The name and title of the director or officer; 

o The date on which the director or officer adopted or terminated the contract, 

instruction or written plan;  

o The duration of the contract, instruction or written plan; and 

o The aggregate number of securities to be sold or purchased pursuant to the 

contract, instruction or written plan. 

 Under the proposed rule, the disclosures would be required in Forms 10-Q and 10-K, as 

applicable. Registrants would be required to provide this information if, during the quarterly 

period covered by the report, the registrant, or any director or officer who is required to file 

reports under Section 16 of the Exchange Act,208 adopted or terminated a Rule 10b5-1 plan. Such 

disclosures would allow investors to assess whether, and if so, how, issuers monitor trading by 

their directors and officers for compliance with insider trading laws and whether their 

compliance programs are effective at preventing the misuse of material nonpublic information.  

 The Commission stated that the proposed rule would provide material information that 

would better allow investors, the Commission, and other market participants to observe how 

directors, officers and issuers use Rule 10b5-1 plans. For example, disclosure of the termination 

(including a modification) of a trading arrangement by an officer, even in the absence of 

subsequent trading by the officer, could provide investors or the Commission with important 

information about the potential misuse of inside information such as, for example, if the 

termination occurs close in time to the release of material nonpublic information by the issuer. 

                                                 

208  15 U.S.C. 78p. 



72 

Making information about these arrangements public may also serve as a deterrent against 

potential abuses of Rule 10b5-1 plans or other trading arrangements by making those who use 

these arrangements more likely to focus on following the requirements applicable to such 

arrangements and compliance with Rule 10b-5. In addition, requiring disclosure of these events 

on a quarterly basis would present this disclosure to investors in a consolidated manner in a 

single document. The Commission also proposed to require similar disclosure with respect to the 

adoption or termination of other pre-planned trading contracts, instructions, or plans (“non-Rule 

10b5-1 trading arrangements”) through which the issuer, officer or director seeks to transact in 

the issuer’s securities. 

 b. Comments on the Proposed Amendments 

 Many commenters generally supported the proposed reporting requirements.209 For 

example, one of these commenters stated that the proposed disclosures would provide important 

information regarding insider stock trades and useful information to investors to inform their 

own investment decisions.210 Another commenter asserted that the proposed disclosures would 

provide long-term shareholders with information about insider trades that complete the partial 

picture provided by Form 144 and Section 16 reports.211 A few commenters supported the 

proposed requirements, but asked that issuers also report plans with respect not only to officers 

and directors, but also more generally any employee of the issuer.212 

                                                 

209  See, e.g., letters from AFL-CIO, Better Markets, CII, CO PERA, DLA, ICGN, NASAA, O’Reilly, and 

Simpson. 

210  See letter from AFL-CIO. 

211  See letter from CII. 

212  See, e.g., letters from BrilLiquid and NASAA. 



73 

 Several commenters, however, did not support the proposed reporting requirements.213 

Some of these commenters contended that the proposed disclosures are unnecessary because they 

would be duplicative of the disclosures that would be required under the proposed amendments 

to Forms 4 and 5.214 One of these commenters also asserted that it would be a significant burden 

on issuers to provide the proposed disclosures concerning all of the trading actions of their 

directors and officers.215  

 A number of commenters expressed concern regarding the requirement for registrants to 

provide a description of the “material terms” of the Rule 10b5-1 trading arrangement.216 Several 

commenters indicated that the proposal could be interpreted as requiring registrants to disclose 

specific details of a trading arrangement, such as pricing information.217 Many commenters 

stated that the disclosure of pricing information and other details of a Rule 10b5-1 plan could 

facilitate the front-running of transactions under the plan by other traders.218  

Due to these concerns, commenters were divided in their recommendations of what 

information about trading arrangements should be disclosed. Some commenters stated that the 

final rule should not require disclosure of the number of shares covered by a trading arrangement 

or the duration of the arrangement.219 Other commenters recommended that the Commission 

limit disclosures to the name of the person adopting the plan, the date of adoption or termination 

                                                 

213  See, e.g., letters from ACCO, IBC, MD Bar, NVCA, NAM, SCG, Sullivan and Wilson Sonsini. 

214  See, e.g., letters from Sullivan and Wilson Sonsini. 

215  See letter from Sullivan. 

216  See, e.g., letters from ABA, Davis Polk, Cleary, DLA, FedEx, Fenwick, Kirkland, NVCA, NAM, Quest, SCG, 

SIFMA 2, Sullivan and Wilson Sonsini. 

217  See, e.g., letters from ABA, Cleary, Davis Polk, DLA, Fenwick, Quest, SCG, SIFMA 2, and Wilson Sonsini. 

218  See, e.g., letters from Davis Polk, DLA, Fenwick, NVCA, SCG, SIFMA 2, and Wilson Sonsini. 

219  See, e.g., letters from Quest and Simpson. 



74 

of the plan, and the plan’s duration.220 In contrast, other commenters opposed requiring 

disclosure of the termination of a plan, contending that this information could signal to the 

market that there has been a material development concerning the issuer, such as an impending 

merger agreement.221  

 In addition, a number of commenters recommended that the Commission should not 

require disclosure regarding non-Rule-10b5-1 trading arrangements.222 Several commenters 

asserted that this term was confusing and overly broad.223 One commenter indicated that this 

term would raise a number of interpretive issues as it potentially encompasses a wide range of 

transactions, such as transactions related to open market purchases, derivative securities and 

employee benefit plans.224 Other commenters claimed that this disclosure would not provide 

valuable information to investors, the Commission, or other market participants.225 For example, 

some of these commenters stated that the details of trades executed under a non-Rule 10b5-1 

trading arrangement are already required to be disclosed in Section 16 filings.226 

 A few commenters recommended that the disclosure requirements regarding registrant 

trading arrangements should be removed from proposed Item 408(a) and included with the 

pending proposed rulemaking227 to update the disclosure requirements for purchases of equity 

                                                 

220  See, e.g., letters from Fenwick and Shearman. 

221  See letters from Sullivan and SIFMA 3.  

222  See, e.g., letters from Cleary, Cravath, Davis Polk, Shearman, Sullivan, and Simpson. 

223  See, e.g., letters from Cleary, Cravath, SIFMA 3, and Sullivan. 

224  See letter from Sullivan. 

225  See, e.g., letters from Cleary, Cravath, Shearman, and Simpson. 

226  See, e.g., letters from Cravath and Shearman. 

227  See Share Repurchase Disclosure Modernization, Release No. 34-93783 (Dec. 15, 2021) [87 FR 8443 (Feb. 15, 

2022)]. 



75 

securities by an issuer and affiliated purchasers under Item 703 of Regulation S-K.228 

 Another commenter suggested the Commission exempt smaller reporting companies 

(“SRCs”)229 from the proposed disclosure requirement.230 This commenter claimed SRCs and 

their insiders are less likely to engage in the kinds of trading in the securities of their companies 

that would cause concern, but that the reporting burden could disproportionately impact these 

issuers. 

 Finally, one commenter suggested that it would be more appropriate to include proposed 

Item 408(a) disclosure in Part II, Item 9(B) of Form 10-K, and Item 408(b) disclosure in Part III, 

Item 10 of Form 10-K.231 This commenter claimed that requiring Item 408(a) disclosure in Item 

9(B) rather than Item 10 of Form 10-K would align with the Commission’s proposal to require 

Item 408(a) disclosure in Item 5 of Form 10-Q because both Items cover similar types of 

information. Further, this commenter posited that this approach would ensure that Item 408(a) 

disclosure, which relates to the last fiscal quarter, appears in each periodic report. 

 c. Final Rule 

 We are adopting new Item 408(a) with several modifications in response to comments. 

Specifically, we are not adopting the proposed requirement regarding contracts, instructions, or 

plans of registrants; we are providing that the description of material terms need not address 

pricing terms; and we are adding a definition of “non-Rule 10b5-1 trading arrangement.” As 

                                                 

228  See, e.g., letters from Cravath and Simpson. 

229  “Smaller reporting company” is defined in Securities Act Rule 405 and Exchange Act Rule 12b-2 as an issuer 

that is not an investment company, an asset-backed issuer (as defined in 17 CFR 229.1101), or a majority-

owned subsidiary of a parent that is not a smaller reporting company and that had: (1) a public float of less than 

$250 million; or (2) annual revenues of less than $100 million and either: (a) no public float; or (b) a public 

float of less than $700 million. 

230  See letter from MD Bar. 

231  See letter from ABA. 



76 

proposed, these disclosures will be required in Forms 10-Q and 10-K.232 

 The final rule will require registrants to (1) disclose whether, during the registrant’s last 

fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report), any director 

or “officer” (as defined in Rule 16a-1(f)) has adopted or terminated (i) any contract, instruction 

or written plan for the purchase or sale of securities of the registrant that is intended to satisfy the 

affirmative defense conditions of Rule 10b5-1(c) (a “Rule 10b5-1(c) trading arrangement”), 

and/or (ii) any written trading arrangement for the purchase or sale of securities of the registrant 

that meets the requirements of a non-Rule 10b5-1 trading arrangement as defined in Item 408(c) 

(a “non-Rule 10b5-1 trading arrangement”); and (2) provide a description of the material terms 

of the Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement  other than 

terms with respect to the price at which the individual executing the respective trading 

arrangement is authorized to trade, such as: 

 The name and title of the director or officer; 

 The date of adoption or termination of the trading arrangement;  

 The duration of the trading arrangement; and 

 The aggregate number of securities to be sold or purchased under the trading 

arrangement. 

With respect to any given trading arrangement subject to disclosure under Item 408(a), the 

registrant must indicate whether such trading arrangement is a Rule 10b5-1 trading arrangement 

or is a non-Rule 10b5-1 trading arrangement. 

 In addition, any modification or change to a Rule 10b5-1 plan by a director or officer that 

                                                 

232  In a slight modification, we are adopting the approach suggested by a commenter to include new Item 408(a) in 

Part II, Item 9(B) of Form 10-K. See letter from ABA. 



77 

falls within the meaning of new Rule 10b5-1(c)(1)(iv) would also be required to be disclosed 

under Item 408(a) as it constitutes the termination of an existing plan and the adoption of a new 

contract, instruction, or written plan.  

 Having considered comments received, we view this information as necessary to better 

allow investors, the Commission, and other market participants to observe how directors and 

officers use Rule 10b5-1 plans and other non-Rule 10b5-1 trading arrangements. The 

information also will add important context to other disclosures of trades by directors and 

officers, such as in Forms 4 and 5, and may aid investors in obtaining a more accurate valuation 

of the issuer’s shares and making more informed investment decisions.233 Furthermore, this 

information will provide investors with valuable information about the specific uses of such 

arrangements, which could bring focus to the particular arrangements and deter potential abuses. 

While it is true, as commenters observed, that Forms 4 and 5 may already include some of this 

information, we expect it will be more useful and time-saving for investors to have information 

regarding all of the trading arrangements for directors and officers of a given issuer in a single 

location. We are also requiring disclosure of details about the content of such arrangements that 

is not mandated on Form 4 or Form 5, which, pursuant to the amendments that we are adopting 

as described below, will require only the date of adoption of the Rule 10b5-1 plan.  

 In response to the concerns expressed by some commenters that the proposal could 

require the disclosure of pricing information,234 however, we have revised the final rules to 

clarify that new Item 408(a) does not require disclosure of the price at which the individual 

                                                 

233  See infra Section V.C.2. The mandatory Rule 10b5-1 plan checkbox disclosures on Forms 4 and 5, in 

combination with this disclosure will provide greater transparency to investors regarding the use of Rule 10b5-1 

plans for trading. All of this information will provide investors with valuable context for interpreting other 

corporate disclosure, which should help them value the companies’ shares and make informed voting and 

investment decisions. 

234  See, e.g., letters from ABA, Cleary, Davis Polk, DLA, Fenwick, Quest, SIFMA 2, SCG, and Wilson Sonsini. 



78 

executing the trading arrangement is authorized to trade. We agree with these commenters that 

disclosing this information could allow other persons to trade strategically in anticipation of an 

officer’s or a director’s planned trades, increasing the costs or reducing the profitability of that 

officer’s or director’s trading. Although we recognize that some commenters urged us to not 

require disclosure of the trading arrangement’s duration or the aggregate number of securities 

that could be purchased and sold under it, we view this information as necessary context for a 

trading arrangement that does not raise similar concerns because, in most cases, general 

information about the volume and duration of an officer’s or director’s Rule 10b5-1 plan or non-

Rule 10b5-1 trading arrangement will not be sufficient to permit strategic trades by other market 

participants. We also disagree with commenters that we should not require disclosure related to 

terminations because, first, Rule 10b5-1 plans or non-Rule 10b5-1 trading arrangements may be 

terminated for many reasons, making it unlikely that a termination would be interpreted as an 

indication of a pending material event (such as a merger announcement), and second, because the 

interval between a termination and the filing of the Form 10-Q or Form 10-K disclosing the 

termination should mitigate any such potential strategic trading. 

 In addition, the final rule will also require disclosure regarding the adoption or 

termination of non-Rule 10b5-1 trading arrangements. In response to the concerns expressed by 

some commenters that the term “non-Rule 10b5-1 trading arrangements” was confusing and 

overly broad,235 we are adopting a definition of this term to clarify the types of pre-planned 

trading arrangements that should be disclosed under Item 408(a). To ensure that market 

participants are familiar with how to apply this concept, the definition we adopt accords with the 

requirements of the Rule 10b5-1 affirmative defense that the Commission adopted in 2000. 

                                                 

235  See, e.g., letter from Sullivan. 



79 

Under the final rule, a trading arrangement with respect to a director or “officer” (as defined in 

Rule 16a-1(f)) would be a “non-Rule 10b5-1 trading arrangement” where the director or officer 

asserts that, at a time when they were not aware of material nonpublic information about the 

security or the issuer of the security, they  

 adopted a written arrangement for trading the securities; and 

 The  trading arrangement: 

o Specified the amount of securities to be purchased or sold and the price at which 

and the date on which the securities were to be subsequently purchased or sold; 

o Included a written formula or algorithm, or computer program, for determining 

the amount of securities to be purchased or sold and the price at which the 

securities were to be purchased or sold; or 

o Did not permit the covered person to exercise any subsequent influence over how, 

when, or whether to effect purchases or sales; provided, in addition, that any other 

person who, pursuant to the trading arrangement did exercise such influence must 

not have been aware of material nonpublic information when doing so. 

  In adopting this requirement, we recognize that Rule 10b5-1 provides affirmative 

defenses, but that corporate insiders may assert other defenses to liability under Section 10(b). 

Absent this disclosure requirement, directors and officers may be more likely to choose to trade 

in reliance on alternative defenses to liability other than this affirmative defense in order to avoid 

the disclosure requirements for Rule 10b5-1 plans, as well as avoiding the other requirements of 

the affirmative defense. Further, we believe these disclosures would be useful to investors for 

largely the same reasons that disclosure of plans that fully satisfy Rule 10b5-1 is useful: they 

provide important context about how insiders use their trading plans, such as in the case where 



80 

an insider cancels a plan close in time to the release of material nonpublic information. We 

therefore disagree with commenters who assert this information would not be useful to investors.  

 At this time, we are not adopting the proposal to require corresponding disclosure 

regarding the use of trading arrangements by the issuer. In light of the various comments we 

received on this proposal,236 we believe that further consideration of potential application of the 

disclosure requirement for purchases of equity securities by an issuer is warranted. We are also 

declining to extend disclosure obligations to plans adopted by insiders other than officers and 

directors, as suggested by some commenters, because we have concluded that collecting such 

information could be significantly burdensome for issuers, and because we think that granular 

disclosure about the adoption, termination, modification, and material terms of such plans is 

likely to be less important to investors than plans adopted by directors and officers. 

 Finally, we are not exempting SRCs from the disclosure requirements, as recommended 

by a commenter.237 While we are aware of the potential for a disproportionate impact on SRCs, 

we disagree that corporate insiders at SRCs are less likely to engage in the types of trading with 

which we are concerned. In our view, stock ownership by corporate insiders is common at SRCs, 

and exempting SRCs from this disclosure requirement would deprive investors in those issuers 

of material information about the use, and potential abuse, of Rule 10b5-1 plans and non-Rule 

10b5-1 trading arrangements by an SRC’s officers or directors. 

2. Disclosure of Insider Trading Policies and Procedures  

 a. Proposed Amendments 

 The Commission proposed new Item 408(b) of Regulation S-K, which would require 

                                                 

236  See, e.g., letters from Cravath and Simpson. 

237  See supra note 230.81 

registrants to: 

 Disclose whether the registrant has adopted insider trading policies and procedures 

governing the purchase, sale, and other dispositions of the registrant’s securities by 

directors, officers, and employees or the registrant itself that are reasonably designed 

to promote compliance with insider trading laws, rules, and regulations, and any 

listing standards applicable to the registrant. If the registrant has not adopted such 

insider trading policies and procedures, explain why it has not done so; and  

 If the registrant has adopted insider trading policies and procedures, disclose such 

policies and procedures.  

These disclosures would be required in a registrant’s annual reports on Form 10-K and proxy and 

information statements on Schedules 14A and 14C.238 Foreign private issuers (“FPIs”) would 

also be required to provide analogous disclosure in their annual reports pursuant to a new Item 

16J in Form 20-F.  

 In the Proposing Release, the Commission stated that well-designed policies and 

procedures that address the potential misuse of material nonpublic information can play an 

important role in deterring and preventing trading on the basis of material nonpublic information. 

Specific disclosures concerning registrants’ insider trading policies and procedures would benefit 

investors by enabling them to assess registrants’ corporate governance practices and to evaluate 

the extent to which those policies and procedures protect investors from the misuse of material 

nonpublic information.  

                                                 

238  Item 1 of Schedule 14C requires that a registrant furnish the information called for by all of the items of 

Schedule 14A (other than Items 1(c), 2, 4 and 5) which would be applicable to any matter to be acted upon at 

the meeting if proxies were to be solicited in connection with the meeting. 



82 

 Item 406 of Regulation S-K requires a registrant to disclose whether it has adopted a code 

of ethics that applies to its principal executive officer, chief financial officer, and other 

appropriate executives and, if it has not adopted such a code, to state why it has not done so.239 

Many registrants also are required to maintain codes of ethics or conduct under exchange listing 

standards.240 These codes may contain specific policies and restrictions that address insider 

trading.241 Apart from these codes of ethics or conduct, some registrants have other policies and 

procedures specifically addressing insider trading. The Commission structured the proposed 

amendments to provide investors with comprehensive information regarding a registrant’s 

insider trading policies and procedures to enable investors to better assess the manner in which 

the registrant promotes compliance with insider trading laws and protects material nonpublic 

information from misuse.  

 The Commission recognized that insider trading policies and procedures may vary from 

issuer to issuer and that decisions as to specific provisions of the policies and procedures are best 

left to the issuer. Therefore, the proposed amendments did not specify the information that a 

registrant would be required to provide regarding its insider trading policies and procedures.  

 b. Comments on the Proposed Amendments 

                                                 

239  17 CFR 229.406; see also Section 406 of the Sarbanes-Oxley Act of 2002 (“SOX”) [15 U.S.C. 7264]. 

240  See, e.g., NYSE Listed Company Manual Section 303A.10 (stating in relevant part that every NYSE “listed 

company should proactively promote compliance with laws, rules and regulations, including insider trading 

laws” and that “[i]nsider trading is both unethical and illegal, and should be dealt with decisively”); see also 

NASDAQ Listing Rule 5610 (requiring every Nasdaq listed company to adopt a code of conduct that complies 

with the definition of a “code of ethics” set out in SOX Section 406 (c) and that applies to all directors, officers, 

and employees). 

241  Insider trading policies and procedures may be part of the standards that are reasonably necessary to promote:  

honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between 

personal and professional relationships; full, fair, accurate, timely, and understandable disclosure in the periodic 

reports required to be filed by the issuer; and compliance with applicable governmental rules and regulations.  

See 15 U.S.C. 7264(c); see also supra Section I. 



83 

 Commenters were divided over disclosure of a registrant’s insider trading policies and 

procedures. Several commenters generally supported the proposed disclosure.242 One of these 

commenters asserted that this disclosure would improve transparency for investors and 

potentially create incentives for corporate boards and management teams to scrutinize the 

issuer’s “corporate hygiene” regarding material nonpublic information and insider trading.243 

Other commenters, however, asserted that the proposed disclosures would not meaningfully 

benefit investors, or that they would not be material.244 Another commenter expressed concern 

that requiring this disclosure in both annual reports and proxy statements would create 

administrative burdens on issuers by requiring them to craft additional disclosure for two 

separate compliance documents.245 

 Several commenters recommended modifications to the proposal. For example, several 

commenters recommended that the Commission should provide flexibility and allow issuers to 

post their insider trading policies and procedures on their website and direct readers to the 

posting in their annual report on Form 10-K rather than disclosing such policies in the Form 10-

K, similar to the existing disclosure requirements for an issuer’s code of ethics under Item 

406(c)(2) of Regulation S-K.246 Another commenter similarly recommended that the final rules 

should allow issuers to post their insider trading policies and procedures on their website or file 

their insider trading policy as an exhibit to the annual report to satisfy this disclosure 

                                                 

242  See, e.g., letters from Better Markets, BrilLiquid, CO PERA, CII, ICGN, NASAA, O’Reilly, and Sullivan. 

243  See letter from NASAA. 

244  See, e.g., letters from Davis Polk, Home Depot, NAM, and Simpson. 

245  See letter from Dow. 

246  See, e.g., letters from Cravath, Fenwick, Home Depot, and Shearman. 



84 

requirement.247 A few commenters suggested that the final rule should use the word “describe” 

rather than “disclose” to elicit disclosure that is consistent in tone and detail with the other 

Regulation S-K disclosure requirements of the proxy statement or the annual report.248 

 Finally, several commenters recommended that the Commission exempt FPIs from these 

disclosure requirements.249 These commenters contended that FPIs are already subject to home 

country corporate governance disclosure requirements, and that the disclosure requirement could 

function as an implicit requirement that FPIs adopt insider trading policies. 

 c. Final Rule 

We are adopting new Item 408(b) and new Item 16J with certain modifications in 

response to comments. Under the final rule,250 registrants will be required to disclose whether 

they have adopted insider trading policies and procedures governing the purchase, sale, and other 

dispositions of their securities by directors, officers, and employees, or the registrant itself that 

are reasonably designed to promote compliance with insider trading laws, rules, and regulations, 

and any listing standards applicable to the registrant. If a registrant has not adopted such insider 

trading policies and procedures, it must explain why it has not done so. These disclosures will be 

required in annual reports on Form 10-K and proxy and information statements on Schedules 

14A and 14C. Pursuant to new Item 16J in Form 20-F, FPIs will be required to provide 

                                                 

247  See letter from Dow. 

248  See, e.g., letters from Davis Polk, and SIFMA 2. 

249  See, e.g., letters from Cravath, Jones Day, SIFMA 2, and Sullivan. 

250  While the Proposing Release stated that proposed Item 408(b)(1) would include insider trading policies and 

procedures governing the purchase, sale, and/or other dispositions of the registrant’s securities by directors, 

officers and employees or the registrant itself, the language “or the registrant itself” was inadvertently omitted 

from the proposed regulatory text. See Proposing Release, supra note 22, at 8695, 8712, and 8728. We have 

corrected this omission in the final rules, which now include the language “or the registrant itself.” See Item 

408(b)(1). 



85 

analogous disclosure in their annual reports on that form. We disagree that requiring this 

disclosure in both annual reports and proxy or information statements would impose an 

unreasonable burden on registrants by requiring them to prepare additional disclosures for two 

documents as suggested by a commenter.251 In this regard, we note that under General 

Instruction G to Form 10-K, a registrant can incorporate by reference the information required by 

Item 408(b) from a definitive proxy or information statement involving the election of directors, 

if the proxy or information statement is filed within 120 days of the end of the fiscal year.252 

 In a modification of the proposal and in response to comments,253 the final rules do not 

require disclosure of the registrant’s policies and procedures within the body of the annual report 

or proxy/information statement. Instead, we are adopting amendments to Item 601 of Regulation 

S-K and Form 20-F to require issuers to file a copy of their insider trading policies and 

procedures as an exhibit to Forms 10-K and 20-F, respectively. We considered permitting 

registrants to post their policies and procedures on their website in lieu of providing disclosure in 

the filing, as suggested by some commenters,254 similar to Item 406(c)(2), which allows a 

registrant to post its codes of ethics on its website and disclose the internet address in its annual 

report to satisfy the code of ethics disclosure requirement. Requiring registrants to file their 

insider trading policies and procedures as an exhibit would make the document available online 

through our Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) system. Documents 

that are filed as exhibits to registration statements and periodic reports must be hyperlinked from 

                                                 

251  See supra note 245. 

252  See Note 2 to General Instruction G(2) to Form 10-K.  

253  See, e.g., letters from Davis Polk, Dow, and SIFMA 2 (all recommending that the final rule not require full 

disclosure of the policies and procedures within the body of the filing). 

254  See supra note 246. 



86 

the exhibit index of the document,255 which facilitates investor access to the exhibit.   

EDGAR allows active hyperlinks to documents that are filed on EDGAR but does not 

allow hyperlinks to non-EDGAR documents.256 We therefore believe that the approach of 

hyperlinking to an exhibit filed on EDGAR would facilitate better access for investors as 

compared to permitting registrants to post their insider trading policies and procedures on their 

website and provide a web address (without a hyperlink) in their annual report. If all of the 

registrant’s insider trading policies and procedures are included in its code of ethics (as defined 

in Item 406(b)) and the code of ethics is filed as an exhibit pursuant to Item 406(c)(1), a 

hyperlink to that exhibit accompanying the registrant’s disclosure as to whether it has insider 

trading policies and procedures would satisfy this component of the disclosure requirement. 

We disagree with commenters who suggested that the disclosure regarding these policies 

and procedures would not be material and useful information to investors. The thoroughness and 

precision of such policies and procedures may help investors to understand whether they will be 

successfully implemented, even if any single detail taken on its own may not otherwise be 

material. An investor might reasonably conclude that an issuer adopting a policy generally 

prohibiting insider trading, but without disclosing how it prevents the unlawful communication 

of and trading on material nonpublic information, provides fewer such assurances to investors 

than an issuer that has developed and disclosed more particular and thorough policies and 

procedures. As noted in the Proposing Release, investors may find useful, to the extent it is 

included in the issuer’s relevant policies and procedures, information on the issuer’s process for 

analyzing whether directors, officers, employees, or the issuer itself when conducting an open-

                                                 

255  See 17 CFR 229.601(a)(2) and 17 CFR 232.102(d). 

256  See 17 CFR 232.105(b). 



87 

market share repurchase have material nonpublic information; the issuer’s process for 

documenting such analyses and approving requests to purchase or sell its securities whether 

through Rule 10b5-1 plans or otherwise; and/or how the issuer enforces compliance with any 

such policies and procedures it may have. Investors may also use this information to assess the 

strengths and weaknesses of particular elements of these policies and procedures, which would 

help show how well the issuer protects its material nonpublic information from being misused in 

unlawful communications and securities trading, and how its protections compare with its 

competitors. Furthermore, the disclosure under Item 408 and Item 16J would address not only 

policies and procedures that apply to the purchase and sale of the registrant’s securities, but also 

other dispositions of the registrant’s securities where material nonpublic information could be 

misused, such as through gifts of such securities.257 

 In extending this disclosure requirement to FPIs, we are cognizant of the concerns raised 

by commenters, such as the concern that some issuers may already be subject to home-country 

governance disclosure and that additional disclosure may pressure an FPI to adopt additional 

measures not required by its home jurisdiction. To the extent that an FPI already discloses 

similar information under its home country rules, the additional burden imposed by the final rule 

may be minimal. As we have discussed, information about the efforts an issuer undertakes to 

prevent misuse of its material nonpublic information is likely to be important to investors, 

regardless of whether it is a domestic issuer or an FPI. Indeed, we are aware that one reason FPIs 

                                                 

257  The Exchange Act does not require that a “sale” of securities be for value, and instead provides that the “terms 

‘sale’ or ‘sell’ each include any contract to sell or otherwise dispose of.”  Compare Exchange Act Section 

3(a)(14) [15 U.S.C. 78c(a)(14)], with Securities Act Section 2(a)(3) [15 U.S.C. 77b(a)(3)] (“[T]he terms ‘sale’ 

or ‘sell’ shall include every contract of sale or disposition of a security or interest in a security, for value.”). For 

example, a donor of securities violates Section 10(b) if the donor gifts a security of an issuer in fraudulent 

breach of a duty of trust and confidence when the donor was aware of material nonpublic information about the 

security or issuer, and knew or was reckless in not knowing that the donee would sell the securities prior to the 

disclosure of such information. The affirmative defense under Rule 10b5-1(c)(1) is available for planned 

securities gifts. 



88 

register in the United States is to provide greater transparency and assurances of the reliability of 

their disclosures to investors.  

 Finally, the disclosures that are required in Forms 10-K and 20-F discussed in this section 

as well as those discussed in Section II.B.1 will be subject to the certifications required by 

Section 302 of the Sarbanes-Oxley Act of 2002.258 Section 302 requires an issuer’s principal 

executive officer and principal financial officer to certify, among other things, that based on their 

knowledge, the Form 10-K or Form 20-F that they have signed does not contain untrue 

statements of material facts or omit to state material facts necessary to make the statements 

made, in light of the circumstances under which such statements were made, not misleading with 

respect to the periods covered by the reports.259 In making these certifications, principal 

executive and principal financial officers attest to the accuracy of the statements in their Form 

10-K or Form 20-F.260 Thus, principal executive and principal financial officers may be liable 

under Rule 13a-14 if they certify as to a fact “about which [they are] ignorant or which [they] 

know[] is false.”261   

3. Identification of Rule 10b5-1 and non-Rule 10b5-1 Transactions on Forms 4 and 5 

 

 a. Proposed Amendments 

 Section 16(a) of the Exchange Act provides that every person who beneficially owns, 

                                                 

258  Pub. L. 107-204, 116 Stat. 745 (2002). 

259  In effectuating this statutory responsibility, the principal executive and financial officers of an issuer may be 

aided by a written representation (such as a sub-certification) from the issuer’s principal legal or compliance 

officer (or person performing similar functions) that, based on a reasonable review, they have determined the 

issuer’s insider trading practices and procedures comport with what the issuer is disclosing about them in its 

periodic reports. However, it would not be reasonable for a principal executive or financial officer to rely on 

such a representation if they are aware of information that is inconsistent with, or raises doubts about the 

reliability of, the representation. 

260  See, e.g., SEC v. Jensen, 835 F.3d 1100, 1112-13 (9th Cir. 2016); see also GAF Corp. v. Milstein, 453 F.2d 709, 

720 (2d Cir. 1971) (“the obligation to file truthful statements implicit in the obligation to file”) ((emphasis in 

original)). 

261  Id. at 1113. 



89 

directly or indirectly, more than 10 percent of any class of equity security (other than an 

exempted security) registered pursuant to Exchange Act Section 12, or who is an officer or 

director of the issuer of such security, shall file with the Commission an initial report disclosing 

the amount of all equity securities of such issuer of which the insider is the beneficial owner, and 

a subsequent transaction report to disclose any changes in beneficial ownership. Section 16 was 

designed to provide the public with information on securities transactions and holdings of 

corporate officers, directors, and principal shareholders, and to deter those individuals from 

seeking to profit from short-term trading in the securities of their corporations while in 

possession of material nonpublic information.262  

 Persons subject to Section 16 reporting must disclose changes in their beneficial 

ownership on Form 4263 or 5,264 which are publicly available on EDGAR. In December 2020, the 

Commission proposed, among other things, amendments to Form 4 and Form 5265 to add a 

checkbox to these forms that would permit filers, at their option, to indicate whether a 

transaction reported on the form was made pursuant to a contract, instruction, or written trading 

plan for the purchase or sale of equity securities of the issuer that satisfies the conditions of Rule 

10b5-1(c).266 In response to this proposal, the Commission received feedback from several 

                                                 

262  See Ownership Reports and Trading By Officers, Directors and Principal Security Holders, Release No. 34-

28869 (Feb. 8, 1991) [56 FR 7242 (Feb. 21, 1991)]. 

263  A person subject to Section 16 must report specified changes in beneficial ownership on Form 4 before the end 

of the second business day following the date of execution of the transaction. See 17 CFR 240.16a-3(g). 

264  Form 5 is a year-end report to be used by a person subject to Section 16 to disclose certain transactions that 

were exempt from Section 16(b), and transactions and holdings that were required to be reported during the 

fiscal year, but were not. See 17 CFR 240.16a-3(f). 

265  Form 5 is a year-end report to be used by any person who was an officer, director or a 10% beneficial owner 

during any portion of the issuer’s fiscal year to disclose transactions and holdings that are exempt from Section 

16(b) or that were required to be reported during the fiscal year, but were not. 

266  See Rule 144 Holding Period and Form 144 Filings, Release No. 33-10911 (Dec. 22, 2020) [86 FR 5063 (Jan. 

19, 2021)] (“December 2020 Proposing Release”).  



90 

commenters who asserted, based on analyses of sales of securities executed under Rule 10b5-1 

plans, that many of the surveyed transactions may have been made on the basis of material 

nonpublic information.267 These commenters recommended that the proposed Rule 10b5-1 

checkbox disclosure be mandatory on Forms 4 and 5 because such disclosure would help 

investors and the public better discern whether Rule 10b5-1 plans are being used to engage in 

opportunistic trading on the basis of material nonpublic information.268  

 In consideration of this feedback, the Commission proposed to add a Rule 10b5-1(c) 

checkbox as a mandatory disclosure requirement on Forms 4 and 5. A Form 4 or 5 filer would be 

required to indicate via the checkbox whether a transaction reported on that form was made 

pursuant to Rule 10b5-1(c). Filers would also be required to provide the date of adoption of the 

Rule 10b5-1 plan, and would have the option to provide additional relevant information about 

the reported transaction. Requiring this disclosure on Forms 4 and 5 would provide greater 

transparency around the use of Rule 10b5-1 plans and would be consistent with the primary 

purpose of Section 16.269 It also would provide information that could be used by registrants to 

comply with their Item 408 disclosure obligations. 

 In addition, the Commission proposed to add a second, optional checkbox to both of 

Forms 4 and 5. This optional checkbox would allow a filer to indicate whether a transaction 

reported on the form was made pursuant to a pre-planned contract, instruction, or written plan for 

the purchase or sale of equity securities of the issuer that does not satisfy the conditions of Rule 

10b5-1(c).  

                                                 

267  See letters from Council of Institutional Investors (dated Mar. 18, 2021), Alan Jagolinzer (dated Mar. 10, 2021), 

and David Larcker et al. (dated Mar. 10, 2021), available at https://www.sec.gov/comments/s7-24-

20/s72420.htm. 

268  Id.  

269  See S. Rep. No. 1455, 73d Cong., 2d Sess. 55 (1934). 

https://www.sec.gov/comments/s7-24-20/s72420.htm
https://www.sec.gov/comments/s7-24-20/s72420.htm


91 

 b. Comments on the Proposed Amendments 

 Most of the commenters who discussed this matter generally supported the proposal to 

add a mandatory checkbox on Forms 4 and 5 for the disclosure of trades under a Rule 10b5-1 

trading arrangement.270 For example, some of these commenters indicated that these checkboxes 

would provide useful information to investors and other market participants and may help 

prevent misuse of Rule 10b5-1 plans.271 Another commenter, however, expressed the view that 

these checkboxes likely would not provide useful information if the Commission adopted the 

proposed cooling-off period.272  

 In addition, one of the commenters that generally supported the proposal did so subject to 

a recommended change. This commenter urged the Commission to amend the Rule 10b5-1 

checkbox to state “whether a transaction was intended to satisfy” the Rule 10b5-1 affirmative 

defense rather than whether a transaction “was made” pursuant to the affirmative defense.273 This 

commenter was concerned that, for a number of reasons, it could be difficult for a reporting 

person to definitively affirm whether a transaction was in fact made pursuant to the Rule 10b5-1 

affirmative defense. This commenter also stated that using “intended to satisfy” would be 

consistent with the Commission’s approach in other proposed rules, such as proposed Item 

703(c)(2)(iii) of Regulation S-K.274 

                                                 

270  See, e.g., letters from ACCO, CII, Cravath, and Quinn.  

271  See letters from CII and Quinn. 

272  See letter from Cravath. 

273  See letter from Sullivan. 

274  In a separate release, the Commission proposed amendments to Item 703(c)(2)(iii) of Regulation S-K to require 

disclosure of a plan that “is intended to satisfy” the conditions of Rule 10b5-1(c). See Share Repurchase 

Disclosure Modernization, Release No 34-93783 (Dec. 15, 2021) [87 FR 8443 (Feb. 1, 2022)] (proposing 

amendments to modernize and improve disclosures about repurchases of an issuer’s equity securities that are 

registered under the Exchange Act). 



92 

 A few commenters opposed the optional non-Rule 10b5-1 checkbox on Forms 4 and 5.275 

These commenters indicated that this checkbox would not provide any valuable information to 

investors, the Commission or other market participants because the details of such transactions 

are already provided in Forms 4 and 5. 

 c. Final Amendment 

 After considering these comments, we are adopting the mandatory Rule 10b5-1 

checkboxes to Forms 4 and 5 as proposed with one modification. In response to the concerns 

expressed by a commenter that the proposed checkbox language would have required a filer to 

definitively state that the reported transaction was in fact made pursuant to the Rule 10b5-1 

affirmative defense,276 we have revised the text accompanying the checkboxes to state that a 

reported transaction is pursuant to a plan that is “intended to satisfy the affirmative defense 

conditions” of Rule 10b5-1(c).  

 This checkbox will help investors and the public better understand how trading plans that 

rely on the revised Rule 10b5-1(c) affirmative defense are being used by corporate insiders, 

including whether they are being used to engage in opportunistic trading. We disagree with the 

commenter who indicated that the checkbox would not provide useful information to investors in 

light of the cooling-off period that we are adopting for officers and directors. The checkbox 

provides transparency into the use of Rule 10b5-1 plans to help deter potential misuse of those 

plans, which would complement the cooling-off period. For example, the checkbox might be 

useful to investors in combination with disclosures regarding the adoption and termination of 

Rule 10b5-1 plans as it may help them to identify instances in which an officer or director may 

                                                 

275  See, e.g., letters from Cravath and Cleary. 

276  See letter from Sullivan. 



93 

have opportunistically cancelled a trade or terminated a plan. Moreover, the potential effects of 

such a disclosure could discourage such opportunistic cancellations. 

 Finally, we are not adopting the optional checkbox that would allow a filer to indicate 

whether a transaction reported on the form was made pursuant to a non-Rule 10b5-1 trading 

arrangement. We are persuaded by commenters who stated that this checkbox would not provide 

investors and other market participants with useful information because the details of the 

transaction will already be disclosed in the form. 

C. Disclosure Regarding Option Grants and Similar Equity Instruments Made 

Close in Time to the Release of Material Nonpublic Information 

 

 1. Proposed Amendments 

 Since the enactment of the Securities Act and the Exchange Act, the Commission has 

sought to enhance its rules regarding the disclosure of executive and director compensation and 

to improve the presentation of this information to investors.277 One area of focus for the 

Commission has been disclosure related to equity-based compensation. Many companies use 

stock options as a form of compensation for their employees and executives.278 In a simple stock 

option award, a company may grant an employee the right to purchase a specified number of 

shares of the company’s stock at a specified price, called the exercise price, which is typically set 

as the fair market value of the company’s stock on the grant date. Stock options with exercise 

prices at or above the fair market value of the underlying stock are designed to motivate the 

recipient to work to increase company value, because the option holder would only benefit if the 

                                                 

277  See, e.g., Executive Compensation and Related Person Disclosure, Release No. 33-8732A (Aug. 29, 2006) [71 

FR 53158 (Sept. 8, 2006)] (hereinafter “2006 Executive Compensation Release”) at 53160 at n. 45; Proxy 

Disclosure Enhancements, Release No. 33-9089 (Dec. 16, 2009) [74 FR 68334 (Dec. 24, 2009)]. 

278  The term “option” includes stock options, SARs and similar instruments with option-like features. See 17 CFR 

229.402(a)(6). 



94 

company’s stock price exceeds the exercise price at the time of exercise.279 Alternatively, if a 

company is aware of material nonpublic information that is likely to decrease its stock price, it 

may decide to delay a planned option award until after the release of such information (a practice 

commonly referred to as “bullet-dodging”).280  

 In 2006, the Commission revised its executive compensation disclosure rules to, among 

other things, provide investors with a more complete picture of compensation paid to principal 

executive officers, principal financial officers, and the other highest paid executive officers and 

directors.281 In the 2006 Executive Compensation Release, the Commission stated that under the 

principles-based compensation disclosure requirements of Item 402 of Regulation S-K, 

registrants may be required to disclose in their Compensation Discussion and Analysis 

(“CD&A”) information about the timing of option grants in close proximity to the release of 

material nonpublic information by the company.282 Such disclosure should include, for example, 

whether a company is aware of material nonpublic information that is likely to result in an 

increase of its stock price, such as a product development announcement or positive earnings, 

and grants stock options immediately before the release of this information. Timing option grants 

to occur immediately before the release of positive material nonpublic information (a practice 

commonly referred to as “spring-loading”) can benefit executives with an option award that will 

                                                 

279  When the exercise price for an option is less than the fair market value of the underlying security, the option is 

“in the money.” If the exercise price and fair market value are the same, the option is “at the money.” If the 

exercise price is greater than the fair market value, the option is “out of the money.”  

280  See Allan Horwich, The Legality of Opportunistically Timing Public Company Disclosures in the Context of 

SEC Rule 10b5-1, 71 Bus. Law. 1113, 1143 (2016) (noting that “bullet-dodging” occurs when a board delays 

the grant of an option until adverse material nonpublic information known to the board is disclosed, which 

reduces the market price and the option exercise price that is set at the time of the grant). 

281  2006 Executive Compensation Release, supra note 277. 

282  See 17 CFR 229.402(b)(2)(iv) and 2006 Executive Compensation Release, supra note 277, at 53163-4. 



95 

likely be in-the-money as soon as the material nonpublic information is made public.283  

 In the 2006 Executive Compensation Release, the Commission noted that the existence of 

a program, plan, or practice to select option grant dates for executive officers in coordination 

with the release of material nonpublic information would be material to investors and should be 

fully disclosed.284  

 In the Proposing Release, the Commission expressed concern that our existing disclosure 

requirements do not provide investors with adequate information regarding an issuer’s policies 

and practices on stock option awards timed to precede or follow the release of material nonpublic 

information. The Commission noted that, under the current executive compensation disclosure 

rules, compensation-related equity interests (including options, restricted stock, and similar 

grants) are required to be presented in a tabular format and accompanied by appropriate narrative 

disclosure necessary for an understanding of the information presented in a table. Option grants 

that are spring-loaded or bullet-dodging are not required to be separately identified in these 

tables. Investors therefore may not have a clear picture of the effect of an option award that is 

made close in time to the release of material nonpublic information on the executives’ or 

directors’ compensation and on the company’s financial statements.  Understanding that issuers 

may have reasons for granting these types of options, but that increased transparency may be 

warranted, the Commission proposed amendments that would require registrants to disclose in a 

new table any option awards to a “named executive officer”285 (“NEO”) or director that is made 

                                                 

283 See Lucian A. Bebchuk & Jesse M. Fried, Paying for Long-Term Performance, 158 U. PA. L. REV. 1915, 1937-

39 & n. 63 (2010) (noting that the practice of spring-loading may also disguise an in-the-money option award as 

having been granted at-the-money).  

284  2006 Executive Compensation Release, supra note 277, at 53163. 

285  Named executive officers include all individuals serving as the registrant’s Principal Executive Officer (“PEO”) 

or Principal Financial Officer (“PFO”) during the last completed fiscal year, the registrant’s three most highly 



96 

close in time to the release of material nonpublic information such as an earnings announcement.  

Specifically, to identify if any such timed options are granted, the Commission proposed 

adding a new paragraph to Item 402 of Regulation S-K that would require: (1) tabular disclosure 

of each award of stock options, SARs, or similar option-like instruments (i.e. the grant date, 

number of securities underlying the award, the exercise price of the award, and the grant date fair 

value of the award) granted within 14 calendar days before or after the filing of a periodic report, 

an issuer share repurchase, or the filing or furnishing of a current report on Form 8-K that 

discloses material nonpublic information (including earnings information); (2) the market value 

of the underlying securities the trading day before disclosure of the material nonpublic 

information; and (3) the market value of the underlying securities one trading day after 

disclosure of material nonpublic information.  

 The proposed 14-day window was designed to cover the period that an issuer would be 

aware of material nonpublic information at the time that its board of directors grants these 

awards. The Commission noted that many issuers also voluntarily communicate material 

nonpublic information regarding their results of operations or financial condition for a completed 

fiscal quarter or annual period through an earnings release.286 After completion of a fiscal 

quarter, a company’s board of directors will usually meet a week or two before the earnings 

release.287 During this period, the board would likely be aware of material nonpublic information 

that could affect the price of the company’s stock.  

                                                 
compensated officers other than the PEO and PFO who were serving as executive officers at the end of the last 

completed fiscal year, and up to two additional individuals for whom disclosure would have been provided but 

for the fact that the individual was not serving as an executive officer at fiscal year-end. See Item 402(a)(3) of 

Regulation S-K. 

286  The staff estimates that approximately 63% of the Form 10-Qs filed with the Commission in calendar year 2017 

were accompanied by a prior or concurrent earnings release by the issuer. 

287  While some companies provide earnings releases in advance of the corresponding Form 10-Q filings, many 

companies also issue earnings releases concurrently with their Form 10-Q filings. 



97 

 To further address these concerns, the Commission also proposed to require narrative 

disclosure about an issuer’s policies and practices regarding the timing of grants of these awards 

in relation to the disclosure of material nonpublic information by the issuer, including how the 

board determines when to grant such awards and whether, and if so, how, the board or 

compensation committee takes material nonpublic information into account when determining 

the timing and terms of an award; and whether the issuer has timed the disclosure of material 

nonpublic information for the purpose of affecting the value of executive compensation. For 

issuers that are subject to the CD&A, the proposed narrative disclosure could be included in the 

CD&A.  

 Overall, the Commission intended the proposed amendments to provide shareholders 

with a full and complete picture of any spring-loaded or bullet-dodging option grants during the 

fiscal year. The Commission found it important for shareholders to understand company 

practices with respect to these types of grants as they consider their say-on-pay votes, and 

director elections. Accordingly, the Commission proposed to require this disclosure in annual 

reports on Form 10-K,288 as well as in proxy statements and information statements related to the 

election of directors, shareholder approval of new compensation plans, and solicitations of 

advisory votes to approve executive compensation.289  

 Under the proposal, SRCs and emerging growth companies (“EGCs”)290 would be subject 

                                                 

288  The executive compensation disclosure requirements in Part III of Form 10-K may be incorporated by reference 

from a proxy or information statement involving the election of directors, if filed within 120 days of the end of 

the fiscal year. See Note 3 to General Instruction G(3) to Form 10-K. 

289  Exchange Act Rule 14a-21 [17 CFR 240.14a-21] requires, among other things, that companies soliciting 

proxies for an annual or other meeting of shareholders at which directors will be elected include a separate 

resolution subject to a shareholder advisory vote to approve the compensation of named executive officers. 

290  An EGC is defined as a company that has total annual gross revenues of less than $1.235 billion during its most 

recently completed fiscal year and, as of Dec. 8, 2011, had not sold common equity securities under a 

registration statement. A company continues to be an EGC for the first five fiscal years after it completes an 



98 

to the new disclosure requirement. However, consistent with the scaled approach to their 

executive compensation disclosure,291 they would be permitted to limit their disclosures about 

specific option awards to the PEO, the two most highly compensated executive officers other 

than the PEO at fiscal year-end, and up to two additional individuals who would have been the 

most highly compensated but for not serving as executive officers at fiscal year-end.292  

 2. Comments on the Proposed Amendments 

 Many commenters supported the proposed tabular and narrative disclosures.293 Some of 

these commenters generally indicated that the proposed disclosures would increase investor 

confidence and might deter or discourage the use of spring-loaded and bullet-dodging option 

grants.294 For example, they agreed that these disclosures would help investors make informed 

choices when voting on director elections and on executive pay and other compensation matters. 

Commenters also expressed the view that the proposed disclosures would improve investor 

confidence by indicating that such awards are appropriately tied to long-term performance 

targets295 and, similarly, giving insight into practices that could appear similar to insider trading, 

which would undermine the perceived fairness and integrity of the markets.296 

 A number of commenters, however, did not support this proposal.297 Many of these 

                                                 
IPO, unless one of the following occurs: Its total annual gross revenues are $1.235 billion or more; it has issued 

more than $1 billion in non-convertible debt in the past three years; or it becomes a “large accelerated filer,” as 

defined in Exchange Act Rule 12b-2. See Securities Act Rule 405; Exchange Act Rule 12b-2. 

291 See Item 402(l) of Regulation S-K. 

292  See Item 402(m)(2) of Regulation S-K. 

293  See, e.g., letters from ACCO, AFL-CIO, ICGN, NASAA, O’Reilly, and Public Citizen. 

294  See, e.g., letters from ICGN and NASAA. 

295  See letter from ICGN. 

296  See letter from NASAA. 

297  See, e.g., letters from ABA, Chevron, Cleary, Cravath, Davis Polk, DLA, Dow, Home Depot, FedEx, Fenwick, 

Jones Day, MD Bar, NAM, Paul Weiss, Quest, SCG, Shearman, Sullivan, and Wilson Sonsini, . 



99 

commenters contended that the proposed disclosure requirements were unnecessary because the 

information is already available to the public through current executive compensation disclosure 

requirements and Section 16 reports, such as Form 4.298 Several commenters contended that the 

proposed disclosures could be misleading as they could suggest a causal link between these 

awards and the release of material nonpublic information where none exists.299 

 In particular, many commenters were opposed to the proposed tabular disclosure of each 

option award granted within 14-calendar days before or after a triggering event.300 Several 

commenters contended that the proposed disclosure would capture a large number of ordinary-

course equity award grants and would not help investors distinguish spring-loaded or bullet-

dodging grants from routine option grants.301 Some of these commenters asserted that the timing 

of equity award grants is typically based on a meeting schedule for directors that is established 

several months in advance without consideration of disclosure of material information.302 

 A few commenters that opposed the tabular disclosure suggested modifying the 

requirements if adopted, to better ensure that the disclosure does not unduly encompass routine 

awards. A few commenters suggested shortening the disclosure window from 14 days,303 to a 

shorter period, such as to three or five days.304 Other commenters recommended that the 

Commission narrow the triggering events for this disclosure. Some of these commenters 

suggested that the Commission remove the Form 8-K disclosure trigger or limit it to Forms 8-K 

                                                 

298  See, e.g., letters from Cleary, Cravath, Dow, Fenwick, Home Depot, SCG, Shearman, and Wilson Sonsini. 

299  See, e.g., letters from Dow, FedEx, Home Depot, PNC. 

300  See, e.g., letters from ABA, Davis Polk Cleary, Cravath, Dow, Fenwick, Home Depot, SCG, and Shearman. 

301  See, e.g., letters from Cleary, Cravath, Dow, Fenwick, Home Depot, SCG, Shearman, and Wilson Sonsini. 

302  See, e.g., letters from Cleary, Cravath, Dow, FedEx, Home Depot, and SCG. 

303  See, e.g., letters from Cravath and Davis Polk. 

304  See letter from Cravath. 



100 

reporting an event under Item 1.01305 or Item 2.02306 of the form rather than using a materiality 

standard.307 These commenters argued, among other things, that these reports are more likely to 

impact the price or trading in an issuer’s securities308 and that a more bright-line approach would 

benefit investors by providing them with more consistent and material information while 

removing the potential burden on issuers that making a materiality assessment for each Form 8-K 

may impose.309 One of these commenters also urged the Commission to remove the share 

repurchase trigger or change it to trigger disclosure upon the adoption or announcement of a new 

share repurchase program, rather than any share repurchase transaction.310 This commenter 

asserted that the proposed requirement could pose a substantial burden on issuers without any 

potential benefit to investors as many issuers engage in share repurchases activity regularly and, 

in some instances, daily. 

 In addition, another commenter asserted that the proposed narrative disclosure 

sufficiently addressed the Commission’s concerns regarding spring-loading and bullet-

dodging.311 This commenter expressed the view that disclosure regarding the compensation 

committee’s consideration of whether the issuer has material nonpublic information at the time 

of the grant and how the compensation committee considers the impact of timing and nature of 

corporate disclosures, share buyback announcements, and similar events would sufficiently 

                                                 

305  Item 1.01 requires disclosure of the entry into a material definitive agreement by the registrant. 

306  Item 2.02 requires disclosure of, among other things, a public announcement or release (including any update of 

an earlier announcement or release) disclosing material nonpublic information regarding the registrant’s results 

of operations or financial condition for a completed quarterly or annual fiscal period. 

307  See, e.g., letters from Fenwick and Sullivan. 

308  See letter from Fenwick. 

309  See letter from Sullivan. 

310  Id. 

311  See letter from Dow.101 

address the concerns. 

 Finally, a few commenters contended that these rules are unnecessary because the staff 

guidance of Staff Accounting Bulletin 120312 mitigates disclosure concerns regarding spring-

loaded options.313  

 3. Final Amendments 

 Having considered the comments received, we are adopting Item 402(x) as proposed with 

respect to the narrative disclosure and with several modifications to the tabular disclosure.  

 With respect to the narrative disclosure, as proposed, the final rule will require registrants 

to discuss the registrant’s policies and practices on the timing of awards of stock options, SARs 

and/or similar option-like instruments in relation to the disclosure of material nonpublic 

information by the registrant, including how the board determines when to grant such awards 

(for example, whether such awards are granted on a predetermined schedule); whether, and if so, 

how, the board or compensation committee takes material nonpublic information into account 

when determining the timing and terms of an award, and whether the registrant has timed the 

disclosure of material nonpublic information for the purpose of affecting the value of executive 

compensation.314  

 We disagree with commenters who suggested this narrative disclosure would not provide 

                                                 

312  See Staff Accounting Bulletin No. 120, Release No. SAB 120 (Nov. 24, 2021) [86 FR 68111 (Dec. 1, 2021)] 

(“SAB 120”). In SAB 120, among other topics, the staff provided interpretative guidance for public companies 

to consider regarding the accounting treatment of option awards made when the company possessed material 

nonpublic information. All staff statements, including SAB 120 and any other staff statement cited in this 

release, represent the views of the staff. They are not a rule, regulation, or statement of the Commission. The 

Commission has neither approved nor disapproved their content. These staff statements, like all staff 

statements, have no legal force or effect: they do not alter or amend applicable law, and they create no new or 

additional obligations for any person. 

313  See, e.g., letters from SCG, Cravath, and Jones Day. 

314  Item 402(x)(1) does not require a registrant to adopt policies and practices on the timing of awards of stock 

options, SARs and/or similar option-like instruments if it has not already done so, or to modify any such 

existing policies.  



102 

useful information to investors. While it is true that investors can with some effort identify the 

timing both of awards and earnings announcements, this information would not reveal the extent 

to which a board considered the effects of such timing on its executive compensation practices, 

and may have modified other aspects of the executive’s total compensation to reflect any impact 

that the timing of the award may have had. For similar reasons, we do not agree that the staff 

guidance in SAB 120 sufficiently mitigates disclosure concerns regarding the timing of options 

and similar awards as contended by some commenters. To the contrary, the narrative disclosures 

required by the final rule will increase the mix of information available to investors and better 

inform them of the appropriateness of any adjustments made by the board. 

 In addition, we are adopting the tabular disclosure requirement with several modifications 

in light of comments received. To address concerns that this disclosure may be misleading or 

otherwise overly broad, we have narrowed the disclosure window, with the result that disclosure 

would be required for awards made in the four business days before the filing of a periodic report 

or the filing or furnishing of a current report on Form 8-K that discloses material nonpublic 

information (including earnings information) and ending one business day after a triggering 

event. We have also removed the share repurchase disclosure trigger. In addition, the final rule 

provides that a Form 8-K reporting only the grant of a material new option award under Item 

5.02(e) does not trigger this disclosure. We also combined the last two columns of the proposed 

table that would have required disclosure of the market value of the securities underlying the 

award one trading day before and one trading day after disclosure of material nonpublic 

information into a single column that discloses the percentage change in the market value of the 

securities underlying the award between those dates.  

 The final rules provide that, if, during the last completed fiscal year, stock options, SARs, 



103 

and/or similar option-like instruments were awarded to an NEO within a period starting four 

business days before the filing of a periodic report on Form 10-Q or Form 10-K, or the filing or 

furnishing of a current report on Form 8-K that discloses material nonpublic information 

(including earnings information), other than a current report on Form 8-K disclosing a material 

new option award grant under Item 5.02(e), and ending one business day after a triggering event, 

the issuer must provide the following information concerning each such award for the NEO on 

an aggregated basis in the tabular format set forth in the rule: 

 The name of the NEO; 

 The grant date of the award; 

 The number of securities underlying the award; 

 The per-share exercise price; 

 The grant date fair value of each award computed using the same methodology as 

used for the registrant’s financial statements under generally accepted accounting 

principles; and 

 The percentage change in the market price of the underlying securities between the 

closing market price of the security one trading day prior to and one trading day 

following the disclosure of material nonpublic information. 

The purpose of the new table is to highlight for investors options award grants that may be more 

likely than most to have been made at a time that the board of directors was aware of material 

nonpublic information affecting the value of the award. 

 In a modification from the proposing release, we are requiring that the table include only 

option awards granted in the period beginning four business days preceding a triggering event 

and ending one business day after a triggering event. We agree with commenters that the 



104 

proposed 14-day disclosure window may result in disclosure of many routine awards that are less 

likely to have been affected by material nonpublic information.  To address these concerns, 

similar to the recommendation of one of those commenters to shorten the timeframe to three or 

five days,315 we selected a four-business day period preceding a triggering event because a 

registrant must generally file a Form 8-K within that period of time upon becoming aware of a 

triggering event. It therefore is less likely that the registrant would be able to grant an award 

based upon the board’s awareness of a triggering event more than four business days before the 

filing of a corresponding Form 8-K. We are adopting the same time period for awards preceding 

disclosures on Forms 10-Q and 10-K to make such disclosures readily comparable to those 

triggered by an 8-K filing. In addition, we are requiring disclosure of options awards in the one-

business day period after the filing or furnishing of Forms 8-K, 10-Q, or 10-K because in some 

circumstances the issuer’s share price will not fully reflect the information disclosed immediately 

after disclosure.316 Including post-filing option awards beyond that period might reduce the value 

of the information in the table by including awards that may be less likely to be affected by 

material nonpublic information. 

 In addition, to further ensure that this disclosure covers the types of grants that we are 

concerned with, we have removed the share repurchase triggering event and provided a limited 

exception from the tabular disclosure of option awards based on the filing or furnishing of a 

Form 8-K. We are persuaded by commenters that including awards close in time to any issuer 

share repurchases could result in disclosure of virtually every award, greatly reducing the 

information value of the table. With respect to the Form 8-K trigger, we have created an 

                                                 

315  See letter from Cravath. 

316  See infra Section V.D. 



105 

exception for Item 5.02(e) Forms 8-K that only disclose a material new option award grant 

because we believe including this particular information in the new table would be redundant and 

not informative to investors. We disagree, however, with the commenters that recommended 

removing the Form 8-K trigger or limiting it to Item 1.01 or Item 2.02 Forms 8-K because a 

broad range of Forms 8-K could disclose material information that raises spring-loading 

concerns, not just these types of Forms 8-K. For example, the disclosure of an event under Item 

8.01 of Form 8-K, such as the status of a patent application, may constitute material information 

that could affect the value of an option award.   

 Lastly, we combined the final two columns of the proposed table into a single column 

that requires disclosure of the percentage change in the market value of the securities underlying 

the award between the closing market price of the securities one trading prior to the disclosure of 

material nonpublic information and one trading day following the disclosure of material 

nonpublic information. This change is intended to make it easier for investors to understand the 

impact that spring-loading may have on the potential value realizable by the NEO. 

D. Structured Data Requirements  

 1. Proposed Amendments 

The Commission proposed to require registrants to tag the information specified by 

proposed Items 408 and 402(x) of Regulation S-K, and Item 16J of Form 20-F in Inline XBRL in 

accordance with Rule 405 of Regulation S-T and the EDGAR Filer Manual.317 The proposed 

                                                 

317  This tagging requirement would be implemented by including cross-references to Rule 405 in proposed Item 

408(a)(3), Item 408(b)(3) and Item 402(x), and Item 16J of Form 20-F, and by revising Rule 405(b) to include 

the Item 408(a), 408(b)(1), and Item 402(x) disclosure. In conjunction with the EDGAR Filer Manual, 

Regulation S-T governs the electronic submission of documents filed with the Commission. Rule 405 

specifically governs the scope and manner of disclosure tagging requirements for operating companies and 

investment companies, including the requirement in Rule 405(a)(3) to use Inline XBRL as the specific 

structured data language for tagging the disclosures. 



106 

requirements would include block text tagging of narrative disclosures, as well as detail tagging 

of quantitative amounts disclosed within the narrative disclosures. Inline XBRL is both machine-

readable and human-readable, which improves the quality and usability of XBRL data for 

investors.318  

 2. Comments on the Proposed Amendments 

 Most of the commenters who addressed this proposal supported requiring the tagging of 

the disclosures.319 One commenter, however, opposed this proposal and urged the Commission 

not to adopt it.320 This commenter asserted that XBRL tagging was not well adapted to the 

disclosure of trading policies and procedures that would be required under proposed Item 408 

and proposed Item 16J of Form 20-F, and that the full impact of this requirement would depend 

on what tagging would be required, which was not included with the Proposing Release.  

 3. Final Amendments 

 After considering these comments, we are adopting the amendments as proposed. The 

final amendments will require registrants to tag the information specified by new Items 402(x), 

408(a), and 408(b)(1) of Regulation S-K, and new Item 16J(a) of Form 20-F, in Inline XBRL in 

accordance with Rule 405 and the EDGAR Filer Manual. We do not agree with a commenter’s 

contention that XBRL tagging is not well adapted to these disclosures.321 Rather, XBRL tagging 

is well adapted to narrative disclosures such as those specified by new Items 408(a), 408(b)(1), 

                                                 

318  See Inline XBRL Filing of Tagged Data, Securities Act Release No. 10514 (June 28, 2018) [83 FR 40846 (Aug. 

16, 2018)]. Inline XBRL allows filers to embed XBRL data directly into an HTML document, eliminating the 

need to tag a copy of the information in a separate XBRL exhibit. Inline XBRL is both human-readable and 

machine-readable for purposes of validation, aggregation, and analysis. Id. at 40851. 

319  See, e.g., letters from CII, AFL-CIO, ICGN, and XBRL US, Inc. (“XBRL-US”). 

320  See letter from Cleary. 

321  Id. 



107 

and 402(x)(1) of Regulation S-K and new Item 16J(a) of Form 20-F. In that regard, we note that 

the Commission has required XBRL tagging for narrative disclosures, such as descriptions of 

significant accounting policies in footnotes to financial statements since the initial 

implementation of XBRL requirements in 2009.322 Requiring Inline XBRL tagging of these 

disclosures will benefit investors by making the disclosures more readily available and easily 

accessible to investors, market participants, and others for aggregation, comparison, filtering, and 

other analysis, as compared to requiring a non-machine readable data language such as HTML. 

Registrants must comply with the Inline XBRL tagging requirements in Forms 10-Q, 10-K and 

20-F, and any proxy or information statements that are required to include the Item 408 and/or 

Item 402(x) disclosures, beginning with the first such filing that covers the first full fiscal period 

beginning on or after April 1, 2023, for companies other than SRCs.  SRCs will be required to 

provide and tag the disclosures after an additional six-month transition period. This compliance 

date is intended to provide sufficient time for filers, filing agents, and software vendors to 

transition to the new requirements, as well as to provide time for any necessary taxonomy or 

EDGAR changes. 

 This Inline XBRL tagging will enable automated extraction and analysis of the granular 

data required by the final rules, allowing investors and other market participants to more 

efficiently perform large-scale analysis and comparison of this information across registrants and 

time periods. For example, an Inline XBRL requirement will allow investors to extract and 

search for disclosures about the use of Rule 10b5-1 plans by directors and officers reported in a 

registrant’s periodic reports rather than having to manually run searches for these disclosures 

through entire documents. The Inline XBRL requirement would also enable automatic 

                                                 

322  See 17 CFR 232.405(d). 



108 

comparison of tagged disclosures against prior periods. At the same time, we do not expect the 

incremental compliance burden associated with tagging the information specified by new Items 

402(x), 408(a), 408(b)(1), or new Item 16J(a) will be unduly burdensome because registrants 

subject to the tagging requirements are for the most part subject to similar Inline XBRL 

requirements in other Commission filings. 

E. Reporting of Gifts on Form 4 

 1. Proposed Amendments 

 Currently, Section 16 reporting persons may report any “bona fide gift”323 of equity 

securities registered under Exchange Act Section 12 on Form 5. Exchange Act Rule 16a-3(f) 

permits officers, directors and ten percent holders to report on Form 5 within 45 days after the 

issuer’s fiscal year end certain transactions during the most recent fiscal year that were exempt 

from Section 16(b).324 As transactions that are exempted from Section 16(b) by Rule 16b-5,325 

both the acquisition and disposition of bona fide gifts are eligible for delayed reporting on Form 

5 pursuant to Rule 16a-3(f)(1). This filing schedule, under the current rules, can permit Section 

16 reporting persons to report “bona fide” gifts more than one year after the date of the gift.326 

 In the Proposing Release, the Commission noted that the delayed reporting of gifts on 

Form 5 may allow Section 16 reporting persons to engage in problematic practices involving 

gifts of equity securities, such as making stock gifts while in possession of material nonpublic 

                                                 

323  A bona fide gift is a gift that is not required or inspired by any legal duty or that is in any sense a payment to 

settle a debt or other obligation, and is not made with the thought of reward for past services or hope for future 

consideration. See Ownership Reports and Trading by Officers, Directors and Principal Stockholders, Release 

No. 34-26333 (Dec. 2, 1988) [53 FR 49997 (Dec. 13, 1988)]. 

324  17 CFR 240.16a-3(f). 

325  17 CFR 240.16b-5. 

326  Reports on Form 5 are due within 45 days after the issuer’s fiscal year end, which potentially allows a delay of 

up to 410 days between a reportable transaction and the filing of the Form 5. 



109 

information,327 or backdating stock gifts in order to maximize the tax benefits associated with 

such gifts.328 To address these concerns, the Commission proposed to amend Exchange Act Rule 

16a-3 to require the reporting of dispositions by bona fide gifts of equity securities on Form 4. 

Under the proposal, an officer, director, or a beneficial owner of more than 10 percent of the 

issuer’s registered equity securities who makes a gift of equity securities would be required to 

report the gift on Form 4, which has a deadline of the end of the second business day following 

the date of execution of the transaction. This deadline would be significantly earlier than what is 

required under Form 5. The earlier reporting deadline is intended to help investors, other market 

participants, and the Commission better evaluate the actions of these Section 16 reporting 

persons and the context in which equity securities gifts are being made.  

 2. Comments on the Proposed Amendments 

 Several commenters generally supported the proposal to require Section 16 reporting 

persons to report dispositions of equity securities by bona fide gifts on Form 4.329 One of these 

commenters agreed with the reasons cited in the Proposing Release that the earlier reporting 

deadline would help investors, other market participants, and the Commission better evaluate the 

actions of these Section 16 reporting persons and the context in which these gifts are made.330  

 A number of commenters, however, expressed concern over the reporting of dispositions 

by bona fide gifts of equity securities on Form 4, and in particular expressed concern about the 

                                                 

327  See Daisy Maxey, Improper ‘Insider Charitable Giving’ Is Widespread, Study Says, WALL ST. J. (July 5, 2021) 

(retrieved from Factiva database).  

328  See S. Burcu Avci et al., Insider Giving, 71 DUKE L.J. 619-700 (2021) (finding that insiders’ charitable gifts of 

securities are unusually well timed suggesting that such results are likely due to the possession of material 

nonpublic information and from the backdating of the stock gift). See also David Yermack, Deductio ad 

Absurdum: CEOs Donating Their Own Stock to Their Family Foundations, 94 J. FIN. ECON. 107 (2009).  

329  See, e.g., letters from AFL-CIO, Cravath, and ICGN. 

330  See letter from ICGN. 



110 

proposed reporting two-day deadline, including the resulting compliance and administrative 

burdens.331 Some of these commenters contended that certain estate planning transactions 

involving gifts of equity securities are complex and that Section 16 reporting persons will spend 

substantial time analyzing these transactions to ensure proper reporting under Section 16.332 One 

commenter contended that the proposed amendment could discourage Section 16 reporting 

persons from making gifts of equity securities and, as a result, urged the Commission to not 

adopt this proposal, or, at a minimum, limit it to bona fide gifts of securities made to charities 

affiliated with the insider and to extend the reporting deadline for bona fide gifts of securities, 

such as to 45 days.333 Another commenter suggested that a donor should be able to avoid insider 

trading liability by obtaining a commitment from the charitable donee not to sell the donated 

stock until after any material nonpublic information known by the donor at the time of the 

donation has become public or stale.334 This commenter also argued that the proposed 

amendment was overbroad in that it applied to some gifts, such as in case of transfers to a trust 

controlled by the donor, that the commenter asserted were not “problematic.”335 

 Finally, this same commenter also expressed concern that language in the proposing 

release purporting to illustrate the application of Section 10(b) to gifts of securities appeared to 

represent an extension or modification of insider trading law.336 In footnote 55 of the Proposing 

                                                 

331  See, e.g., letters from HRPA, Davis Polk, and NAM. 

332  See, e.g., letters from HRPA and Davis Polk. 

333  See letter from HRPA; see also letter from NAM (expressing concern that the “tight timeframe” in the proposal 

will be “functionally unworkable” and urging that the Commission consider a reporting deadline longer than 

two days). 

334  See letter from Davis Polk. 

335  See id; see also letter from HRPA (asserting that the proposed amendment could “unnecessarily complicate 

estate planning activities that have a very low likelihood of abuse”). 

336  See letter from Davis Polk (citing footnote 55 of the Proposing Release). 



111 

Release, the Commission stated that “a donor of securities violates Section 10(b) if the donor 

gifts a security of an issuer in fraudulent breach of a duty of trust and confidence when the donor 

was aware of material nonpublic information about the security or issuer, and knew or was 

reckless in not knowing that the donee would sell the securities prior to the disclosure of such 

information.”337 This commenter noted that shareholders often make charitable donations of 

stock at the end of the year to obtain an income-tax deduction for the current year, and that the 

charitable organization that receives the stock often sells the securities upon receipt. This 

commenter asserted the Commission should clearly explain the basis for its conclusion and 

provide guidance as to how a Section 16 reporting person could make a charitable donation of 

securities without running afoul of Section 10(b) and Rule 10b-5. The commenter expressed 

concern that the Commission’s position would criminalize this type of gifting.  

 3. Final Amendments 

 After considering the comments, we are adopting the amendments to Rule 16a-3 as 

proposed. Under the final amendments, Section 16 reporting persons will be required to report 

dispositions of bona fide gifts of equity securities on Form 4 (rather than Form 5) in accordance 

with Form 4’s filing deadline (that is, before the end of the second business day following the 

date of execution of the transaction). To address our concerns that the lengthy reporting deadline 

may allow Section 16 reporting persons to engage in the problematic practices noted above, we 

intend for this reporting deadline to help investors, other market participants, and the 

Commission better evaluate the actions of Section 16 filers and the context in which they make 

gifts of equity securities. In that regard, we agree with the academic authors, cited in the 

                                                 

337  See Proposing Release at 8695.  



112 

Proposing Release,338 who observe that a gift followed closely by a sale, under conditions where 

the value at the time of donation and sale affects the tax or other benefits obtained by the donor, 

may raise the same policy concerns as more common forms of insider trading.339 As these 

academic authors have found, because the donor is in a position to benefit from the asset’s value 

at the time of donation and sale, the donor may be motivated to give at a time when donor is 

aware of material nonpublic information and may expect the donee to sell prior to the disclosure 

of such information.340 Investors cognizant of this dynamic may be more reluctant to trade. We 

also agree with the academic authors that a gift made with the knowledge that the donee will 

soon sell can be seen as in effect a sale for cash followed by gift of the cash.341  

We are clarifying here, however, that the affirmative defense of Rule 10b5-1(c)(1) is 

available for any bona fide gift of securities, including a gift that might otherwise cause the 

donor to be subject to liability under Section 10(b), because when making the gift the donor was 

aware of material nonpublic information about the security or issuer and knew or was reckless in 

not knowing that the donee would sell the securities prior to the disclosure of such 

                                                 

338  See Section II.D. of the Proposing Release. 

339  See supra note 328. 

340  We disagree with the commenter who argued that donors are not motivated by financial advantage and that tax 

considerations do not warrant treating gifts “as if they were market transactions.” See letter from HRPA. 

Although we agree that many gifts are likely driven by other than pecuniary motives, the tax treatment of any 

particular gift can substantially affect the net cost of that donation. Extensive academic literature documents that 

such differences affect the amount and timing of gifts. See, e.g., James A. Andreoni & A. Abigail Payne, 

Charitable Giving, in 5 Handbook of Public Economics 1 (Alan J. Auerbach et al. eds., 2013). To be clear, we 

understand that in the common case of charitable donations of stock to a public charity, the value of the donor’s 

tax benefit is (subject to some limitations) the value of the asset on the date of donation, not the value obtained 

by the recipient upon sale. See 26 U.S.C. 170(e); 26 CFR 1.170A-1(c)(1). But, when a sale occurs close in time 

to the time of donation, these two may be the same. In addition, we note that non-pecuniary motives can also 

lead donors to consider the value a donee realizes upon sale, as in the case where the donor wishes to maximize 

the amount of cash available to the gift recipient. 

341  See Avci et al supra note 328, at 650-52. 



113 

information.342 In our view, the terms “trade” and “sale” in Rule 10b5-1(c)(1) include bona fide 

gifts of securities.343 For example, a covered individual may enter into a binding arrangement 

instructing their attorney or tax advisor to gift shares to a charitable organization, with the 

amount of shares gifted determined according to a traditional algorithm or formula, or instead 

according to some tax objective, such as the amount of shares that would maximize the 

individual’s annual charitable contribution deduction.  

We are not persuaded by the concerns of commenters who suggested that we not adopt 

this proposal, or that we adopt a separate reporting deadline for bona fide gifts of securities that 

is much longer than the existing Form 4 deadline. As noted in Section V below, we recognize 

that this amendment may increase compliance costs and may do so to a greater extent for estate 

planning transactions given their complexity.344 Any such increases, however, should be limited 

as the majority of insiders already report these gifts on Form 4. Further, while we acknowledge 

that the amendment may make year-end tax planning incrementally more difficult as filers must 

delegate analysis of or anticipate their year-end tax needs three or four months earlier, our 

clarification that bona fide gifts are eligible for the Rule 10b5-1(c)(1) affirmative defense should 

mitigate any adverse consequences that commenters suggested, such as discouraging bona fide 

gifts. We also are not convinced that a shorter reporting period will substantially affect estate 

planning transactions, which generally are carefully planned and analyzed in advance and 

adopted under the advice of tax counsel who may assist in any needed analysis.  

                                                 

342 We are aware that some covered individuals currently make bona fide gifts under a Rule 10b5-1 plan. See letter 

from Sullivan. In clarifying that the affirmative defense of Rule 10b5-1(c)(1) is available for bona fide gifts of 

securities, we do not intend to suggest that this defense was previously unavailable for such transactions. 

343  See supra note257. 

344  See infra Sections V.E.1. and V.E.3. 



114 

Further, we disagree with the commenter who suggested that we narrow the scope of the 

gift limitations, such as by applying it only to gifts made to charities affiliated with the Section 

16 reporting person or exempting donors who obtain a commitment from the charitable donee 

not to sell the donated stock until after any material nonpublic information known by the donor 

at the time of the donation has become public or stale.345 While, in some cases, a close affiliation 

between the donor and donee can make an abusive transaction easier to carry out, none of the 

potential concerns we have identified are limited to transfers to entities controlled by or affiliated 

with the donor. In addition, the commenter argued that donated stock would not implicate any 

insider trading concerns if the donor obtained commitments that the stock would not be sold until 

any material nonpublic information became public or stale. We doubt any such approach would 

be effective in maintaining investor confidence because it may be difficult or impossible to 

verify whether the donor had obtained a binding commitment to refrain from such a sale. 

Moreover, this commenter appears to urge us to adopt an exception for gifts to estate planning 

vehicles controlled by the donor, because the commenter believes that such transfers would not 

permit the practices described in the Proposing Release. There may be circumstances, however, 

under which it would be advantageous for the donor if the donee entity obtains a high sales price 

shortly after the donation, such as where the entity allows the donor to take advantage of tax-

favorable diversification opportunities. As we see no practical way to identify which gifts pose 

this risk and which do not, we are not adopting such an exception.346   

III. Transition Matters 

                                                 

345  See letter from Davis Polk.  

346  With respect to estate planning vehicles controlled by the donor, we further note that transactions that “effect 

only a change in the form of beneficial interest without changing a person’s pecuniary interest in the subject 

equity securities” are exempt from Section 16 reporting. See Rule 16a-13a [17 CFR 240.16a-13]. 



115 

 A number of commenters recommended that the Commission provide transition guidance 

or a phase-in period, such as a 12-month phase-in, for the proposed disclosure amendments. In 

response, we are providing the following compliance dates for the final amendments:  

 Section 16 reporting persons will be required to comply with the amendments to Forms 4 

and 5 for beneficial ownership reports filed on or after April 1, 2023; and  

 Issuers that are SRCs will be required to comply with the new disclosure and tagging 

requirements in Exchange Act periodic reports on Forms 10-Q, 10-K and 20-F and in any 

proxy or information statements that are required to include the Item 408, Item 402(x), 

and/or Item 16J disclosures in the first filing that covers the first full fiscal period that 

begins on or after October 1, 2023.  

 All other issuers will be required to comply with the new disclosure and tagging 

requirements in Exchange Act periodic reports on Forms 10-Q, 10-K and 20-F and in any 

proxy or information statements that are required to include the Item 408, Item 402(x), 

and/or Item 16J disclosures in the first filing that covers the first full fiscal period that 

begins on or after April 1, 2023.  

 While we acknowledge that several commenters requested a longer phase-in period for 

these amendments, we believe that these compliance dates strike an appropriate balance between 

affording issuers and Section 16 reporting persons time to prepare to comply with the new rules 

and ensuring that this information becomes available to investors in a timely manner. For 

example, Section 16 reporting persons should have the information needed to comply with the 

amendments to Forms 4 and 5 readily available. 

In addition, some commenters requested that we clarify the application of the amendments 

to Rule 10b5-1(c)(1) to existing Rule 10b5-1 plans and/or provide transitional relief for existing 



116 

plans.347 The amendments to Rule 10b5-1(c)(1) would not affect the affirmative defense 

available under an existing Rule 10b5-1 plan that was entered into prior to the revised rule’s 

effective date, except to the extent that such a plan is modified or changed in the manner 

described in Rule 10b5-1(c)(iv)348 after the effective date of the final rules. In that case, the 

modification or change would be equivalent to adopting a new trading arrangement, and, thus, 

amended Rule 10b5-1(c)(1) would be the applicable regulatory affirmative defense that would be 

available for that modified arrangement.  

IV. Other Matters 

 If any of the provisions of these rules, or the application thereof to any person or 

circumstance, is held to be invalid, such invalidity shall not affect other provisions or application 

of such provisions to other persons or circumstances that can be given effect without the invalid 

provision or application. 

 Pursuant to the Congressional Review Act,349 the Office of Information and Regulatory 

Affairs has designated these rules a “major rule,” as defined by 5 U.S.C. 804(2). 

V. Economic Analysis 

We are mindful of the costs imposed by, and the benefits obtained from, our rules. Under 

Section 2(b) of the Securities Act,350 Section 3(f) of the Exchange Act,351 and Section 2(c) of the 

                                                 

347  See letters from BioNJ, Chevron, Cleary, Cravath, Davis Polk, Jones Day, SIFMA 2 and 3, Sullivan, and 

Wilson Sonsini. 

348  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”). 

349  5 U.S.C. 801 et seq. 

350  15 U.S.C. 77b(b).  

351  15 U.S.C. 78c(f). 



117 

Investment Company Act,352 whenever the Commission is engaged in rulemaking and required 

to consider or determine whether an action is necessary or appropriate in (or, with respect to the 

Investment Company Act, consistent with) the public interest, it shall also consider, in addition 

to the protection of investors, whether the action will promote efficiency, competition, and 

capital formation. In addition, Section 23(a)(2) of the Exchange Act requires the Commission to 

consider the impact on competition of any rules the Commission adopts under the Exchange Act 

and prohibits the Commission from adopting any rule that would impose a burden on 

competition not necessary or appropriate in furtherance of the purposes of the Exchange Act.353 

We have considered the economic effects of the amendments, including their effects on 

competition, efficiency, and capital formation. Many of the effects discussed below cannot be 

quantified. Consequently, while we have, wherever possible, attempted to quantify the economic 

effects expected from the amendments, much of the discussion remains qualitative in nature. 

Where we are unable to quantify the economic effects of the amendments, we provide a 

qualitative assessment of the potential benefits, costs, and impacts of the amendments on 

efficiency, competition, and capital formation. 

A. Broad Economic Considerations  

The amendments are expected to provide greater transparency to investors (i.e., decrease 

information asymmetries between insiders and outside investors) about issuer and insider trading 

arrangements and restrictions, as well as insider compensation and incentives, enabling more 

informed investment and voting decisions. The amendments are also expected to limit the 

opportunity for insider trading based on material nonpublic information (“MNPI”)354 by adding 

                                                 

352  15 U.S.C. 80a-2(c).  

353  15 U.S.C. 78w(a)(2). 

354  See supra note 3. 



118 

new conditions to the Rule 10b5-1(c) affirmative defense, resulting in benefits to investors and 

improvement in insiders’ incentives.  

 Insider trading enables certain investors who have access to inside information or who 

have the ability to influence the timing or substance of corporate disclosures to profit at the 

expense of other investors. Due to their access to MNPI, insiders can obtain illegitimate profits 

through the strategic timing of trades in the issuer’s securities. These profits essentially 

unlawfully transfer wealth from other investors to the insider.355 In addition, insider trading can 

distort the incentives of corporate insiders, which results in a loss of shareholder value and 

erodes investor confidence in the markets. Insider trading can also lead to reputational costs for 

companies.  

1. Insider trading harms investors, distorts insiders’ incentives, and imposes economic costs 

on investors and capital markets 

The amendments are expected to decrease the incidence of unlawful insider trading.356 

Insider trading represents a breach of fiduciary or other similar obligation of trust and 

confidence.357 Congress, the Courts, and the Commission have concluded that such insider 

trading is illegal.358 Before analyzing each aspect of the final rule, in the interest of 

                                                 

355  See, e.g., Michael D. Guttentag, Avoiding Wasteful Competition: Why Trading on Inside Information Should 

Be Illegal, 86 BROOK. L. REV. 895 (2021). 

356  The discussion of broad economic considerations generally focuses on insider trading in stock except where 

specified otherwise. To the extent that insiders benefit from the timing of option awards and gifts of stock 

around MNPI, some of the economic effects associated with insider trading also may be manifested in those 

contexts. For a detailed discussion of the economic considerations applicable to option award timing and insider 

gift timing, see infra Sections V.D and V.E.  

357  See infra note 490. 

358  See supra Section I.  



119 

completeness, the Commission first reviews the economic literature on the insider trading 

prohibition.359 

Insiders have information advantages that place them in a unique position to improperly 

obtain profits for themselves through strategic timing of trades. When an insider profits by 

trading on MNPI, those profits are obtained at other investors’ expense.360 Thus, reducing the 

incidence of insider trading is expected to benefit investors.361  

When investors anticipate that they are dealing with better informed insiders that can 

profit at the investors’ expense (i.e., they anticipate the adverse selection problem due to the 

insiders’ ability to trade on MNPI), investors can become reluctant to trade the issuer’s shares. 

                                                 
359  See, generally, Alexandre Padilla & Brian Gardiner, Insider Trading: Is There an Economist in the Room?, 24 

J. PRIVATE ENTERPRISE 113, 123 (2009) (noting “economists have progressively reached the same conclusion: 

that insider trading is harmful to investors, corporations, and stock exchanges, and, therefore, ought to be 

prohibited”). 

360  See Michael Manove, The Harm from Insider Trading and Informed Speculation, 104 Q. J. ECON. 823 (1989); 

William K.S. Wang, Trading on Material Non-Public Information on Impersonal Stock Markets: Who Is 

Harmed and Who Can Sue Whom Under SEC Rule 10B-5? 54 S. CAL. L. REV. 1217 (1981). 

361  Misappropriation of information may have many economic effects, including but not limited to, revealing 

information to the market in a manner suboptimal to the issuer (and thus discouraging investment in information 

and increasing costs of keeping information private). Further, increased trading by insiders reduces incentives 

for liquidity provision through adverse selection, imposing economic costs on investors broadly. Finally, 

misappropriation has associated agency costs as it represents an undisclosed form of compensation and may 

lead to further divergence of interests between the manager and the shareholders. See Frank H. Easterbrook, 

Insider Trading, Secret Agents, Evidentiary Privileges, and the Production of Information, 1981 SUP. CT. REV. 

309, 315, 323, 331 (1981); In re Melvin, SEC Release No. 3682, 2015 WL 5172974, at *4 & n.31 (Sept. 4, 

2015).  



120 

For this same reason, insider trading is likely to adversely affect price efficiency (i.e., the extent 

to which stock prices reflect an issuer’s fundamental value)362 and liquidity.363  

Insider trading also imposes a cost on the investors in the company by distorting 

managerial incentives, as discussed below, which results in a loss of shareholder value. Thus, 

whether insiders are strategically timing stock sales and purchases based on MNPI can provide 

information to investors about insider incentives. In particular, the ability of officers and 

                                                 
362  A number of studies demonstrate adverse effects of insider trading on market efficiency. See, e.g., Michael J. 

Fishman & Kathleen M. Hagerty, Insider Trading and the Efficiency of Stock Prices, 23 RAND J. ECON. 106 

(1992) (showing that “under certain circumstances, insider trading leads to less efficient stock prices. This is 

because insider trading has two adverse effects on the competitiveness of the market: it deters other traders from 

acquiring information and trading, and it skews the distribution of information held by traders toward one 

trader.”); Zhihong Chen et al., The Real Effect of the Initial Enforcement of Insider Trading Laws, 45 J. CORP. 

FIN. 687 (2017) (finding evidence that the initial enforcement of insider trading laws "improves capital 

allocation efficiency by increasing price informativeness and reducing market frictions”); Robert M. Bushman 

et al., Insider Trading Restrictions and Analysts' Incentives to Follow Firms, 60 J. FIN. 35 (2005) (arguing that 

“insider trading crowds out private information acquisition by outsiders” and showing that “analyst following 

increases after initial enforcement of insider trading laws” in a cross-country sample); Nuno Fernandes & 

Miguel A. Ferreira, Insider Trading Laws and Stock Price Informativeness, 22 REV. FIN. STUD. 1845 (2009) 

(finding that price informativeness increases with the enforcement of insider trading laws, but only in countries 

with a strong “efficiency of the judicial system, investor protection, and financial reporting”); see also 

Alexander P. Robbins, The Rule 10b5-1 Loophole: An Empirical Study, 34 REV. QUANT. FIN. ACCT. 199 (2010) 

(finding, in a sample of 10b5-1 plans of 81 NASDAQ-listed companies from 2004 to 2006 that “10b5-1 plans 

have a significant negative effect on the liquidity of a firm’s shares, and therefore the firm’s cost of capital”). 

Some studies argue that insider trading improves price efficiency. See, e.g., Hayne E. Leland, Insider Trading: 

Should It Be Prohibited?, 100 J. POL. ECON. 859 (1992) (showing in a model that “stock prices better reflect 

information” when insider trading is permitted.); Utpal Bhattacharya et al., When an Event Is Not an Event: The 

Curious Case of An Emerging Market, 55 J. FIN. ECON. 69 (2000) (suggesting “that unrestricted insider trading 

causes prices to fully incorporate the information before its public release”). See generally HENRY G. MANNE, 

INSIDER TRADING AND THE STOCK MARKET (1966). A reduction in insider trading can have nuanced effects on 

market efficiency. For example, the conclusions about the effect of insider trading on market efficiency may 

depend on whether the framework is static or dynamic. See David Easley et al., Is Information Risk a 

Determinant of Asset Returns?, 57 J. FIN. 2185 (2002). 

363  Various studies show that insider trading negatively impacts liquidity. See, e.g., Raymond P.H. Fishe & Michel 

A. Robe, The Impact of Illegal Insider Trading in Dealer and Specialist Markets: Evidence From a Natural 

Experiment, 71 J. FIN. ECON. 461 (2004); Louis Cheng et al., The Effects of Insider Trading on Liquidity, 14 

PACIFIC-BASIN FIN. J. 467 (2006); Leland, supra note 362 (showing in a model that “markets are less liquid” 

and “outside investors and liquidity traders will be hurt” when insider trading is permitted); Laura N. Beny, Do 

Insider Trading Laws Matter? Some Preliminary Comparative Evidence, 7 AM. L. & ECON. REV. 144 (2005) 

(finding that “countries with more prohibitive insider trading laws have more diffuse equity ownership, more 

accurate stock prices, and more liquid stock markets”); Lawrence R. Glosten, Insider Trading, Liquidity, and 

the Role of the Monopolist Specialist, 62 J. BUS. 211 (1989) (showing in a model that insider trading reduces 

liquidity). But cf. Charles Cao et al., Does Insider Trading Impair Market Liquidity? Evidence from IPO Lockup 

Expirations, 39 J. FIN. QUANT. ANAL. 25 (2004) (not finding a negative effect of insider trading on liquidity).121 

directors (who are either involved in making corporate decisions or play a crucial role in the 

oversight of such decisions) to profit from MNPI exacerbates conflicts of interest between 

officers / directors and other shareholders, resulting in inefficient, value-decreasing corporate 

decisions. For example, by protecting the insider from the brunt of the effects of poor corporate 

performance on the value of the insider’s equity position through the ability to sell ahead of 

negative news, insider trading weakens incentive alignment and exacerbates agency conflicts 

(and, in turn, increases the cost of monitoring insiders).  

One incentive distortion is that an insider may steer the company towards projects that 

require less effort or that yield higher private benefits even if such projects have a negative net 

present value (NPV) and thus decrease shareholder value.364 To mitigate agency conflicts and 

better align insider incentives with those of shareholders, insiders are often compensated with 

equity. Because of insiders’ ability to sell shares in advance of negative news, as described 

above, insiders may be less motivated to avoid negative NPV projects. Downside protection also 

incentivizes the insider to choose riskier negative-NPV projects due to the possibility of profiting 

on the upside.365 Relatedly, if short-term investment projects yield more profitable MNPI (due, in 

                                                 

364  See, e.g., Antonio E. Bernardo, Contractual Restrictions on Insider Trading: A Welfare Analysis, 18 ECON. 

THEORY 7 (2001) (showing in a model that “[f]or many reasonable parameter values, however . . . that 

managers may be too willing to take risky projects. In fact, managers will often choose the risky investment 

project when it has a lower expected return than the riskless investment project.”). In some circumstances, 

insider trading may remedy a manager’s excess conservatism due to under-diversification. See Lucian A. 

Bebchuk & Chaim Fershtman, Insider Trading and the Managerial Choice Among Risky Projects, 29 J. FIN. 

QUANT. ANALYSIS 1 (1994). However, Bebchuk & Fershtman (1994) similarly acknowledge that “[t]he desire 

to increase trading profits might lead the managers to prefer a very risky project even if it offers a lower 

expected return than a safer alternative.” 

365  See, e.g., Easterbrook, supra note 361 (stating that “[t]he opportunity to gain from insider trading also may 

induce managers to increase the volatility of the firm's stock prices. . . They may select riskier projects than the 

shareholders would prefer, because if the risk pays off they can capture a portion of the gains in insider trading 

and, if the project flops, the shareholders bear the loss.”). But see Robbins, supra note 362 (finding, in a sample 

of 10b5-1 plans of 81 NASDAQ-listed companies from 2004 to 2006 that “insiders do not appear to increase 

the volatility of their own firms’ shares in order to profit by trading on the basis of material nonpublic 

information under the protection of the 10b5-1 affirmative defense”).  



122 

part, to the reality that MNPI about long-term projects arrives less frequently or is less 

definitive), an insider may exhibit short-termism in making decisions at the company level at the 

expense of shareholder value.366 

Being able to profit from MNPI also can distort insider incentives with respect to other 

corporate decisions that can affect the share price. For example, officers and directors engaged in 

insider trading may be disincentivized from sharing information efficiently within the firm if 

they can profit from withholding it and personally trading on it, which leads to inefficient 

corporate decisions and thus decreased shareholder value.367 

Another economic cost of insider trading is that it may incentivize insiders to adjust the 

timing or content of corporate disclosure (e.g., delaying the release, or increasing the frequency, 

of disclosing MNPI).368 Manipulation of corporate disclosure causes price distortions and 

                                                 

366  See M. Todd Henderson, Insider Trading and Executive Compensation: What We Can Learn from the 

Experience with Rule 10b5-1, RES. HANDBOOK ON EXEC. PAY 299 (2012) (stating that short-termism is a cost of 

insider trading and that “[e]xecutives looking to maximize the value of their shares may engage in conduct that 

increases the stock price in the short run at the expense of the long term so that they can profit from trading in 

firm stock”). Such managerial short-termism/myopia reduces shareholder value. See, generally, John R. 

Graham et al., The Economic Implications of Corporate Financial Reporting, 40J. ACCT. ECON. 3 (2005); Alex 

Edmans, Blockholder Trading, Market Efficiency, and Managerial Myopia, 64 J. FIN. 2481 (2009). 

367  See, e.g., Robert J. Haft, The Effect of Insider Trading Rules on the Internal Efficiency of the Large 

Corporation, 80 MICH. L. REV. 1051, (1982). 

368  See, e.g., Ranga Narayanan, Insider Trading and the Voluntary Disclosure of Information by Firms, 24 J. 

BANKING FIN. 395 (2000) (stating that “[s]tringent enforcement of insider trading regulations induces more 

disclosure by firms”); Qiang Cheng & Kin Lo, Insider Trading and Voluntary Disclosures, 44 J. ACCT. RSCH. 

815 (2006) (finding that when “managers plan to purchase shares, they increase the number of bad news 

forecasts to reduce the purchase price . . . insiders do exploit voluntary disclosure opportunities for personal 

gain, but only selectively, when litigation risk is sufficiently low”); Easterbrook, supra note 361 (stating that 

“[t]he prospect of insiders' gains may lead the firm to delay the release of information”). Some studies also note 

that an opposite effect is possible—managers concerned about litigation may provide higher-quality disclosure 

before selling shares. See, e.g., Jonathan L. Rogers, Disclosure Quality and Management Trading Incentives, 46 

J. ACCT. RSCH. 1265 (2008) (finding that “[c]onsistent with a desire to reduce the probability of litigation . . . 

managers provide higher quality disclosures before selling shares than they provide in the absence of trading” 

but also finding that “[c]onsistent with a desire to maintain their information advantage, . . . some, albeit 

weaker, evidence that managers provide lower quality disclosures prior to purchasing shares than they provide 

in the absence of trading.”). In the context of Rule 10b5-1 plans, see, e.g., Stanley Veliotis, Rule 10b5-1 

Trading Plans and Insiders’ Incentive to Misrepresent, 47 AM. BUS. L. J. 313, 330 & nn. 77-78 (2010) (stating 

that “Rule 10b5-1 plans give insiders an incentive to accelerate the release of good news ahead of planned stock 



123 

impairs the ability of investors to make informed investment decisions. Less informed 

investment decisions result in less efficient allocation of capital in investor portfolios, compared 

to a setting with more timely disclosures. To the extent that investors anticipate such disclosure 

gaming, they may commensurately increase their information gathering effort, resulting in higher 

information gathering costs for investors. Investors, however, have a limited ability to obtain 

timely and accurate information elsewhere. 

Investor recognition of the potential incentive distortions and the risk of lower-quality 

corporate disclosures resulting from insider trading, as well as the risk of buying shares from or 

selling shares to a better informed insider, is likely to decrease investor confidence in the issuer 

and make investors less willing to buy or hold the issuer’s shares.369 The resulting reluctance to 

invest could have negative effects on capital formation and the ability to fund investments due to 

challenges in raising the required amount of capital.  

2. Certain Rule 10b5-1 plan trading practices may raise concerns about potential insider 

trading 

                                                 
sales and to delay the release of bad news until after the sales are completed. . . As a practical matter, 

manipulation of the announcement's timing would be extremely difficult to prove because insiders are not 

required to disclose their 10b5-1 plans and firms seldom disclose a schedule for corporate announcements in 

advance. . .”); Karl T. Muth, With Avarice Aforethought: Insider Trading and 10b5-1 Plans, 10 U.C. DAVIS 

BUS. LAW J. 65, 71 & nn. 32-33 (2009) (stating that “executives can participate in the timing of news . . . about 

the company. Withholding or ‘timing’ news allows the executive to (imperfectly) time market response to news. 

. .”); John Shon & Stanley Veliotis, Meeting or Beating Earnings Expectations, 59 MGMT. SCI. 1988 (2013) 

(finding that “firms with insider sales executed under Rule 10b5-1 plans exhibit a higher likelihood of meeting 

or beating analysts' earnings expectations (MBE) . . . [that] this relation between MBE and plan sales is more 

pronounced for the plan sales of chief executive officers (CEOs) and chief financial officers (CFOs) and is 

nonexistent for other key insiders,” and concluding that “[o]ne interpretation of [their] results is that CEOs and 

CFOs who sell under these plans may be more likely to engage in strategic behavior to meet or beat 

expectations in an effort to maximize their proceeds from plan sales”). 

369  See, e.g., Lawrence M. Ausubel, Insider Trading in a Rational Expectations Economy, 80 AM. ECON. REV., 

1022 (1990) (showing in a rational expectations model that “[i]f ‘outsiders’ expect ‘insiders’ to take advantage 

of them in trading, outsiders will reduce their investment. The insiders’ loss from this diminished investor 

confidence may more than offset their trading gains. Consequently, a prohibition on insider trading may effect a 

Pareto improvement.”). Further, informed trading by insiders can reduce the incentive for outside investors to 

acquire information. See, e.g., Fishman & Hagerty, supra note 362. 



124 

Over the years, various parties have raised concerns that certain persons have engaged in 

securities trading based on MNPI while availing themselves of the Rule 10b5-1(c)(1) affirmative 

defense.370 Examples of practices that have raised such concerns include the strategic 

cancellation of previously adopted plans or individual trades on the basis of MNPI,371 as well as 

the initiation or resumption of trading close in time to plan adoption or modification.372 

                                                 

370  See IAC Recommendations, supra note 22; letter from David Larcker et al.(Mar. 10, 2021), available at 

https://www.sec.gov/comments/s7-24-20/s72420-8488827-229970.pdf; letter from CII (Apr. 22, 2021), 

available at https://www.sec.gov/comments/s7-14-20/s71420-8709408-236962.pdf; letter from CII (Mar. 18, 

2021), available at https://www.sec.gov/comments/s7-24-20/s72420-8519687-230183.pdf; letter from CII 

(Sept. 25, 2020), available at https://www.sec.gov/comments/s7-06-20/s70620-7843308-223819.pdf; letter 

from CII (Dec. 13, 2018), available at https://www.sec.gov/comments/s7-20-18/s72018-4766666-176839.pdf; 

letter from CII (July 11, 2018), available at 

https://www.cii.org/files/July%2011%202018%20SEC%20Reg%20Flex%20Letter%20Final.pdf; letter from 

CII (Feb. 12, 2018, available at https://www.sec.gov/comments/s7-07-17/s70717-3025708-161898.pdf; letter 

from CII to Former Chairman Jay Clayton (January 18, 2018), available at 

http://www.cii.org/files/issues_and_advocacy/correspondence/2018/January%2018%202018%20Rule%2010b5

-1%20(finalI).pdf; letter from CII (July 8, 2016), available at https://www.sec.gov/comments/s7-06-16/s70616-

49.pdf; letter from CII to Former Chair Mary Jo White (May 9, 2013), available at 

http://www.cii.org/files/issues_and_advocacy/correspondence/2013/05_09_13_cii_letter_to_sec_rule_10b5-

1_trading_plans.pdf; CII Rulemaking Petition.  

371  See, e.g., Insider Trading and Stock Option Grants: An Examination of Corporate Integrity in the Covid-19 

Pandemic Before the H. Subcomm. On Investor Protection, Entrepreneurship, and Capital Markets, H. Comm. 

on Fin. Servs., 116th Cong. 5 (2020) (statement of Jill E. Fisch), available at 

https://docs.house.gov/meetings/BA/BA16/20200917/111013/HHRG-116-BA16-Wstate-FischJ-20200917.pdf,; 

Jagolinzer, supra note 19 (finding “for a sample of 54 firms for which there is public disclosure of early sales 

plan terminations” that “early sales plan terminations are associated with pending positive performance shifts, 

reducing the likelihood that insiders’ sales execute at low prices” and noting that the sample size is small 

because there is no requirement to disclose sales plan terminations); Veliotis, supra note 368, at 328-30 

(discussing concerns related to selective cancellations); Mavruk & Seyhun, supra note 19 (discussing selective 

cancellation concerns, providing indirect evidence, and concluding that its findings are “consistent with the 

hypothesis that insiders intervene in their planned transactions to increase profitability”); see also Stephen L. 

Lenkey, Cancellable Insider Trading Plans: An Analysis of SEC Rule 10b5-1, 32 REV. FIN. STUD. 4947 (2019) 

(concluding, in a theoretical framework, that “[b]ecause the conditions under which the insider elects to adopt a 

plan often coincide with the conditions under which the termination option reduces welfare, an alternative 

regulatory framework wherein the insider could adopt a non-cancellable plan (and, thereby, credibly commit to 

execute his planned trade) would improve the investors’ welfare under a wide set of circumstances.”). 

372  For a discussion of the evidence of returns following insider trades occurring close to plan adoption, see infra 

notes 387-397 and accompanying and preceding text.  

372  For a discussion of the evidence of returns following insider trades occurring close to plan adoption, see infra 

notes 387-397 and accompanying and preceding text. But see infra notes 398-406 and accompanying and 

following text. Existing disclosure requirements do not allow investors to obtain systematic or comprehensive 

data on plan cancellations or plan modifications (including cancellations of planned trades). 

https://www.sec.gov/comments/s7-24-20/s72420-8488827-229970.pdf
https://www.sec.gov/comments/s7-14-20/s71420-8709408-236962.pdf
https://www.sec.gov/comments/s7-24-20/s72420-8519687-230183.pdf
https://www.sec.gov/comments/s7-06-20/s70620-7843308-223819.pdf
https://www.sec.gov/comments/s7-20-18/s72018-4766666-176839.pdf
https://www.cii.org/files/July%2011%202018%20SEC%20Reg%20Flex%20Letter%20Final.pdf
https://www.sec.gov/comments/s7-07-17/s70717-3025708-161898.pdf
http://www.cii.org/files/issues_and_advocacy/correspondence/2018/January%2018%202018%20Rule%2010b5-1%20(finalI).pdf
http://www.cii.org/files/issues_and_advocacy/correspondence/2018/January%2018%202018%20Rule%2010b5-1%20(finalI).pdf
https://www.sec.gov/comments/s7-06-16/s70616-49.pdf
https://www.sec.gov/comments/s7-06-16/s70616-49.pdf
http://www.cii.org/files/issues_and_advocacy/correspondence/2013/05_09_13_cii_letter_to_sec_rule_10b5-1_trading_plans.pdf
http://www.cii.org/files/issues_and_advocacy/correspondence/2013/05_09_13_cii_letter_to_sec_rule_10b5-1_trading_plans.pdf
https://docs.house.gov/meetings/BA/BA16/20200917/111013/HHRG-116-BA16-Wstate-FischJ-20200917.pdf


125 

As discussed in detail in Section II above, the Commission is adopting several 

amendments to address these practices, including modifications to the conditions of the 

affirmative defense under Rule 10b5-1(c)(1), additional disclosure requirements under new Item 

408 of Regulation S-K, and additional disclosure of Rule 10b5-1 plan use in beneficial 

ownership forms. The new disclosure requirements are expected to affect the behavior of insiders 

by drawing scrutiny of investors and other market participants to trading practices of insiders.373  

Combined, the amendments are expected to reduce the potential for insider trading 

through both Rule 10b5-1 plans and certain other trading arrangements not reliant on Rule 10b5-

1. Deterring insider trading is expected to result in benefits for investor protection, capital 

formation, and orderly and efficient markets. By deterring insider trading, the amendments are 

expected to disincentivize insider behavior that is likely to harm the securities markets and the 

issuer, and undermine investor confidence.  

3. Current levels of disclosure about insider trading plans limit the ability of investors to 

identify the risk of insider trading and to consider the associated incentive conflicts and 

information asymmetries in their investment decisions 

Existing gaps in the disclosure framework limit the information currently available to 

investors and other market participants regarding the use of insider trading plans and the extent 

to which trading based on MNPI potentially distorts insider incentives with respect to corporate 

decisions (and thus shareholder value). These gaps therefore limit the ability of investors to 

correctly value the issuer’s shares, and thus make informed investment decisions. 

                                                 

373  Studies have found evidence that changes in mandatory disclosure affect behavior. See, e.g., Elizabeth C. Chuk, 

Economic Consequences of Mandated Accounting Disclosures: Evidence from Pension Accounting Standards, 

88 ACCT. REV. 395 (2013); Alice Adams Bonaimé, Mandatory Disclosure and Firm Behavior: Evidence from 

Share Repurchases, 90 ACCT. REV. 1333 (2015). 



126 

The disclosure amendments will provide greater transparency to investors and decrease 

information asymmetries between insiders and outside investors about insider trading 

arrangements and insider trading policies and procedures, enabling more informed decisions 

about whether to invest in the issuer’s shares and at what valuation. This added transparency may 

result in more efficient capital allocation and more informationally efficient pricing. The 

additional disclosure requirements may also indirectly yield potential capital formation benefits 

if they increase investor confidence in the issuer’s governance. 

4. The economic effects of the amendments are uncertain or difficult to generalize 

An important factor contributing to the uncertainty about the magnitude of the benefits of 

the amendments to Rule 10b5-1 is the potential for substitution of Rule 10b5-1 plans by other 

trading arrangements. The use of the Rule 10b5-1(c)(1) affirmative defense is voluntary. Insiders 

and companies may elect not to rely on the Rule 10b5-1(c)(1) affirmative defense if they 

perceive the costs of doing so to be too high. For example, insiders may instead adopt trading 

arrangements that do not rely on the amended Rule 10b5-1(c)(1) affirmative defense or trade 

without trading plans. However, doing so may entail its own costs and limitations for insiders.374 

The application of the disclosure requirements of new Item 408(a) of Regulation S-K to all 

officer and director Rule 10b5-1 and non-Rule 10b5-1 trading arrangements is expected to partly 

mitigate concerns that trading under non-Rule 10b5-1 trading arrangements may adversely 

impact investors. 

The considerations presented above are generally applicable to all of the amendments 

discussed in this release. In the sections that follow, we provide a more detailed discussion of 

economic effects of the individual amendments, including the expected costs and benefits 

                                                 

374  See infra notes 439-440 and preceding and accompanying text. 



127 

relative to the market baseline as well as reasonable alternatives. We separately discuss 

economic considerations related to the timing of option grants and insider gifts of stock in 

Sections V.D and V.E, respectively. 

As discussed in Section III above, in response to commenters’ concerns,375 we are 

providing a six-month transition period for SRCs for compliance with the disclosure 

amendments. The transition period is expected to defer the costs and benefits of the amendments. 

By giving insiders and companies time to adjust their trading plans and recordkeeping processes, 

this transition period is expected to partially mitigate some of the SRCs’ initial costs of preparing 

to comply with the amendments. In addition, it will enable these smaller companies to benefit 

from observing the compliance and disclosure practices of larger companies. 

B. Amendments to Rule 10b5-1(c)(1)  

The Commission is adopting additional conditions that must be satisfied for a trading 

arrangement to be eligible for the Rule 10b5-1(c)(1) affirmative defense. These amendments are 

intended to protect investors by decreasing the likelihood of, and the opportunities to, profit from 

MNPI through such trading arrangements.  

The amendments narrow the conditions under which the Rule 10b5-1(c)(1) affirmative 

defense is available. First, the amendments establish mandatory cooling-off periods before any 

trading can commence under a Rule 10b5-1 trading arrangement after the adoption of a new or 

modified trading arrangement by persons other than the issuer. Second, the amendments impose 

a certification requirement as a condition of the Rule 10b5-1(c)(1) affirmative defense for trading 

arrangements of officers and directors. Third, the amendments restrict the availability of the 

affirmative defense for multiple overlapping trading arrangements involving open-market 

                                                 

375  See, e.g., letters from Cleary, Cravath, BioNJ, SIFMA 2, and Sullivan. 



128 

transactions under some conditions, as well as limit open-market single-trade trading 

arrangements to one such arrangement in any twelve-month period. Finally, the amendments 

expand the existing requirement that a Rule 10b5-1 trading arrangement must be “given or 

entered into” in good faith to add the condition that the trader “act in good faith” with respect to 

the trading arrangement. In a change from the proposal, we are not, at present time, adopting 

cooling-off periods or restrictions on multiple overlapping Rule 10b5-1 trading arrangements or 

single-trade trading arrangements with respect to the issuer. In response to public comments, we 

are making several changes from the proposal, including providing for a cooling-off period for 

officers and directors that is tied to both a specific number of days and to the date of disclosure 

of fiscal period results; imposing a shorter (30-day) cooling-off period for persons other than the 

issuer that are not officers or directors; clarifying the treatment of plan modifications; requiring 

the proposed officer and director certifications to be included in the plan itself and eliminating 

the requirement to maintain the certification for ten years; and making certain changes to the 

restrictions on multiple plans and single-trade plans. 

1. Baseline and Affected Parties 

We consider the economic effects of the amendments in the context of the regulatory and 

market baseline. A lack of comprehensive disclosure of Rule 10b5-1 trading arrangements makes 

it more difficult to provide complete data on existing Rule 10b5-1 practices and affected plan 

participants. Our estimates are limited by the voluntary nature of the Rule 10b5-1 disclosure in 

beneficial ownership filings, where insider trades are reported, as well as the limited scope of 

Rule 10b5-1 trades for which Form 144 reporting is required.376 Based on beneficial ownership 

                                                 

376  Form 144 must be filed with the Commission by an affiliate as a notice of the proposed sale of restricted 

securities when the amount to be sold under Rule 144 during any three-month period exceeds 5,000 shares or 

units or has an aggregate sales price in excess of $50,000. See Rule 144(h) [17 CFR 230.144(h)]. Thus, Rule 



129 

filings (Forms 3, 4, and 5) during calendar year 2021, we estimate that approximately 5,900 

natural persons at approximately 1,700 companies reported trades under Rule 10b5-1 trading 

arrangements. This figure includes approximately 5,800 officers and directors at 1,600 

companies; narrowing the sample to officers yields an estimate of approximately 4,700 officers 

at approximately 1,500 companies.377 Due to the data limitations mentioned above, the actual 

number of affected parties likely is significantly larger.  

Below, we discuss the available evidence on Rule 10b5-1 plans of officers, directors, and 

other natural persons. A recent academic study analyzed Form 144 data on insider trades under 

Rule 10b5-1 plans from January 2016 through May 2020.378 The study documented that “[t]he 

                                                 
10b5-1 plan trades below that threshold are not required to be reported on Form 144 and thus may not be in our 

data. Further, because the vast majority of Form 144 filings were made in paper form during the considered 

period, we rely on information from such paper filings extracted and processed by the vendor for the Thomson 

Reuters / Refinitiv insiders dataset (version retrieved June 27, 2022).  

377  The estimate is based on the data from filings on Forms 3, 4, and 5 for trades during calendar year 2021 that 

reported Rule 10b5-1 plan use (obtained from Thomson Reuters / Refinitiv insiders dataset (version retrieved 

June 27, 2022)). The estimate only captures natural persons with Rule 10b5-1 plans that have Section 16 

reporting obligations, and thus represents a lower bound on the number of affected plan participants (for 

instance, it excludes employees that are not Rule 16a-1(f) officers as well as any other persons with a Rule 

10b5-1 trading plan that do not have a Section 16 reporting obligation). Officers and directors are identified 

based on the role code (beneficial owners and affiliates are not included in the count). Combining data from 

Form 144 filings with planned sale dates in calendar year 2021 that reported Rule 10b5-1 plan use (also 

obtained from Thomson Reuters / Refinitiv insiders dataset (version retrieved June 27, 2022)) and the data from 

filings on Forms 3, 4, and 5 cited above, we estimate that approximately 7,000 natural persons at approximately 

1,800 companies (which includes approximately 6,000 officers and directors at approximately 1,700 companies; 

or when limited to officers only, approximately 4,900 officers at approximately 1,500 companies) reported 

trades under Rule 10b5-1. Due to gaps in the reporting regime, we cannot be certain whether the higher 

prevalence of plans reported for officers is due to their higher prevalence in general or due to greater disclosure 

of such plans.  

378  See Gaming the System, supra note 20. The study presents data “on all sales of restricted stock filed on Form 

144 between January 2016 and May 2020 and the adoption date of any corresponding 10b5-1 plans. . . In total, 

we have data on 20,595 plans, which covers the trading activity by 10,123 executives at 2,140 unique firms. 

These plans are responsible for a total of 55,287 sales transactions totaling $105.3 billion during our sample 

period. Average (median) trade size is $1.9 million ($0.4 million) . . . .” The analysis based on Form 144 data 

has the advantage of not being subject to voluntary reporting bias. However, as a caveat, planned resales 

reported on Form 144 represent a subset of all trades and may not be representative of all Rule 10b5-1 trades by 

insiders (e.g., of purchases, or of sales of unrestricted stock). By comparison, Mavruk & Seyhun examine a 

larger sample of plan trades identified by a voluntary Rule 10b5-1 checkbox on beneficial ownership forms. 

They examine transactions for “an average of 14,211 insiders in 3875 firms for each year between 2003 and 

2013.” See Mavruk & Seyhun, supra note 19. Relatedly, Hugon & Lee (2016) utilize a sample of “voluntary 

disclosures of 10b5-1 plan participation in SEC Form 4 filed between October 2000 and December 2010.” See 



130 

mean (median) cooling-off period is 117.9 (76) days,” “[a]pproximately 14 percent of plans 

commence trading within the first 30 days, and 39 percent within the first 60 days,” and 

“[a]pproximately 82 percent of plans commence trading within 6 months.”379 A set of subsequent 

analyses by the Wall Street Journal (collectively, the “WSJ Analysis”) examined Washington 

Service380 data on “169,000 forms from company insiders submitted from 2016 through 2021” 

and found that “about a fifth of the [prearranged stock sales] occurred within 60 trading days of a 

plan’s adoption.”381 As a caveat, this data did not indicate whether the trading time frames were 

due to an issuer’s policies, the insider’s own timing or scheduling, or execution of trades under a 

plan (i.e., whether there is a “cooling-off period” is not known—only the time between plan 

adoption and the first trade is calculated).  

Using Form 144 data provided by the Washington Service for a more recent period 

(January 2, 2018 – September 13, 2022), we find that the mean (median) Rule 10b5-1 plan has 

the first trade 102 (71) days after adoption, with 13.2 percent of first trades pursuant to a plan 

occurring within thirty days of the plan date and 41.5 percent occurring within 60 days of the 

plan date.382 A shorter period of time between plan adoption and the first trade under the plan is 

also associated with a larger trade size: trades occurring within 90 days of plan adoption have a 

median size of $748,000 compared with a median size of $403,000 for those trades occurring 

                                                 
supra note 19. See also, e.g., Lee (2020), supra note 35; See Rik Sen, Are Insider Sales Under 10b5-1 Plans 

Strategically Timed?, 2008 N. Y. U. (Working Paper) (2008); Eliezer M. Fich et al., When and How Are Rule 

10b5-1 Plans Used for Insider Stock Sales?, 2021 DREXEL U., U.T. AUSTIN & C.U.L. (Working Paper) (2021) 

(also utilizing Form 4 data). Data on Rule 10b5-1 trades by issuers is not available. 

379  Gaming the System, supra note 20. 

380  The Washington Service is a research firm that provides data about trades by insiders. 

381  See McGinty & Maremont, supra note 32; see also Tom McGinty, Methodology: How the Journal Analyzed the 

Data on Insider Stock Sales, WALL ST. J. (June 29, 2022 (retrieved from Factiva database). 

382  We estimate that 13.2 percent of trades occur within 0–30 days. 28.3 percent of trades occur within 31–60 days, 

and 22.3 percent within 61–90 days. In total, 63.8 percent of trades occur within 90 days of the date of plan 

adoption and 86.9 percent of plans commence trading within six months. 



131 

more than six months after plan adoption. Further, single-trade plans constitute approximately 44 

percent of plans during the time period examined.383  

A 2016 industry survey of public companies also examined their Rule 10b5-1 plan 

practices.384 The survey found, among other things, that: (i) 77 percent of the respondents had a 

mandatory cooling-off period of 60 days or fewer and a cooling-off period of 30 days was the 

most common cooling-off period among respondents (41 percent); (ii) 98 percent of the 

respondents reviewed and approved their insiders’ Rule 10b5-1 plans to some degree; (iii) 55 

percent of the respondents allowed early termination of plans, and 40 percent of the respondents 

allowed modification of plans (the survey does not report the extent of overlap between these 

two subsets of respondents); and (iv) 18 percent of respondents allowed insiders to maintain 

multiple overlapping plans while 82 percent disallowed multiple overlapping plans.385 A 2021 

industry survey of public companies (cited by one commenter) provided more recent information 

about Rule 10b5-1 plan practices.386 The survey found, among other things, that: (i) at 39 percent 

                                                 

383  As a caveat, the data does not show the dates of all scheduled trades, only the dates of executed trades. Thus, 

some “single-trade” plans may be multi-trade plans in progress, or multi-trade plans with all but one trade 

cancelled.  

384  See MORGAN STANLEY & SHEARMAN & STERLING LLP, DEFINING THE FINE LINE: MITIGATING RISK WITH 

10B5-1 PLANS (2016), available at https://advisor.morganstanley.com/capitol-wealth-management-

group/documents/field/c/ca/capitol-wealth-management-

group/Defining_the_Fine_Line___Locked_Version.pdf. The survey included public company members of the 

Society of Corporate Secretaries & Governance Professionals. The respondents and their practices related to 

Rule 10b5-1 plans are not necessarily representative of all issuers subject to the amendments and their Rule 

10b5-1 plan policies and practices. Separately, the survey stated that that 51 percent of S&P 500 companies had 

Rule 10b5-1 plans in 2015. 

385  Id. 

386  See letter from SCG; SOC’Y FOR CORP. GOVERNANCE ET AL., 10B5-1 PLAN PRACTICES 2021 SURVEY (2021), 

available at https://higherlogicdownload.s3.amazonaws.com/GOVERNANCEPROFESSIONALS/a8892c7c-

6297-4149-b9fc-378577d0b150/UploadedImages/Final_10b5-1_Plan_Report_CS_Survey_2021_V6_-10-19-

21_W_o_Comments.pdf (“SCG 2021 Survey”). The survey included 145 respondents (with fewer respondents 

providing answers to some questions) among public company members of the Society for Corporate 

Governance (which need not be the same respondents as the respondents to the 2015 survey). The respondents 

and their practices related to Rule 10b5-1 plans are not necessarily representative of all issuers subject to the 

amendments and their Rule 10b5-1 plan policies and practices. For example, 92 percent of respondents to the 

https://advisor.morganstanley.com/capitol-wealth-management-group/documents/field/c/ca/capitol-wealth-management-group/Defining_the_Fine_Line___Locked_Version.pdf
https://advisor.morganstanley.com/capitol-wealth-management-group/documents/field/c/ca/capitol-wealth-management-group/Defining_the_Fine_Line___Locked_Version.pdf
https://advisor.morganstanley.com/capitol-wealth-management-group/documents/field/c/ca/capitol-wealth-management-group/Defining_the_Fine_Line___Locked_Version.pdf
https://higherlogicdownload.s3.amazonaws.com/GOVERNANCEPROFESSIONALS/a8892c7c-6297-4149-b9fc-378577d0b150/UploadedImages/Final_10b5-1_Plan_Report_CS_Survey_2021_V6_-10-19-21_W_o_Comments.pdf
https://higherlogicdownload.s3.amazonaws.com/GOVERNANCEPROFESSIONALS/a8892c7c-6297-4149-b9fc-378577d0b150/UploadedImages/Final_10b5-1_Plan_Report_CS_Survey_2021_V6_-10-19-21_W_o_Comments.pdf
https://higherlogicdownload.s3.amazonaws.com/GOVERNANCEPROFESSIONALS/a8892c7c-6297-4149-b9fc-378577d0b150/UploadedImages/Final_10b5-1_Plan_Report_CS_Survey_2021_V6_-10-19-21_W_o_Comments.pdf


132 

of respondents the aggregate number of 10b5-1 plans by their C Suite had increased over the 

prior two years, and at 74 percent of respondents at least one insider adopted a Rule 10b5-1 plan 

in the prior fiscal year; (ii) 13 percent of respondents required the C Suite to use Rule 10b5-1 

plans, 6 percent required directors to use Rule 10b5-1 plans, and three percent required other 

insiders to use Rule 10b5-1 plans, with companies with higher market capitalization being more 

likely to require insiders to sell through Rule 10b5-1 plans; (iii) a significant majority of 

respondents reported reviewing and approving the Rule 10b5-1 plans entered into by their C 

Suite and directors; (iv) the most common cooling-off period was 30 days – 9 percent of 

respondents reported not imposing a cooling-off period, 10 percent – a cooling-off period of less 

than 30 days, 51 percent – 30 days, 13 percent – longer than 30 days, and 8 percent – a cooling-

off period until the opening of trading window in the next quarter (with “other” cooling-off 

periods comprising the remainder); (v) the majority of respondents allowed insiders to terminate 

or modify their Rule 10b5-1 plans (with many of those imposing restrictions in conjunction with 

terminations or modifications) and permitted insiders with an existing Rule 10b5-1 plan to sell 

shares outside of the plan; (vi) 48 percent of respondents allowed while 52 percent of 

respondents prohibited multiple, overlapping Rule 10b5-1 plans; and (vii) 23 percent of 

respondents required disclosures of Rule 10b5-1 plan adoptions by the C Suite. 

Various studies have sought to examine the potential use of MNPI for trading under Rule 

10b5-1 by looking at the returns around trades under such plans (with the caveats about data 

availability). The WSJ Analysis concluded that, on average, Rule 10b5-1 sales occurring closer 

in time to plan adoptions were more likely to precede declines in share prices than sales 

                                                 
2021 survey had their IPO more than five years ago and 58 percent had market capitalization of at least $10 

billion, which may indicate a greater representation of larger, more established companies. 



133 

conducted later after plan adoptions.387 For insiders that sold shares within 0-30 days, 31-60 

days, and 61-90 days following plan adoptions, average two-month post-sale excess returns 

(calculated net of sector returns) were negative: -1.7 percent, -1.4 percent, and -0.7 percent, 

respectively. For insiders that sold shares within 91-120, 121-150, 151-180, and 181+ days 

following plan adoptions, average two-month post-sale excess returns were positive: 0.3 percent, 

1.5 percent, 1.4 percent, and 0.6 percent, respectively.388 The Gaming the System study 

documented abnormal trends and returns following some insider sales under Rule 10b5-1 (as 

compared to both standard open-market trades and different kinds of Rule 10b5-1 trades), which 

suggests potential insider trading under such plans. For example, the study shows abnormal 

industry-adjusted returns over a six-month period following the first sale to be -2.5 percent for 

plans with the first trade occurring less than 30 days after plan adoption and -1.5 percent for 

plans with the first trade occurring between 30 and 60 days after plan adoption, but no evidence 

of such abnormal returns after the insider sale when the first trade occurs more than 60 days after 

plan adoption. However, the study also finds that the trades of single-trade plans (which 

comprise 49 percent of the 10b5-1 plans in the study) are consistently loss-avoiding regardless of 

cooling-off period, with single-trade plans with short cooling-off periods exhibiting the highest 

average loss avoidance (avoiding an industry-adjusted price decline of -4 percent).389 In contrast, 

the study finds that the trades under multiple-trade plans are only loss-avoiding within 30 days of 

plan adoption (industry-adjusted price decline of -1 percent). The study also finds abnormal 

returns of between -2 percent and -3 percent for plans that execute sales in the window between 

                                                 

387  See McGinty & Maremont, supra note 381. 

388  Id. 

389  See supra note 383 and infra notes 400 and 435. 



134 

when the plans are adopted and quarterly earnings announcements, but no price drop is found 

following sales after the earnings announcements. 

Negative abnormal returns after insider sales under Rule 10b5-1 plans indicate potential 

insider trading ahead of negative news. A lack of such negative returns after insider sales under 

plans with more time between plan adoption and first trade could be indicative of inside 

information becoming stale with the passage of time. Similarly, a lack of negative returns when 

insider sales occur after the quarter’s earnings announcement may suggest less potential for 

informed selling once the earnings information has been made public.  As a caveat, the tests of 

statistical significance of the differences are not shown in the study, so we cannot assess whether 

the economic differences discussed above have statistical significance. 

Several other studies document abnormal returns following trading by insiders who use 

Rule 10b5-1 plans. For example, a 2009 study of the use of Rule 10b5-1 plans finds that 

“insiders’ sales systematically follow positive and precede negative firm performance, 

generating abnormal forward-looking returns larger than those earned by nonparticipating 

colleagues,” that “a substantive proportion of randomly drawn plan initiations are associated 

with pending adverse news disclosures,” and that “early sales plan terminations are associated 

with pending positive performance shifts.”390 A 2016 study examined insider sales at financial 

institutions prior to the 2008 financial crisis and found that “net insider sales in the 2001Q2–

2007Q2 pre-financial crisis quarters predict not-yet-reported non-performing securitized loans 

and securitization income for those quarters, and that net insider sales during 2006Q4 predict 

write-downs of securitization-related assets during the 2007Q3–2008Q4 crisis period” and, 

                                                 

390  See, e.g., Jagolinzer, supra note 19, at 224. 



135 

crucially for this analysis, that “insiders avoid larger stock price losses through 10b5-1 plan sales 

than through non-plan sales.”391 A different 2016 study presented evidence of “insiders selling 

shares prior to imminent bad earnings news through their Rule 10b5-1 trading plans.”392 A 2020 

study presents evidence consistent with insiders using 10b5-1 plans to sell stock in advance of 

disappointing earnings results.393 The study further finds that some of the more aggressive 

insider trading on earnings information shifted into Rule 10b5-1 plans after adoption of the 

rule.394 The study also found that these insiders make the following types of trades: infrequent, 

irregularly timed, close to the plan initiation date, and executed during traditional blackout 

periods.395 Finally, a different 2020 study found that “public companies disproportionately 

disclose positive news on days when corporate executives sell shares under predetermined Rule 

10b5-1 plans,” with such disclosure of good news on Rule 10b5-1 selling days being most 

prevalent “in the health care sector and among mid-cap firms.”396 The study further observed that 

“stock prices reverse after high levels of Rule 10b5-1 selling on positive news days, and that the 

price reversal increases with the share volume of Rule 10b5-1 selling.”397 

                                                 

391  See Stephen G. Ryan, et al., Securitization and Insider Trading, 91 ACCT. REV. 649 (2016). 

392  See Jonathan A. Milian, Insider Sales Based on Short-Term Earnings Information, 47 REV. QUANT. FIN. ACCT. 

109 (2016) (examining data on insider sales under Rule 10b5-1 based on beneficial ownership filings from 

August 2004 through May 2010). As a caveat, the study specifies that the plan identification may be imprecise: 

it “use[s] the timing of insiders’ Rule 10b5-1 trades relative to each other in order to infer a sales plan,” “[g]iven 

the lack of disclosure requirements in SEC Rule 10b5-1 and the nature of the data.” 

393  See Lee (2020), supra note 35. 

394  Id. 

395  Id. 

396  See Joshua Mitts, Insider Trading and Strategic Disclosure, 2020 COLUM. U. (Working Paper) (2020). 

397  Id. 



136 

However, a 2008 study found “no significant difference in stock price performance 

following plan sales and non-plan sales.”398 The study also reports that “price contingent orders 

(e.g., limit orders), a common feature in trading plans, give rise to empirical patterns that have 

been taken as evidence of strategic timing of sales.”399 Insiders may incorporate limit orders into 

trading plans because such plans may involve trading over months and even years and therefore 

expose the insider to potentially significant market fluctuations. The limitations of the data about 

insiders’ trades prevent us from estimating the prevalence of limit orders in such plans and 

comparing it to trades outside such plans, or assessing the magnitude of the potential bias in the 

profitability of trades executed under Rule 10b5-1 plans due to limit order use.400 Nevertheless, 

some evidence suggests that limit orders cannot account for the entirety of the abnormal returns 

documented in other studies.401 Thus, we remain concerned about abnormally profitable insider 

trading under Rule 10b5-1.  

                                                 

398  See Rik Sen, Are Insider Sales Under 10b5-1 Plans Strategically Timed?, 2008 N. Y.U. (Working Paper) 

(2008). The study uses Form 4 data from January 2003 - June 2006. As an important caveat, reporting of 10b5-1 

trades on Form 4 is voluntary. Thus, trades classified as “non-10b5-1” trades in the study may include 10b5-1 

plan trades.  

399  Id; see also letter from Anonymous. 

400  Data biases due to the potential use of limit orders may potentially interact with data biases due to incomplete 

identification of Rule 10b5-1 trades in existing data based on beneficial ownership reporting requirements. 

Thus, the true magnitude of the abnormal profits from insider trading in Rule 10b5-1 plans may differ from 

those observed in the data from available reporting. 

401  See, e.g., Jagolinzer, supra note 19 (comparing Rule 10b5-1 plan and non-Rule 10b5-1 trading arrangement 

subsamples with a similar one-month price run-up and concluding that “predictable” mean reversion following 

sustained price increases that may have triggered limit sell orders is unlikely to explain the abnormal returns 

following 10b5-1 sales); see also Shon & Veliotis, supra note 368 (advising “caution in making inferences, 

because the potential presence of limit order transactions makes it difficult to unambiguously determine the 

direction of causality” but also performing several tests to attempt to rule out the effects of limit orders - 

including, for instance, the finding that, with the caveat that such disclosure is voluntary, only approximately 

1.07 percent of the 10b5-1 sample included keywords related to limit orders in the footnotes to Form 4; the 

finding that either controlling for the indicator for disclosed limit order use or excluding such observations from 

the analysis does not change any of the results; the finding that excluding the categories of firms found more 

likely to be associated with disclosed limit order use does not affect the results; and the finding that abnormal 

returns are driven by CEOs and CFOs, who are more likely to have discretion over meeting or beating earnings 

expectations). Further, “[t]here is evidence, however, that a substantive proportion of randomly drawn plan 

initiations are associated with pending adverse news disclosures. There is also evidence that early sales plan 



137 

Two other studies find evidence that insiders can profit when trading under 10b5-1 plans, 

although these profits may be the same as or smaller than trades that do not qualify for the 

affirmative defense. A 2016 study finds negative abnormal returns after insider sales under Rule 

10b5-1 as well as positive abnormal returns after insider purchases under Rule 10b5-1 (over a 

one-month holding period).402 However, the study does not find significant differences between 

the abnormal returns following insider trades under Rule 10b5-1 and other insider trades.403 A 

2021 study finds that “non-plan sales are, on average, preceded by a larger price run-up (3.0 

percent versus 1.4 percent) and followed by a larger price decline (-1.6 percent versus -1.0 

percent) than plan sales . . . consistent with greater opportunistic behavior by CEOs who trade 

outside of Rule 10b5-1 plans.”404 Further, focusing on “the 25 percent of sales with the largest 

ratio of transaction value to the CEO’s most recent total annual compensation,” this study found 

that “the average cumulative abnormal return (“CAR”) during the 40 trading days before the sale 

is 3.68 percent for non-plan sales and 1.77 percent for plan sales” and “the average CAR for the 

40 trading days after the sale is -2.24 percent for non-plan sales and -2.41 percent for plan 

sales.”405 The study concludes that “the overall level of opportunistic behavior is smaller for 

sales within Rule 10b5-1 plans than for sales outside of such plans” but that “CEOs who have a 

                                                 
terminations are associated with pending positive performance shifts, reducing the likelihood that insiders' sales 

execute at low prices.” See Jagolinzer, supra note 19. 

402  See Mavruk & Seyhun, supra note 19. 

403  Id. As noted above, due to voluntary reporting of the Rule 10b5-1 flag on beneficial ownership forms, trades 

classified as “non-10b5-1” trades in the study may include Rule 10b5-1 plan trades. 

404  See Eliezer M. Fich et al., supra note 378. This study examined “11,250 stock sales by 1,514 CEOs at 1,312 

different public firms during the 2013 to 2018 period” and found that, “[o]f these stock sales, 6,953 are 

identified in SEC Form 4 filings as executed through Rule 10b5-1 plans.” As noted above, due to voluntary 

reporting of the Rule 10b5-1 flag on beneficial ownership forms, trades classified as “non-10b5-1” trades in the 

study may include Rule 10b5-1 plan trades. 

405  Id. Cumulative abnormal returns are returns in excess of returns that would be expected given the security’s 

systematic risk over the period of time in question. 



138 

lot of money at stake are able to trade opportunistically even if the transaction is executed under 

a Rule 10b5-1 plan.”406 The findings of these studies differ, in part, due to differences in the 

samples used for analysis (i.e., the sample periods and data source, which were beneficial 

ownership forms or Form 144 filings) and their methodologies (including, among other 

assumptions, whether insider trading under Rule 10b5-1 is examined in isolation or in 

comparison with other insider sales and purchases). As noted above, the lack of data on Rule 

10b5-1 plans can make it difficult to extrapolate from the available evidence to all trading under 

Rule 10b5-1. However, overall, the evidence on the use of Rule 10b5-1 plans in the above 

studies raises concerns about insider trading. 

 Data on companies’ use of Rule 10b5-1 plans are very limited. Most of the commenters 

discussing issuer Rule 10b5-1 plans referred to issuer repurchases.407 However, one commenter 

expressed concern that the Proposing Release underestimated the number of issuers that conduct 

repurchases under Rule 10b5-1.408 Some companies voluntarily disclose their use of Rule 10b5-1 

plans to carry out stock repurchases on Form 8-K or in periodic reports. Such voluntary reporting 

is likely to underestimate the number of affected companies. Nevertheless, in the current 

disclosure regime, it is the main direct source of information on the prevalence of Rule 10b5-1 

repurchases. One study examining different repurchase methods identified “at least 200 

announcements of repurchases using Rule 10b5-1 per year from 2011 to 2014” and found that 

“[In 2014] 29% [of repurchase announcements] included a 10b5-1 plan.”409 Based on a textual 

                                                 

406  Id. 

407  See supra note 71.  

408  See letter from Cravath. 

409  See Alice Bonaimé et al., Payout Policy Trade-Offs and the Rise of 10b5-1 Preset Repurchase Plans, 66 MGMT. 

SCI. 2762 (2020). The study does not provide evidence of issuers’ use of such plans for insider trading through 

issuer repurchases. It focuses on such plans being less flexible and representing a stronger pre-commitment than 



139 

search of calendar year 2021 filings, we estimate that approximately 210 companies disclosed 

share repurchase programs executed under a Rule 10b5-1 plan.410 Another, indirect approach to 

estimating the number of affected issuers involves extrapolating the number of companies 

conducting repurchases under Rule 10b5-1 in a given year from a combination of the incidence 

of Rule 10b5-1 plan use among voluntarily announced repurchases (estimated at 29 percent as 

previously noted411) and the overall number of companies conducting repurchases based on their 

financial statements.412 Based on data from Compustat and EDGAR filings for fiscal years 

ending between January 1, 2021 and December 31, 2021, we estimate that approximately 3,600 

operating companies conducted repurchases, yielding an estimate of approximately 1,000 

companies affected by the Rule 10b5-1 amendments.413 Due to a lack of an issuer trade reporting 

requirement similar to that for officers and directors, we are not aware of data or studies specific 

to companies’ actual trading under Rule 10b5-1 plans. 

                                                 
open market repurchases. The study finds that, “[c]onsistent with [such] plans signaling commitment, Rule 

10b5-1 repurchase announcements are associated with greater and faster completion rates, with more positive 

market reactions, and with more dividend substitution than open market repurchases.” 

410  The estimate is based on a textual search of calendar year 2021 filings of Forms 10-K, 10-Q, 8-K, as well as 

amendments and exhibits thereto in Intelligize. The estimate is based on a textual search using keywords “10b5-

1 repurchases” or a combination of keywords “repurchase plan” and “10b5-1” (the approach used in the 

Proposing Release estimate). Due to a lack of standardized presentation and the unstructured (i.e., non-machine-

readable) nature of the disclosure, these estimates are approximate and may be over- or under-inclusive. 

411  See supra note 409. 

412  Using the number of issuers that announce repurchases in a given year would underestimate the number 

significantly because issuers may continue to implement a previously announced repurchase program over 

multiple years. 

413  As a caveat, a complete estimate of the number of affected filers is limited by data coverage. A source of data 

commonly used in existing studies, Standard & Poor’s Compustat, has limited coverage of small and unlisted 

registrants and foreign private issuers. Therefore, we supplemented Standard & Poor’s Compustat 

Fundamentals Annual data (version retrieved June 27, 2022) with structured data from financial statement 

disclosures in EDGAR filings (retrieved June 27, 2022), with the caveat that variation in filer use of tags to 

characterize their repurchases may result in some data noise. 29 percent x 3600 = 1,044 ~ 1,000. 



140 

2. Benefits 

The main benefit of the amendments to Rule 10b5-1(c)(1) is the anticipated reduction in 

insider trading based on MNPI through such plans (the benefits of which are discussed in greater 

detail in Section V.A above). Below, we discuss how each of the amendments to Rule 10b5-

1(c)(1) individually is expected to reduce such insider trading. In addition, we expect the 

provisions to work in tandem to substantially reduce insider trading through Rule 10b5-1 plans. 

In particular, for officers and directors, the certification requirement is expected to complement 

the effects of the cooling-off period. Cooling-off periods are expected to work together with the 

restrictions on the use of multiple overlapping plans under Rule 10b5-1(c)(1) to possibly prevent 

a portion of potentially opportunistic plan cancellations based on MNPI. Thus, while we 

separately discuss below the benefits of each individual provision for reducing insider trading 

through such plans, the combined application of the various amendments discussed here may 

also generate synergies. 

As discussed in Section V.A above, because the Rule 10b5-1(c)(1) affirmative defense is 

voluntary, if insiders find the conditions of this defense to be overly burdensome, they may elect 

not to rely on it.414 If migration of trading outside of Rule 10b5-1 plans results, in some 

instances, in an increase or no change in the incidence of insider trading, the benefits of the 

amendments may be attenuated or offset.415 Whether any shift to trading outside of Rule 10b5-1 

plans results in a change to the amount of insider trading will depend on the extent to which 

other mechanisms (such as legal liability, enforcement actions, listing standards, reputational 

                                                 

414  But see infra note 441. 

415  But see infra notes 439-440 and preceding and accompanying text.141 

concerns, and corporate governance mechanisms) and any changes that companies implement to 

their insider trading policies after the amendments deter insider trading incentives.  

In the subsections below we discuss the individual benefits of these amendments to Rule 

10b5-1(c)(1).  

i. Cooling-Off Periods 

With respect to Rule 10b5-1 plans of officers and directors, the final rules add, as a 

condition to the availability of the affirmative defense under Rule 10b5-1(c)(1) a cooling-off 

period before any purchases or sales under the trading arrangement may commence. In a change 

from the 120-day cooling-off period proposed for officers and directors, the cooling-off period 

for officers and directors in the final rules is the later of (1) 90 days following plan adoption or 

modification or (2) two business days following disclosure of the financial results for the 

reporting period in which the plan was adopted (which need not exceed 120 days following plan 

adoption or modification). The cooling-off period for officers and directors is expected to reduce 

incentives to enter or modify plans based on MNPI by ensuring that trades under the plan are 

executed at prices that fully reflect the material information that was previously non-public. This 

is expected to substantially weaken officers’ and directors’ incentives to enter or modify Rule 

10b5-1 plans based on MNPI, in line with the suggestions of commenters.416 The length of the 

cooling-off period will largely prevent officers and directors from profiting on unreleased 

earnings results for the quarter in which the Rule 10b5-1 plan was adopted as well as other types 

of MNPI (such as a potential merger or regulatory action).417 It also is consistent with several 

                                                 

416  See supra notes 47-51 and accompanying text; see also supra Section II.A.1.c for a discussion of the rationale 

for the cooling-off period we are adopting. 

417  See, e.g., Gaming the System, supra note 20; see also supra note 393 and accompanying text. 



142 

recommendations regarding cooling-off periods for officers and directors.418 To the extent that 

MNPI may be time-sensitive, we expect the cooling-off period to effectively discourage officers 

and directors from adopting new or modified plans on the basis of MNPI.419  

Some evidence of the extent to which requiring a longer period of time between Rule 

10b5-1 plan adoption and the first trade under the plan could prevent insider trading is presented 

in the WSJ analysis. It shows that shorter periods between plan adoption and the first sale were 

associated with more negative stock returns after the sale, which implies that more insider 

trading occurs in cases of trading commencing closer to plan adoption.420   

                                                 

418  See, e.g., letters from AFL-CIO, CII, CO PERA, ICGN, Public Citizen O’Reilly, NASAA; see also Council of 

Institutional Investors, Request for rulemaking concerning amending Rule 10b5-1 or further interpretive 

guidance regarding the circumstances under which Rule 10b5-1 trading plans may be adopted, modified, or 

cancelled, December 28, 2012, at p. 3, available at https://www.sec.gov/rules/petitions/2013/petn4-658.pdf 

(recommending a minimum three-month waiting period); Yafit Cohn & Karen Hsu Kelley, Simpson Thacher 

Discusses Combating Securities Fraud Allegations with 10b5-1 Trading Plans (Aug. 10, 2017), available at 

https://clsbluesky.law.columbia.edu/2017/08/10/simpson-thatcher-discusses-combatting-securities-fraud-

allegations-with10b5-1-trading-plans/ (recommending that “insiders wait 30 to 90 days before selling stock 

under the trading plan for the first time”); David B.H. Martin et al., Rule 10b5-1 Trading Plans: Avoiding the 

Heat, Bloomberg BNA Securities Regulation & Law Report, 45 SRLR 438, 2013 (referring to the three-month 

cooling-off period recommended by the Council of Institutional Investors and stating that “[w]aiting periods of 

this duration, or those which restrict trading until after issuance of the next regular earnings release, may assist 

insiders in demonstrating good faith and that trades under a Rule 10b5-1 plan were not designed to take 

advantage of material nonpublic information.”); IAC Recommendations, supra note 22 (recommending a 

cooling-off period of at least four months). 

419  The cooling-off period condition for officers and directors that involves the disclosure of financial results 

references the disclosure on Form 10-K or 10-Q (or for a foreign private issuer, on Form 20-F or 6-K). Earnings 

results are typically announced prior to the periodic report filing. This provision is expected to benefit investors 

by ensuring that officers and directors trading under a Rule 10b5-1 plan cannot profit from MNPI contained in a 

periodic report that was not incorporated in a current report or press release. Form 10-Q and 10-K filings are 

associated with an announcement return, consistent with such disclosures conveying new information to the 

market. See Paul A. Griffin, Got Information? Investor Response to Form 10-K and Form 10-Q EDGAR 

Filings, 8 REV. ACC. STUD. 433 (2003). Periodic reports have been shown to have incremental information 

content compared to earnings releases. See, e.g., Yifan Li, Alexander Nekrasov, & Siew Hong Teoh, 

Opportunity Knocks But Once: Delayed Disclosure of Financial Items in Earnings Announcements and Neglect 

of Earnings News, 25 REV. ACC. STUD. 159 (2020); Angela K. Davis & Isho Tama-Sweet, Managers’ Use of 

Language Across Alternative Disclosure Outlets: Earnings Press Releases versus MD&A, 29 CONTEMP. ACC. 

RES. 804 (2012); Steven Huddart, Bin Ke, & Charles Shi, Jeopardy, Non-public Information, and Insider 

Trading around SEC 10-K and 10-Q Filings, 43 J. ACC. ECON. 3 (2007). 

420  See supra note 381; see also Gaming the System, supra note 20 (similarly finding that shorter periods between 

plan adoption and first sale are associated with more negative returns following the sale, and also noting that 

approximately 14 percent of insider Rule 10b5-1 plans have the first trade within 30 days of plan adoption, 39 

percent within the first 60 days, and 82 percent within six months). More negative returns following an insider 

https://www.sec.gov/rules/petitions/2013/petn4-658.pdf
https://clsbluesky.law.columbia.edu/2017/08/10/simpson-thatcher-discusses-combatting-securities-fraud-allegations-with10b5-1-trading-plans/
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143 

The cooling-off period for officer and director Rule 10b5-1 trading arrangements will 

also help deter trades under a newly adopted or modified plan before the disclosure of that 

quarter’s earnings. Trades under a Rule 10b5-1 trading arrangement prior to an earnings 

announcement appear to be more likely to involve insider trading. For example, the Gaming the 

System study found that “38 percent of plans adopted in a given quarter also execute trades 

before that quarter’s earnings announcement (i.e., in the 1 to 90 days prior to earnings [sic]),” 

that “[s]ales occurring between the adoption date and earnings announcement are about 25 

percent larger than sales occurring more than six months after the earnings announcement,” and 

that “plans that execute a trade in the window between when the plan is adopted and that 

quarter’s earnings announcement anticipate large losses and foreshadow considerable stock price 

declines.”421  

With respect to persons other than the issuer that are not officers or directors, in a change 

from the proposal, in line with the suggestions of several commenters,422 the final amendments 

impose a shorter (30-day) cooling-off period (discussed in greater detail in Section II.A.1.c 

above). Similar to the cooling-off period for officers and directors, the cooling-off period for 

persons other than officers, directors, or the issuer is expected to benefit investors by reducing 

the potential for the use of Rule 10b5-1 plans for insider trading based on MNPI. Although 

persons other than officers, directors, or the issuer may be less likely to have MNPI about 

company-wide financial results or influence key corporate decisions, such persons may 

nevertheless come into possession of MNPI. For example, large shareholders other than officers 

                                                 
sale indicate greater loss avoidance by the selling insider. As Gaming the System notes, such plans “avoid 

significant losses and foreshadow considerable stock price declines that are well in excess of industry peers.” 

421  Id., at pp. 2-3. 

422  See letters from Better Markets, NASAA, and Senator Warren et al. 



144 

and directors may exert control rights or have informational advantages enabling access to MNPI 

before it is released. As another example, non-executive employees may obtain MNPI in the 

course of their employment.423 To the extent that persons other than officers and directors are 

less likely to rely on Rule 10b5-1 for their trading, the discussed benefits would be attenuated.424  

The application of the shorter cooling-off period to Rule 10b5-1 trading plans of persons 

other than officers and directors is intended to tailor the application of the most restrictive of the 

additional conditions of the affirmative defense in a way that balances the additional costs to 

insiders with the investor protection benefits. Directors and Rule 16a-1(f) officers, who will be 

subject to the longer cooling-off periods under the final amendments, are generally more likely 

than other insiders (1) to be involved in making or overseeing corporate decisions about whether 

and when to disclose information; and (2) to be aware of MNPI.425 In addition to these risk 

considerations, the shorter cooling-off period for non-officer-and-director insiders recognizes 

                                                 

423  See, e.g., letter from NASAA (stating that “other corporate insiders and lower-level employees can also have 

access to such [material nonpublic] information”). Separately, prior research provides some evidence of 

information advantages of rank-and-file employees. See, e.g., Ilona Babenko & Rik Sen, Do Nonexecutive 

Employees Have Valuable Information? Evidence from Employee Stock Purchase Plans, 62 MGMT. SCI. 1843 

(2016); Steven Huddart & Mark Lang, Information Distribution within Firms: Evidence from Stock Option 

Exercises, 34 J. ACC. ECON. 3 (2003); Kenneth Ahern, Information Networks: Evidence from Illegal Insider 

Trading Tips, 125 J. FIN. ECON. 26, Table 4 (noting insider trading by some lower-level employees). As an 

important caveat, these studies focus on data outside of Rule 10b5-1 plans. See also infra note 424. 

424  The current reporting regime impairs our ability to obtain comprehensive data on the use of Rule 10b5-1 plans 

by other insiders, including non-executive employees. According to a 2021 industry survey, only three percent 

of respondents required the use of Rule 10b5-1 plans for “other insiders” (insiders besides the C Suite and the 

board of directors) while an additional seven percent strongly encouraged it and 85 percent of respondents 

permitted it. By comparison, 13 percent of respondents required Rule 10b5-1 use and 28 percent strongly 

encouraged it for trading by the C Suite while six percent required Rule 10b5-1 plan use and 23 percent strongly 

encouraged it for trading by the board of directors. The survey also found that 77 percent of respondents that 

allowed other insiders to enter Rule 10b5-1 plans did not impose limitations on the ability of “other insiders” to 

enter Rule 10b5-1 plans, while the remainder imposed some limitations (e.g., allowing only employees at a 

certain level or from certain departments to enter such plans or imposing another limitation). The survey also 

found that at close to a third of respondents, the usage of Rule 10b5-1 plans by “other insiders” had increased in 

the prior two years. See SCG 2021 Survey. As a caveat, the survey contained a relatively small number of 

responses and had a high representation of large, more established public companies and thus the survey 

findings discussed above need not be representative of Rule 10b5-1 plan practices at all affected companies. 

425  See, e.g., Mavruk & Seyhun, supra note 19, at 179; see also letters from CII and Cravath. 



145 

that a longer cooling-off period might impose disproportionate costs on those insiders, who may 

be less highly compensated or face greater liquidity needs. 

ii. Officer and Director Certifications 

The amendments require that, as a condition of the amended Rule 10b5-1(c)(1) 

affirmative defense, officers and directors include certain representations in their trading plan. In 

a change from the proposal, to eliminate any additional burden that separate documentation may 

create,426 the final amendments require the certification to be included in the plan documents as a 

representation. This approach would continue to reinforce directors’ and officers’ cognizance of 

their obligations with regard to MNPI. 

The certification requirement is expected to incrementally benefit investors by 

reinforcing officers’ and directors’ cognizance of their legal obligation not to trade or adopt a 

trading plan while aware of material nonpublic information about the issuer or its securities. As a 

result, we expect the certification will reinforce investors’ confidence that the officers and 

directors who make such certifications are not trading on the basis of information derived from 

their position, and also generally improve investor confidence in the securities markets.427 This 

requirement, on the margin, is expected to act as an additional deterrent to officer and director 

trading based on MNPI through Rule 10b5-1 plans. Because the application of cooling-off 

periods to officer and director Rule 10b5-1 plans increases the likelihood that any MNPI 

becomes stale by the time trading commences, the benefits of the certification provision are 

expected to be greatest in instances where officers and directors have MNPI with a longer time 

horizon than the cooling-off period (for example, MNPI related to future corporate transactions 

                                                 

426  See supra note 132. 

427  See United States v. O'Hagan, 521 U.S. 642, 658–59, 117 S. Ct. 2199, 2210, 138 L. Ed. 2d 724 (1997). 



146 

or longer-term earnings forecasts). The benefits of this provision may be smaller if officers and 

directors already abstain from adopting Rule 10b5-1 plans while aware of MNPI (for example, as 

a result of robust insider trading policies and procedures or strong internal corporate governance 

controls). The incremental benefits of this provision may also be smaller in cases where officers 

and directors already make similar representations to broker-dealers that administer Rule 10b5-1 

plans as part of existing industry practices.428 Nevertheless, because such practices may not be 

universal, and the requirement may differ among the various broker-dealers that do require such 

representations, requiring these representations in the Rule 10b5-1 plan documents will likely 

have incremental benefits for investor confidence that the officer or director in fact is not aware 

of MNPI at the time of the representations. 

iii. Restricting Multiple Overlapping and Single-Trade Rule 10b5-1 Trading Arrangements 

A new condition to the affirmative defense will restrict the use of multiple overlapping 

Rule 10b5-1 plans for the open-market trades of persons other than the issuer. The restriction on 

multiple overlapping plans, which was supported by several commenters,429 is expected to 

reduce the likelihood that insiders enter into multiple, overlapping plans and selectively cancel 

some of the plans at a later time based on MNPI, while availing themselves of Rule 10b5-

1(c)(1)’s affirmative defense.430 The effects of this provision may be modest to the extent that 

                                                 

428  See supra note 132. 

429  See supra notes 153-154 and accompanying text. But see supra note 166. 

430  As a result, the benefit of strategically canceling an existing plan based on MNPI will be significantly reduced 

for many insiders. An insider that cancels a plan will be subject to disclosure obligations. This provision is 

expected to work in tandem with cooling-off periods, which will apply to any new plan and a modified plan that 

falls within the meaning of new Rule 10b5-1(c)(1)(iv), making a strategically planned cancellation significantly 

less attractive for insiders that plan to continue trading. Therefore, insiders will not be able to effectively 

shorten or circumvent the applicable cooling-off period by setting up multiple plans covering a similar period. 



147 

companies may already prohibit multiple Rule 10b5-1 plans,431 or to the extent that companies 

may allow a trading plan not reliant on Rule 10b5-1(c)(1) to exist in conjunction with a trading 

plan reliant on Rule 10b5-1(c)(1).432 

The restriction on the availability of the affirmative defense for multiple overlapping 

trading arrangements will not apply to plans not involving open-market transactions, such as, for 

example, employee benefit plans, ESOPs, or DRIPs. This is expected to preserve the benefits of 

flexibility for participants in such plans, which may be less likely to be associated with MNPI-

based trading but impractical or costly to consolidate with an open-market Rule 10b5-1 plan.  

In a modification from the proposal, trades in different classes of securities will not be 

excepted from the restriction on multiple overlapping Rule 10b5-1 plans. While different classes 

of securities may differ in the specific voting and cash flow rights they confer to the insider, as 

noted by a commenter,433 MNPI is likely to have the same directional effects on potential insider 

trading profits. Therefore, applying the multiple overlapping plan restriction across all classes of 

securities is expected to result in greater investor protection benefits.  

In a modification from the proposal, the restriction on multiple overlapping plans will not 

apply in certain circumstances involving plans with more than one broker dealer or other agent, 

as discussed in Section II.A.3.c above. This change is expected to preserve flexibility for insiders 

to rely on multiple financial intermediaries, with whom they may have previously established 

                                                 

431  A 2016 industry survey found that 82 percent of respondents do not allow multiple, overlapping Rule 10b5-1 

plans. See Morgan Stanley & Shearman & Sterling LLP, supra note 384. A 2021 industry survey found that 52 

percent of respondents do not allow multiple, overlapping Rule 10b5-1 plans. See SCG 2021 Survey. The data 

is based on the responses of the surveyed public company members of the Society of Corporate Secretaries and 

Governance Professionals in the respective survey years and may not be representative of other companies.  

432  But see infra note 441 and accompanying text. Also, trading under a plan not reliant on Rule 10b5-1 could 

entail additional legal costs and limitations. 

433 See letter from NASAA. See also Roger M. White, Insider Trading: What Really Protects U.S. Investors? 55 J. 

FIN. QUANT. ANAL. 1305 (2020). 



148 

relationships or from whom they may obtain better financial terms. The final amendments also 

contain a modification to the multiple-plan restriction that permits an insider to maintain two 

separate Rule 10b5-1 plans at the same time so long as trading under the later-commencing plan 

is not authorized to begin until after all trades under the earlier-commencing plan are completed 

or expire without execution. This provision will preserve the ability of insiders to set up two 

successive plans for open-market trading, which may better address their trading needs compared 

to the proposal. This provision would not be available for the later-commencing plan, however, 

if the first trade under the later-commencing plan is scheduled to begin during the “effective 

cooling-off period”, which is expected to strengthen investor protection. Finally, in a 

modification from the proposal, the restriction on multiple overlapping plans will not apply to 

sell-to-cover transactions, which will preserve the flexibility for insiders to meet tax withholding 

obligations related to the vesting of equity compensation. 

The amendments limit the availability of the affirmative defense in the case of single-

trade Rule 10b5-1 trading arrangements to one such trading arrangement in the prior twelve-

month period, which was generally supported by several commenters.434 The limitation on 

single-trade Rule 10b5-1 trading arrangements is expected to reduce the likelihood that plan 

participants would be able to repeatedly profit from “one-off,” ad hoc trading arrangements 

based on previously undisclosed MNPI while availing themselves of the protections of the Rule 

10b5-1(c)(1) affirmative defense.435 The incremental benefit of this limitation may be somewhat 

                                                 

434  See supra notes 152 and 155 and accompanying text; see also supra note 156. 

435  For instance, some suggestive evidence is presented in Gaming the System, supra note 20 (finding that, for 

single-trade plans, share prices decreased following insider sales under Rule 10b5-1). As a caveat, the data does 

not show the dates of all scheduled trades, only the dates of executed trades. Thus, some “single-trade” plans 

may be multi-trade plans in progress, or multi-trade plans with all but one trade cancelled. See also Milian 

(2016), supra note 392 (finding that sales under Rule 10b5-1 plans with few trades are associated with more 

negative subsequent returns than sales under plans with more trades). As a caveat, Milian (2016) does not 



149 

attenuated if insiders relying on single-trade plans are largely driven by one-time liquidity needs, 

or if they are effectively deterred from using MNPI by other provisions also being adopted. 

Nevertheless, there could be a benefit to limiting the frequency of single-trade arrangements to 

the extent that some MNPI may remain undisclosed for periods longer than the cooling-off 

period. In a modification from the proposal, the limitation on single-trade Rule 10b5-1 trading 

arrangements will only apply to plans involving open-market transactions. Similar to the 

application of the restriction on multiple overlapping trading arrangements to plans involving 

open-market transactions, this provision is expected to preserve the benefits of flexibility for 

participants in such plans, which may be less likely to be associated with MNPI-based trading. In 

a further modification from the proposal, the limitation on single-trade Rule 10b5-1 trading 

arrangements will not apply to sell-to-cover transactions, which will preserve the flexibility for 

insiders to meet tax withholding obligations related to the vesting of equity compensation. 

iv. The Amended Good Faith Condition 

The amendments expand the good faith provision to specify that all traders must act in 

good faith with respect to a Rule 10b5-1 plan (and not just enter into such plans in good faith), as 

a condition to the availability of the affirmative defense. The expansion of the good faith 

condition was generally supported by various commenters and is expected to further deter 

potential insider trading as part of such plans.436 As discussed in Section V.A above, a decrease 

in insider trading is expected to alleviate associated incentive distortions and generate benefits 

                                                 
specifically compare single-trade to multi-trade plans. Further, the number of trades in the plan is highly 

correlated with the duration of the plan in the study, which can make it difficult to isolate the effect of the 

number of trades in the plan. But see supra note 399 and accompanying text (citing letter from Anonymous, 

which asserts that some of the observed profitability of single-trade plans may be due to the greater reliance on 

limit orders). However, see, generally, supra note 401 (indicating that abnormal insider trading profits may still 

be present after consideration of the effect of limit orders on the data). 

436  See supra note 191. 



150 

for investors. By making clear that insiders must act in good faith with respect to the plan, 

including with respect to any trading under the plan, the amendments may discourage insiders 

from attempting to evade the prohibitions of the rule by, for example, using their influence to 

affect the timing of a corporate disclosure to occur before or after a planned trade under a trading 

arrangement (one of the economic costs of insider incentive distortions due to insider trading 

discussed in Section V.A above).437 The amendments are expected to strengthen investor 

protection by helping deter fraudulent and manipulative conduct throughout the duration of the 

trading arrangement.  

3. Costs  

The amendments will impose additional conditions on the use of the Rule 10b5-1(c)(1) 

affirmative defense. All else being equal, the conditions on the use of Rule 10b5-1 plans will 

make it more complicated for insiders to sell or buy shares under such plans. The conditions that 

impose additional barriers to sales of company stock under Rule 10b5-1(c)(1) are expected to 

result in decreased liquidity of the insider’s holdings, including reduced ability to meet 

unanticipated liquidity needs (such as emergency or unplanned expenses), as well as potential 

constraints on portfolio rebalancing and achieving optimal portfolio diversification and tax 

treatment. Greater difficulty of selling shares under Rule 10b5-1 plans will impose illiquidity 

costs on insiders and may reduce the value of their compensation.438 The final amendments may 

have relatively greater impacts on some insiders, for example, those with a lower net worth and 

limited means, who may suffer greater adverse effects from the trading restrictions in the event 

                                                 

437  See supra note 368 and accompanying and following text. 

438  See Lisa Meulbroek, The Efficiency of Equity-Linked Compensation: Understanding the Full Cost of Awarding 

Executive Stock Options, 30 FIN. L. MGMT. 5 (2001); see also infra note 442 and accompanying and following 

discussion. 



151 

of liquidity needs. The tailored nature of the final amendments (including the application of 

shorter cooling-off periods to Rule 10b5-1 trading plans of persons other than officers, directors, 

or the issuer; the limitation of certification requirements to officers and directors; and the 

exceptions to the multiple-plan and single-trade plan restrictions) is expected to mitigate some of 

these costs. Shortening the cooling-off period for officers and directors relative to the proposal is 

expected to decrease some of the costs of the rule for officers and directors.  

In general, the economic costs of the amendments to Rule 10b5-1(c)(1) may be partly 

mitigated by the voluntary nature of the Rule 10b5-1(c)(1) affirmative defense. Insiders who find 

the amended conditions to be too restrictive may elect not to rely on Rule 10b5-1(c)(1). For 

example, some insiders may elect to make more discretionary trades during open trading 

windows when they presumably do not possess MNPI, while others may adopt trading 

arrangements not reliant on amended Rule 10b5-1(c)(1). However, insiders that elect not to rely 

on Rule 10b5-1(c)(1) may incur additional costs, such as a potential increase in liability risk or 

cost of counsel to evaluate whether trades conducted pursuant to a plan not reliant on Rule 10b5-

1(c)(1) or conducted without a trading plan are compliant with securities laws and regulations439 

and a potential decrease in flexibility to execute trades during pension blackout periods and any 

“closed window” periods that issuers may choose to impose.440 As an important caveat, although 

                                                 

439  In addition, Form 4 must be filed before the end of the second business day following the day on which the 

transaction was executed. Rule 16a-3(g)(2)(i) indicates that for transactions that satisfy Rule 10b5-1(c), the date 

of execution is deemed to be the date on which the executing broker notifies the reporting person of the 

execution of the transaction. 

440  For example, trading under a Rule 10b5-1 plan is one of the exceptions from the blackout periods imposed in 

Section 306 of SOX. Section 306(a)(1) of SOX makes it unlawful for a director or officer of an issuer of any 

equity security, directly or indirectly, to purchase, sell or otherwise acquire or transfer any equity security of the 

issuer during a pension plan blackout period with respect to the equity security, if the director or executive 

officer “acquires such equity security in connection with his or her service or employment as a director or 

executive officer.” Section 306(a)(2) permits an issuer, or a security holder of the issuer on its behalf, to bring 

an action to recover any profits realized by a director or executive from a transaction made in violation of 

Section 306(a)(1). Rule 101(c)(2) of Regulation BTR [17 CFR 245.101(c)(2)] provides an exemption from 



152 

the use of Rule 10b5-1(c)(1) is voluntary under Commission regulations, some companies’ 

insider trading policies may require insiders to rely on Rule 10b5-1(c)(1).441  

Faced with the additional conditions on the use of Rule 10b5-1 plans, some insiders may 

seek to reduce their holdings of company shares in general, such as by buying fewer shares 

(including potentially greater reluctance to take advantage of DRIPs), selling shares more 

quickly when eligible, and negotiating for cash pay in lieu of equity pay, to the extent feasible 

given companies’ share ownership guidelines and compensation policies.442 The amendments 

also will make it more difficult for insiders to purchase company shares if they wish to do so 

under a Rule 10b5-1 plan.443 Reduced insider equity ownership may in turn affect incentive 

alignment between insiders and shareholders (to the extent such incentive alignment existed in 

                                                 
Section 306(a)(1) for transactions made pursuant to a trading arrangement that satisfies the affirmative defense 

conditions of Rule 10b5-1(c). Officers and directors trading other than under a Rule 10b5-1 plan would not get 

this benefit.  

441  As noted above, a 2016 industry survey found that 17 percent of surveyed companies required the use of Rule 

10b5-1 plans for trading. See Morgan Stanley & Shearman & Sterling LLP, supra note 384. A 2021 industry 

survey found that 13 percent of respondents required the C Suite, while six percent required directors to use 

Rule 10b5-1 plans for trading. See SCG 2021 Survey. We recognize that the number of companies with such 

policies in place may decrease after the rules become effective. 

442  Compensation committees may continue to award incentive pay even if insiders may prefer to reduce exposure 

to the issuer’s equity. See, e.g., Darren T. Roulstone, The Relation Between Insider-Trading Restrictions and 

Executive Compensation, 41 J. ACCT. RSCH. 525 (2003) (showing that firms restricting insider trading “use 

more incentive-based compensation and their insiders hold larger equity incentives relative to firms that do not 

restrict insider trading”). Companies may also impose share ownership guidelines and holding requirements. 

See, e.g., Bradley W. Benson et al., Stock Ownership Guidelines for CEOs: Do They (Not) Meet Expectations?, 

69 J. BANKING FIN. 52 (2016); see also Executive Stock Ownership Guidelines, EQUILAR (Mar. 9, 2016), 

available at https://www.equilar.com/reports/34-executive-stock-ownership-guidelines.html (finding that the 

percentage of Fortune 100 companies that disclose ownership guidelines or holding requirements in any form 

was 87.6 percent in 2014); John R. Sinkular & Don Kokoskie, Stock Ownership Guideline Administration, 2020 

HARV. L. SCHOOL FORUM CORP. GOV. (June 11, 2020), available at 

https://corpgov.law.harvard.edu/2020/06/11/stock-ownership-guideline-administration/; NASPP, 5 Trends in 

Stock Ownership Guidelines, (Dec. 15, 2020), available at https://www.naspp.com/blog/5-Trends-in-Stock-

Ownership-Guidelines (finding that “[e]ighty-five percent of respondents to the 2020 survey currently impose 

ownership guidelines on executives”). 

443  However, the likelihood of choosing a Rule 10b5-1 plan for a purchase is much lower than the likelihood of 

electing to use Rule 10b5-1(c)(1) for a sale (with the caveats about data availability). One study noted that 

approximately 2.3 percent of purchases versus 22.4 percent of sales were reported to be undertaken using Rule 

10b5-1 plans. See Mavruk & Seyhun, supra note 19. 

https://www.equilar.com/reports/34-executive-stock-ownership-guidelines.html
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153 

the first place and was not undermined by existing agency conflicts discussed in greater detail in 

Section V.A above). In some cases, if insiders have sufficient bargaining power, insiders facing 

illiquidity risk may seek higher total pay to compensate for the trading restrictions.444 Existing 

shareholders are expected to bear any costs incurred by issuers due to potential shifts in 

executive compensation in response to the new conditions of Rule 10b5-1(c)(1) (whether in the 

form of additional compensation for insiders, or changes in compensation structure that weaken 

insider incentives).  

In the subsections below we discuss the individual costs these conditions could impose 

on affected plan participants. However, we also recognize that these provisions may interact with 

each other and further reduce the attractiveness of Rule 10b5-1 plans to prospective traders. 

i. Cooling-Off Periods 

We recognize that the cooling-off period condition for officers and directors will restrict 

their ability to purchase or sell shares pursuant to a Rule 10b5-1 plan for the duration of the 

cooling-off-period, imposing potentially significant costs on officers and directors who seek to 

utilize the Rule 10b5-1(c)(1) affirmative defense, as indicated by various commenters.445 As a 

result, some insiders may choose not to rely on a Rule 10b5-1 plan for future trading.446 A long 

cooling-off period may discourage insiders from adopting Rule 10b5-1 plans and therefore result 

in larger, more concentrated volumes of insider-directed trades taking place during open-window 

                                                 

444  See Darren T. Roulstone, The Relation Between Insider-Trading Restrictions and Executive Compensation, 41 

J. ACCT. RSCH. 525 (2003) (finding that “firms that restrict insider trading pay a premium in total compensation 

relative to firms not restricting insider trading, after controlling for economic determinants of pay.”); see also 

M. Todd Henderson, Insider Trading and CEO Pay, 64 VAND. L. REV. 503 (2011) (finding that “executives 

whose trading freedom increased using Rule 10b5-1 trading plans experienced reductions in other forms of pay 

to offset the potential gains from trading”). 

445  See supra note 52. 

446  But see supra note 441.  



154 

periods rather than being spread out over the duration of the Rule 10b5-1 plan, which could lead 

to increased market volatility, as indicated by various commenters.447 Insiders who sell shares 

without relying on a Rule 10b5-1 plan are likely to incur additional costs and limitations. The 

economic costs of decreased liquidity due to Rule 10b5-1 plan restrictions were discussed in 

detail in Section V.B.3 above.  

In a change from the proposal, the cooling-off period for the Rule 10b5-1 plans of 

officers and directors was revised from 120 days to the later of (1) 90 days after the adoption of 

the Rule 10b5-1 trading plan or (2) two business days following the disclosure of the issuer’s 

financial results for the completed fiscal period in which the plan was adopted (which need not 

exceed 120 days after adoption or modification of the plan). However, because trading during the 

three months following adoption of a Rule 10b5-1 plan, or around earnings announcements, is 

common based on available data summarized in Section V.B.1 above, the amendments are likely 

to reduce officers’ and directors’ ability to trade under Rule 10b5-1 plans compared to their 

trading today, resulting in potential costs to insiders.448  

In another change from the proposal, in response to suggestions of several 

commenters,449 the final amendments include 30-day cooling-off period as a condition of the 

                                                 

447  See supra note 54. 

448  See Gaming the System, supra note 20; see also supra notes 379-381 and accompanying text. A 2016 industry 

survey examining Rule 10b5-1 plan practices at public companies found that 30 days was the most popular 

cooling-off period among their respondents (41 percent) and that for 77 percent of the respondents, the cooling-

off period was 60 days or less. See supra note 384. A 2021 industry survey examining Rule 10b5-1 plan 

practices found that 51 percent of survey respondents had a cooling-off period of 30 days and 67 percent of 

respondents reported cooling-offs of 60 days or less. See SCG 2021 survey. Separately, because many issuers 

release financial results prior to the filing of a Form 10-Q or 10-K, the use of the filing of Form 10-Q or 10-K 

for purposes of identifying the date of the disclosure of a domestic issuer’s financial results is expected to result 

in a longer minimum cooling-off period for the officers and directors of the typical issuer, compared to using 

the date of the issuance of a press release announcing earnings results, resulting in less flexibility for the 

affected officers and directors. 

449  See supra note 422. 



155 

affirmative defense for persons other than the issuer that are not officers or directors. We 

recognize that this change will result in additional costs for the affected persons, particularly 

those rank-and-file employees and other individuals that have a lower net worth and 

undiversified stockholdings and lack the resources and access to alternative liquidity sources to 

absorb unanticipated liquidity needs in the presence of the trading restrictions in the final 

amendments. Such costs are expected to be mitigated to a considerable extent by the shorter 

duration of the cooling-off period for persons other than officers, directors, or the issuer. Further, 

the costs relative to the baseline are expected to be potentially more modest to the extent that the 

30-day duration of the cooling-off period is generally aligned with existing industry practices.450 

In the aggregate, such costs may be further alleviated to the extent that persons other than 

officers, directors, or the issuer may hold less stock or may be less likely to trade under Rule 

10b5-1 plans.451  

The final amendments are also adding new paragraph (c)(1)(iv) that states that a 

modification or change to the amount, price, or timing of the purchase or sale of the securities 

underlying a Rule 10b5-1 plan is treated as a termination of the plan and the adoption of a new 

plan, and to the extent that insiders seek to continue to rely on the affirmative defense, they 

would incur the costs associated with a new cooling-off period. Other types of changes to Rule 

                                                 

450  A 2016 industry survey found that 41 percent of respondents had a 30-day cooling-off period and an additional 

eight percent reported a cooling-off period exceeding 30 days. See supra note 384. A 2021 industry survey 

found that 51 percent of respondents had a 30-day cooling-off period and an additional 13 percent reported a 

cooling-off period exceeding 30 days. See SCG 2021 Survey. As a caveat, neither survey specifies whether the 

cooling-off periods varied depending on the type of insider. As a further caveat, survey respondents need not be 

representative of all affected companies. Several commenters identified 30 days as a common duration of the 

cooling-off period (similarly not noting whether prevailing industry practices with regard to cooling-off periods 

vary depending on the type of insider). See supra note 57 and accompanying text. 

451  But see supra note 424. 



156 

10b5-1 plans would not be treated as the adoption of a new plan and would not result in those 

potential costs generally in line with the comments received.452  

ii. Officer and Director Certifications 

The amendments introduce as a condition to the Rule 10b5-1(c)(1) affirmative defense a 

new requirement that directors and officers provide representation in the plan documents that, at 

the time of adopting a new or modified Rule 10b5-1 plan: (1) they are not aware of material 

nonpublic information about the issuer or its securities; and (2) they are adopting the contract, 

instruction, or plan in good faith and not as part of a plan or scheme to evade the prohibitions of 

Section 10(b) and Rule 10b-5. In a change from the proposal to eliminate any additional burden 

that separate documentation may create,453 officers and directors will be required to include the 

certification in the plan documents as representations, rather than provide a separate certification 

to the issuer. The final rules also do not provide that officers and directors should retain the 

certification for ten years, as was originally proposed. These changes are expected to 

incrementally decrease the costs of compliance with the amendments and avoid any potential 

costs that issuers might have chosen to incur to develop systems or procedures to accept officer 

and director certifications. 

The incremental costs of this provision may be small to the extent that officers and 

directors already avoid adopting Rule 10b5-1 plans while aware of MNPI (for example, due to 

robust policies and procedures related to officer and director trading or robust corporate 

governance controls). Further, insiders may already make representations to that effect to broker-

dealers that administer the plans, as part of existing industry practices.454 Nevertheless, we 

                                                 

452  See supra note 80. 

453  See supra note 132. 

454  See supra note 132. 



157 

recognize that such representations to broker-dealers may not be universal in practice or uniform 

in substance today. We further recognize, consistent with the concerns of commenters, that the 

certification condition may result in increased costs for officers and directors, such as the cost of 

consulting with legal counsel to help them analyze whether they have MNPI and to comply with 

the certification requirement, which may in some instances deter officers and directors from 

relying on Rule 10b5-1(c)(1).455 To the extent that officers and directors forgo Rule 10b5-1 plans 

due to the certification requirement, they may incur additional costs of trading outside of such 

plans (see V.B.3 above for a more detailed discussion). The associated costs could also lead 

officers and directors to potentially seek other compensation terms with less equity exposure, 

which may result in additional costs to the company and its shareholders.456 

iii. Restricting Multiple Overlapping and Single-Trade Rule 10b5-1 Trading Arrangements 

We are adopting the restriction on multiple overlapping Rule 10b5-1 trading 

arrangements for open-market trades, with certain modifications. This restriction is expected to 

limit the affected plan participants’ flexibility to use Rule 10b5-1 plans to purchase or sell their 

shares. In a change from the proposal, we are adopting modifications to this condition that 

address the use of multiple brokers in a Rule 10b5-1 plan and that permit an insider to maintain 

two Rule 10b5-1 plans at the same time in certain circumstances. These changes should decrease 

the incremental costs of the amendments by preserving some flexibility for insiders that plan to 

use a successive Rule 10b5-1 plan after the current Rule 10b5-1 plan expires but wish to set it up 

before the first plan concludes as well as for insiders that have established relationships with, or 

otherwise prefer to utilize, multiple brokers. In another change from the proposal which should 

                                                 

455  See supra note 131. 

456  See supra note 442 and accompanying and following text. 



158 

further reduce the incremental costs for affected insiders, the restriction will not apply to sell-to-

cover transactions. The effects of the multiple-plan restriction will be smaller for insiders that 

can anticipate and consolidate most upcoming open-market purchases and sales of securities into 

a single plan (e.g., utilizing an algorithm-based strategy). As proposed, the restriction on multiple 

overlapping plans will apply only to plans involving open-market trades, which will enable 

insiders with purchases and sales planned, for example, as part of employee benefit plans, 

ESOPs, or DRIPs, and not involving open-market purchases or sales to avoid the cost of the 

requirement. In a modification from the proposal, trades in different classes of securities will not 

be excepted from the restriction on multiple overlapping Rule 10b5-1 plans, consistent with a 

commenter’s suggestion.457 Compared to the proposal, this modification is expected to limit 

flexibility for those plan participants that seek to implement independent purchase or disposition 

strategies for different share classes through separate, overlapping plans. 

We recognize that the multiple-plan restriction will impose costs on affected insiders, as 

suggested by various commenters.458 While some insiders may be able to meet different trading 

needs involving open-market purchases or sales with a single plan, or through the exceptions 

provided above for one successive plan, a plan executed by multiple brokers, and sell-to-cover 

transactions, other insiders will incur costs due to this restriction.459 For example, insiders may 

have immediate liquidity or other trading needs involving open-market transactions at different 

points in time that are difficult to incorporate into a single plan, resulting in greater costs. 

Modifying a single existing plan based on updated trading needs will initiate a new cooling-off 

                                                 

457 See letter from NASAA. See also Roger M. White, Insider Trading: What Really Protects U.S. Investors? 55 J. 

FIN. QUANT. ANAL. 1305 (2020). 

458  See supra note 167. 

459  See letter from SIFMA 3.  



159 

period, imposing costs on insiders in such cases. Nevertheless, the incremental costs of the 

multiple-plan restriction are expected to be limited for the affected insiders of companies that 

already disallow such plans today.460 The incremental costs of the multiple-plan restriction are 

also expected to be smaller for the affected insiders of companies that allow trading 

arrangements that do not rely on Rule 10b5-1(c)(1) and do not require the use of Rule 10b5-1 for 

insider trades.461 Nevertheless, as noted above, insiders that maintain trading arrangements not 

reliant on Rule 10b5-1(c)(1) may incur other costs.  

The final amendments limit the number of single-trade Rule 10b5-1 trading arrangements 

to one such arrangement in any twelve-month period. As noted by several commenters, this 

limitation is expected to impose costs on the affected insiders.462 This limitation will make it 

costlier for insiders with repeated sporadic or ad hoc liquidity needs to divest issuer equity 

holdings.463 At the same time, the approach of limiting the number of single-trade Rule 10b5-1 

plans in a 12-month period, rather than restricting them entirely, alleviates costs for insiders with 

occasional unexpected liquidity needs that seek to avail themselves of the affirmative defense for 

such a single-trade plan. This approach has the benefit of protecting investors from trades that 

run a higher risk of being opportunistically driven by MNPI, while still accommodating the 

liquidity needs of certain insiders. While it is possible that the same insider would experience 

                                                 

460  See, e.g., supra note 431 and accompanying text (discussing restrictions on multiple overlapping plans). 

According to a 2016 industry survey, more than 80 percent of respondents do not allow multiple, overlapping 

Rule 10b5-1 plans. According to a 2021 industry survey, 52 percent of respondents do not allow such plans. See 

SCG 2021 Survey. 

461  See supra note 432 and accompanying text. 

462  See supra notes 157-162 and accompanying text. 

463  Single-trade plans appear to be common. Based on Washington Service data from January 2016 – May 2020, 

Gaming the System, supra note 20, note that 49 percent of the 10b5-1 plans in their sample cover only a single 

trade. Using Washington Service data for a more recent period (January 2, 2018 – September 13, 2022), we 

estimate that single-trade plans constitute approximately 44 percent of plans during the time period examined. 

See supra Section V.B.1. The caveat about classification of plans as “single-trade” plans in the available data 

applies. See supra note 435. 



160 

multiple instances of repeated, ad hoc liquidity needs in a 12-month period that can only be met 

through a new single-trade Rule 10b5-1 plan and such an insider would lose flexibility under the 

final amendments, the likelihood of such successive unanticipated liquidity needs occurring 

within the same 12-month period is lower than that of a single occurrence of an ad hoc liquidity 

need, for which the final rule provides an exception. In a modification from the proposal, the 

limitation on single-trade Rule 10b5-1 trading arrangements will only apply to plans involving 

open-market transactions. Similar to the focus of the multiple-plan restriction on plans for open-

market trades, tailoring the limitation on single-trade Rule 10b5-1 trading arrangements in this 

manner is expected to eliminate the cost of the requirement for insiders with plans not involving 

open-market purchases or sales. In a further modification from the proposal, the limitation on 

single-trade Rule 10b5-1 trading arrangements will not apply to sell-to-cover transactions, which 

will also help to mitigate costs of this provision by allowing insiders to sell shares to cover tax 

withholding obligations related to the vesting of equity compensation. 

iv. The Amended Good Faith Condition 

The amendments specify that a trader must act in good faith with respect to the plan as a 

condition to the continued availability of the affirmative defense. Consistent with the views of 

various commenters, this provision is expected to result in additional legal costs (such as the cost 

of legal counsel to aid in compliance with the requirement), ambiguity,464 and risks for plan 

participants (namely, the risk of loss of the Rule 10b5-1(c)(1) affirmative defense if a trader is 

found not to have acted in good faith).465 Some commenters also expressed the concern that the 

amended good faith provision may create an “unintended incentive for directors or officers to 

                                                 

464  See supra note 196 and accompanying text. 

465  See supra notes 195 and 198.161 

consider their Rule 10b5-1 plans in connection with corporate actions long after establishing 

their plans.”466 If plan participants perceive the amended good faith provision as increasing the 

legal cost and risk associated with the use of Rule 10b5-1 plans, they may reduce their reliance 

on Rule 10b5-1 plans.467  

4. Effects on Efficiency, Competition, and Capital Formation 

We expect the amendments to reduce the improper use of Rule 10b5-1 plans by insiders 

with MNPI. This decrease in insider trading should also limit insiders’ incentives to engage in 

inefficient corporate decisions associated with insider trading, which were discussed in Section 

V.A above. The effects of the rule on the efficiency of corporate investment and other decisions 

are not fully certain because the rule may induce insiders to adjust their holdings in response to 

the reduced liquidity and potentially lead companies to adjust incentive and compensation 

structure or other policies and practices in response to the rule. 

Further, limiting insiders’ ability to trade on MNPI would decrease the insiders’ 

incentives to influence the timing and content of corporate disclosures. Timelier and higher-

quality corporate disclosures would provide more information to investors, resulting in more 

informationally efficient share prices in the secondary market and more efficient allocation of 

investor capital across investment opportunities in their portfolio.  

A reduction in insider trading may also benefit market efficiency.468 For example, a lower 

risk of trading against an informed insider is expected to increase investor confidence and the 

willingness of market participants to buy, and trade in, the issuer’s shares. This effect would 

indirectly make it easier for the company to raise capital from investors. 

                                                 

466  See letter from Chamber of Commerce 2; see also letter from Wilson Sonsini. 

467  See supra note 198. 

468  See supra note 362. 



162 

Finally, the amendments may affect competition. Decreasing the ability of insiders to 

trade on MNPI should weaken their competitive edge in trading, promoting competition among 

other investors in the market for the issuer’s shares. A lower risk of an insider with a significant 

private information advantage trading the issuer’s shares may strengthen the incentive of other 

market participants to trade the issuer’s shares and compete in gathering and processing 

information about the company.  

All of the effects described above would be weaker to the extent that some insiders may 

trade under non–Rule 10b5-1 trading arrangements or may trade without a plan. Whether the 

amendments prompt a large increase in insider trading under non-Rule 10b5-1 trading 

arrangements would depend, in part, on how burdensome insiders find the amendments and how 

company policies constrain insider use of MNPI in non-Rule 10b5-1 trading arrangements 

(including in response to the Item 408 disclosure requirements). 

It is not clear if the amendments will result in meaningful competitive effects on the labor 

market. We are not exempting any categories of public companies from the amendments, which 

should reduce potential effects on competition for talent among public companies. We do not 

anticipate significant effects of the amendments on the competition for talent between public and 

private companies. While Rule 10b5-1(c)(1) amendments may make insider holdings of public 

company stock less liquid (as discussed in greater detail in Section V.B.3 above), holdings of 

public company shares will remain significantly more liquid than holdings of private company 

stock.  

5. Reasonable Alternatives 

The certification requirements will apply to officers and directors only, as proposed. 

Cooling-off periods (with the duration dependent on the type of insider) and restrictions on 



163 

multiple overlapping plans and single-trade plans will apply to persons other than the issuer. The 

expanded good faith provision will apply to all persons who seek to rely on the Rule 10b5-

1(c)(1) affirmative defense.  

As an alternative, we could limit each of the provisions to officers only.469 Compared to 

the amendments, this alternative would eliminate the costs of the rule (discussed in greater detail 

in Section V.B.3 above) for the exempted plan participants but increase the risk of insider trading 

by such plan participants. The latter effects may be smaller to the extent the exempted persons 

are less involved in making and overseeing corporate decisions or are less likely to be aware of 

MNPI, but that likely is not the case for directors. As another alternative, we could extend all of 

the Rule 10b5-1(c)(1) amendments, including the certification requirements and the longer 

cooling-off periods applicable to officers and directors, to all persons other than the issuer. 

Compared to the amendments, this alternative would subject additional persons other than the 

issuer, including employees, to the costs of all of the provisions of the rule (discussed in greater 

detail in Section V.B.3 above) but also decrease the risk of insider trading by such plan 

participants. The latter benefits may be smaller to the extent that persons other than the issuer 

that are not officers or directors are less involved in making and overseeing corporate decisions, 

may lack control or knowledge about the timing and substance of the issuer’s disclosures, or are 

less likely to be aware of MNPI. The aggregate effects of all of the discussed alternatives, 

compared to the amendments, may also be smaller to the extent that Rule 10b5-1 plans may be 

most prevalent among officers (with the caveat about data availability).  

                                                 

469  With the caveat about data availability, where Rule 10b5-1(c)(1) use is reported, officers are far more likely to 

report trading under Rule 10b5-1 plans than directors. 



164 

Alternatively, rather than adding new conditions to the affirmative defense, we could 

rescind the Rule 10b5-1(c)(1) affirmative defense altogether.470 Rescinding Rule 10b5-1(c)(1) 

would increase the costs for existing Rule 10b5-1 plan participants (such as the additional costs 

of legal counsel to determine whether trading arrangements, or trades not reliant on a trading 

arrangement, are compliant with the Exchange Act in the absence of the Rule 10b5-1(c)(1) 

affirmative defense). Rescinding the Rule 10b5-1(c)(1) affirmative defense would also increase 

the liability risk for insiders that continue to trade due to greater uncertainty about whether they 

have complied with Rule 10b-5 and subject insiders to additional limitations on trading (such as 

restrictions on trading during blackout periods). The associated costs of divesting stock in the 

absence of the affirmative defense would make insiders’ holdings of stock less liquid and could 

further induce insiders to negotiate non-stock-based compensation.471 Further, while rescinding 

Rule 10b5-1(c)(1) would eliminate Rule 10b5-1 plans, it would not affect the use of other trading 

arrangements by officers, directors, and companies. The potential for trading under non-Rule 

10b5-1 trading arrangements or outside of plans may lead to an increase in insider trading, 

compared to the amendments. It also may increase investor effort to perform due diligence on 

non-Rule 10b5-1 trading arrangements and trades outside of plans to assess the risk of trading 

against an informed insider. Moreover, rescinding Rule 10b5-1(c)(1) may hinder issuers’ efforts 

to develop and implement corporate governance practices for trading arrangements that comply 

with securities laws and regulations. We expect that the new Item 408 disclosure requirements, 

discussed in detail in Section V.C below, will partly mitigate incentives to engage in insider 

                                                 

470  See, e.g., letter from Better Markets. 

471  See supra note 442 and accompanying and following text. 



165 

trading under all trading arrangements, including trading arrangements that are not reliant on 

Rule 10b5-1(c)(1) under this alternative.  

As another alternative, we could impose some, but not all, of the new conditions to the 

affirmative defense. This alternative would lower the aggregate costs of the rule and preserve 

greater flexibility than the amendments, decreasing the costs discussed in the case of each of the 

specific provisions. However, due in part to their expected synergy, this alternative would make 

the combined set of amendments less effective at curbing insider trading behavior under Rule 

10b5-1.472  

With respect to the cooling-off period for officers and directors, the Commission could 

adopt a shorter or longer cooling-off period.473 A shorter cooling-off period for officers and 

directors (such as the 30-day minimum cooling-off period that the final amendments apply to 

persons other than the issuer that are not officers or directors) could reduce some of the costs of a 

cooling-off period and preserve greater flexibility for officers and directors, compared to the 

amendments, but it would increase the risk of officers’ and directors’ trading based on MNPI. 

Conversely, a longer cooling-off period for officers and directors (such as the 120-day minimum 

cooling-off period proposed for officers and directors) could increase costs to officers and 

directors and limit flexibility, compared to the amendments, but it may further decrease the risk 

                                                 

472  As discussed in Section V.B.2 above, in particular, for officers and directors, the certification condition is 

expected to complement the effects of the cooling-off period, which, in turn, is expected to work in tandem with 

the exclusion of multiple overlapping plans from Rule 10b5-1(c)(1) to possibly prevent a portion of potentially 

opportunistic plan cancellations based on MNPI. 

473  See supra note 418 (discussing suggestions for three-month and four- to six-month cooling-off periods); see 

also supra note 384 and following text (noting that at over three-quarters of surveyed respondents, the cooling-

off period was 60 days or less); supra note 56 (suggesting a 30-day cooling-off period); letter from Cravath 

(suggesting a cooling-off period of the later of (1) 45-days after the adoption of the Rule 10b5-1 trading plan 

and (2) the second trading day following the next publication of the issuer’s financial results for a completed 

fiscal period); supra note 58 (suggesting a cooling-off period not exceeding 90 days); supra note 48 (supporting 

the proposed 120-day cooling-off period); letter from CII (recommending a cooling-off period of four to six 

months). 



166 

of officers’ and directors’ trading based on MNPI. As another alternative, we could specify a 

minimum cooling-off period for officers and directors that extends one trading day past the filing 

or furnishing of the issuer’s next earnings announcement covering at least one fiscal quarter (and 

not include a minimum 90-day cooling-off period for officers and directors).474 Such a variable-

length cooling-off period would, in most cases, be shorter than the cooling-off period for officers 

and directors under the final amendments. This alternative also would introduce much greater 

variability in the permissible duration of the minimum cooling-off period for officers and 

directors, which may require incrementally greater effort from investors seeking to evaluate the 

timing of officer and director trades. Compared to the final amendments, it would also not be as 

effective as the adopted approach in discouraging trading on MNPI that is not tied to quarterly 

results.475 A more detailed discussion of the costs and benefits of a cooling-off period that would 

be magnified or reduced, respectively, under these alternatives is included in Sections V.B.2.i 

and V.B.3.i. The discussed effects of the alternatives would also depend on whether they differ 

from existing, voluntary cooling-off period practices of issuers.476  

The final amendments include a 30-day cooling-off period for persons other than the 

issuer that are not officers or directors. As an alternative, the Commission could lengthen the 

cooling-off period or shorten the cooling-off period applicable to such persons. As another 

alternative, the Commission could eliminate the cooling-off period for persons other than the 

                                                 

474  See letter from Davis Polk. 

475  For example, one study finds that “specific disclosures are associated with subsequent negative news events that 

may not be impounded in short-term earnings . . . approximately 25% of the specific-disclosure sample exhibits 

a single news event, not related to earnings, for which the three-day market-adjusted return falls between 10% 

and 75%, within an average 140 calendar days of disclosure. These news events include exchange-imposed 

stock trade suspension, drug trial failure, and announcement of the intent to acquire another firm.” See M. Todd 

Henderson et al., supra note 19. 

476  See supra notes 379-384 and accompanying and preceding text. 



167 

issuer that are not officers or directors (for instance, only applying cooling-off periods to officers 

and directors, as proposed). Including a longer cooling-off period for persons other than the 

issuer that are not officers or directors (such as the longer cooling-off period applicable to 

officers and directors) would increase the costs to the affected plan participants and limit their 

flexibility (as discussed in greater detail in Section V.B.3.i above), compared to the amendments, 

but it may further decrease the risk of the affected plan participants’ trading based on MNPI. 

Conversely, shortening or eliminating the cooling-off period applicable to persons other than the 

issuer that are not officers or directors could reduce costs (discussed in greater detail in Section 

V.B.3.i above) and preserve greater flexibility for the affected plan participants, compared to the 

amendments, but it would increase the risk of the affected plan participants’ trading based on 

MNPI. The effects of this alternative would be smaller than discussed to the extent that persons 

other than officers and directors may be less likely to trade under Rule 10b5-1.477  

As an alternative to including the certifications of officers and directors in Rule 10b5-1 

plan documents, we could provide for the certification to be made to the issuer in a separate 

document and retained for ten years, as proposed. Compared to the amendments, this alternative 

could result in incrementally greater costs for officers and directors, to the extent that they do not 

presently make representations separately to the issuer. This alternative also could result in 

additional costs for issuers to the extent that they decide to establish new processes and systems 

to accept officer and director certifications. In turn, due to the employer relationship between the 

issuer and its officers and the fiduciary relationship between the issuer and its directors, a 

condition that would require officers and directors to make a certification to the issuer under this 

alternative could be marginally more effective in reminding them of their existing obligations 

                                                 

477  But see supra note 424. 



168 

with respect to MNPI, compared to the amendments. The potential benefit of the alternative 

compared to the amendments would be decreased if officers and directors already comply with 

their MNPI obligations under the existing rule and market practices. 

The amendments restrict the availability of the affirmative defense for multiple 

overlapping Rule 10b5-1 trading arrangements for open-market trades. As an alternative, we 

could allow multiple overlapping plans but limit their number (e.g., to two or three), limit the 

provisions to no more than one plan pertaining to purchases and one plan pertaining to sales, or 

provide other exceptions. These alternatives could preserve greater flexibility, compared to the 

amendments, and lower costs for plan participants that have multiple accounts or trading 

arrangements through which they trade in the company stock. However, these alternatives could 

introduce greater complexity in companies’ oversight of insiders’ multiple overlapping plans and 

potentially present a greater risk of insider trading, compared to the amendments (to the extent 

not mitigated by the other provisions that we are adopting, including certifications, the amended 

good faith condition, cooling-off periods, and the disclosure requirements). In particular, the 

option to maintain multiple, overlapping plans concurrently facilitates the ability to selectively 

cancel one of the plans based on MNPI, without being subject to a cooling-off period with 

respect to the remaining plans’ trades. The economic effects of this alternative may be less 

significant to the extent that companies already may disallow the use of multiple overlapping 

plans,478 or allow these insiders to maintain both trading arrangements not reliant on Rule 10b5-

1(c)(1) and Rule 105b-1 trading arrangements.  

The amendments limit the availability of the affirmative defense in the case of single-

trade Rule 10b5-1 plans of persons other than the issuer to one such trading arrangement in any 

                                                 

478  See supra note 431 and accompanying text. 



169 

twelve-month period. As an alternative, we could disallow single-trade trading arrangements 

under Rule 10b5-1(c)(1) altogether. Compared to the final rule, this alternative could marginally 

reduce the likelihood that plan participants would be able to profit from a “one-off,” ad hoc trade 

based on previously undisclosed MNPI while availing themselves of the protections of the Rule 

10b5-1(c)(1) affirmative defense. However, the incremental benefit of this alternative, compared 

to the final rule, may be attenuated if insiders relying on single-trade plans once in a twelve-

month period are largely driven by a one-time liquidity need or financial hardship, or if they are 

effectively deterred from using MNPI by other Rule 10b5-1 provisions. In turn, this alternative 

would also significantly limit the flexibility and impose additional costs on insiders with a 

legitimate one-time, ad hoc liquidity need, compared to the final rule.  

C. Disclosure of Trading Arrangements and Policies and Procedures in New Item 408 of 

Regulation S-K and Mandatory Rule 10b5-1 Checkbox in Amended Forms 4 and 5 

The new Item 408(a) of Regulation S-K will require quarterly disclosures, in Form 10-Q 

and Form 10-K, of the adoption or termination,479 and the material terms of Rule 10b5-1 and 

non-Rule 10b5-1 trading arrangements by directors and Rule 16a-1(f) officers. In a change from 

the proposal, price terms are excluded from the scope of material terms required to be disclosed 

under Item 408(a). New Item 408(b) will require an issuer to file its insider trading policies and 

procedures as an exhibit to its annual report on Form 10-K, which will be linked in the exhibit 

index (as discussed in greater detail in Section II.B above). Similar requirements will apply to 

FPIs that file annual reports on Form 20-F via new Item 16J.480 The new Item 408(a), 408(b)(1), 

                                                 

479  New paragraph (c)(1)(iv) states that any modification or change to the amount, price, or timing of the purchase 

or sale of the securities underlying a Rule 10b5-1 plan is a termination of such plan and the adoption of a new 

plan.  

480  The discussion in this section referring to Item 408(b) also extends to the economic effects of related 

amendments to Form 20-F that apply similar requirements to Form 20-F filers. 



170 

and analogous Form 20-F disclosures are required to be tagged using a structured data language 

(specifically, Inline XBRL). As discussed in Section II.B.1.c above, in response to a 

recommendation by some commenters, at this time, we are not adopting the proposed rule to 

require corresponding disclosure regarding trading arrangements of the issuer. 

In addition, we are amending Forms 4 and 5 to add a checkbox to indicate that a reported 

transaction was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c)(1) and 

require disclosure of the date of adoption of the trading plan. In a change from the proposal, we 

are not adopting the optional checkbox for non-Rule 10b5-1 plans.  

1. Baseline and Affected Parties 

The new Item 408(a) disclosure requirements regarding the adoption, modification, 

termination, and material terms of officer and director trading arrangements apply to annual and 

quarterly reports on Forms 10-K and 10-Q. During calendar year 2021, based on the analysis of 

EDGAR filings, we estimate that there were approximately 7,200 filers with annual reports on 

Form 10-K and/or quarterly reports on Form 10-Q or amendments to them.481 The new Item 

408(b) disclosure requirements regarding insider trading policies and procedures will apply to 

annual reports on Forms 10-K and proxy and information statements on Schedules 14A and 14C. 

Disclosure requirements similar to Item 408(b) will also apply to FPIs that file Form 20-F. 

During calendar year 2021, based on the analysis of EDGAR filings, we estimate that there were 

approximately 6,300482 filers of annual reports on Form 10-K, proxy or information statements, 

                                                 

481  The estimate excludes registered investment companies and asset-backed securities issuers, which will not be 

subject to the Item 408 disclosures. 

482  The difference between this number of filers of annual reports on Form 10-K, proxy or information statements, 

or amendments to them, and the above number of filers of annual reports on Form 10-K and/or Form 10-Q, or 

amendments to them, is largely attributable to the fact that, given that calendar year 2021 was an active year for 

initial public offerings, a number of new reporting issuers may have filed a Form 10-Q during 2021 but not a 

Form 10-K as it was not due until 2022.  



171 

or amendments to them, and, in addition, approximately 800 filers of annual reports on Form 20-

F (or amendments to them).483 

Item 408(a) requirements will affect all issuers whose officers or directors have Rule 

10b5-1 or non-Rule 10b5-1 trading arrangements as well as all officers and directors whose 

trading arrangements will now be subject to public disclosure by the issuer.484   

Item 408(b) requirements will affect all issuers subject to the requirements, as well as 

issuers, directors, officers, and employees that engage in trading subject to the disclosed policies 

and procedures. 

The Rule 10b5-1 checkbox requirement will apply to all filers of Forms 4 and 5 

(including officers and directors as well as other filers). During calendar year 2021, we estimate 

that there were approximately 54,000 such filers.485 

2. Benefits 

New Item 408 and Item 16J will benefit investors by providing greater transparency 

about officer and director Rule 10b5-1 and non-Rule 10b5-1 trading arrangements, as well as 

governance practices with respect to insider trading.486 This enhanced transparency may enable 

better informed voting and investment decisions and more efficient allocation of investor capital. 

The timing of trading arrangement adoptions and terminations by officers and directors, as well 

as a description of the material terms of the trading arrangements, is expected to enhance the 

value of existing trade disclosures, aiding investors in obtaining a more accurate valuation of the 

                                                 

483  See supra note 481. 

484  See supra Section V.B.1. 

485  The estimate is based on filings of Forms 4 and 5 during calendar year 2021 in Thomson Reuters / Refinitiv 

insiders dataset (version retrieved June 27, 2022). 

486  See supra Section V.A. 



172 

issuer’s shares and making more informed voting and investment decisions, as supported by 

various commenters.487 These informational benefits should be considered in the context of the 

existing baseline (which includes partial revelation of information contained in officer and 

director trades as part of Section 16 reporting).488 Further, informational benefits of the Item 

408(a) disclosure may be low to the extent that plan trades are motivated by liquidity needs and 

similar considerations rather than by MNPI (especially after the amendments to Rule 10b5-1, 

such as the cooling-off period condition, aimed to reduce potential for MNPI-based trading under 

such trading arrangements). Finally, in a change from the proposal, price terms will be outside 

the scope of the required Item 408(a) disclosure of the terms of trading arrangements. This 

change will reduce the informational benefits of Item 408(a) to investors, compared to the 

proposed amendments. 

The requirement that these data points be tagged in a structured data language 

(specifically, in Inline XBRL) is expected to facilitate access to, and analysis of, the disclosures 

by investors, potentially leading to more useful and timely insights, consistent with the 

suggestions of several commenters.489 In particular, structuring the disclosures about trading 

arrangements under Item 408(a) will enable automated extraction of granular data on such 

trading arrangements, allowing investors to efficiently perform large-scale analyses and 

comparisons of trading arrangements across issuers and time periods. Structured data on trading 

                                                 

487  See supra note 209.  

488  See, e.g., letters from Sullivan and Wilson Sonsini (indicating that the proposed disclosures would be 

duplicative of the disclosures that would be required under the proposed disclosure amendments to Forms 4 and 

5); see also letters from Cravath and Shearman (indicating that details of non-Rule 10b5-1 trades already are 

disclosed on beneficial ownership forms). While beneficial ownership forms contain information about 

individual trades, some of which pertain to Rule 10b5-1 transactions, the information required in new Item 

408(a) is significantly more detailed and comprehensive, which is expected to provide information benefits to 

investors above and beyond those that could be obtained today from the analysis of Section 16 reports. 

489  See supra note 319. 



173 

arrangements may also be efficiently combined with other information that is available in a 

structured data language in corporate filings (e.g., information on insider sales and purchases of 

securities) and with market data contained in external machine-readable databases (e.g., 

information on daily share prices and trading volume). The use of a structured data language is 

also expected to enable considerably faster analysis of the disclosed data by investors. 

Structuring the narrative disclosure on insider trading policies and procedures required under 

Item 408(b)(1) of Regulation S-K in Inline XBRL is expected to make it easier for investors to 

extract information from the disclosures about insider trading policies and procedures, compare 

these disclosures against prior periods, and perform targeted artificial intelligence and machine 

learning assessments of specific narrative disclosures about insider trading policies and 

procedures. 

We expect these benefits to result from disclosure of terminations, changes in material 

plan terms, and adoptions of trading arrangements. A termination or a change in material terms 

of a prior trading arrangement may similarly convey information about the views of the officers 

or directors regarding the issuer’s future outlook and share price. Further, the timing of trading 

arrangement adoptions or terminations, relative to the issuance of other corporate disclosures, 

may provide investors with valuable insight into potential insider trading under such trading 

arrangements, and thus associated conflicts of interest that may erode firm value. We expect such 

benefits from the disclosure of both Rule 10b5-1 and non-Rule 10b5-1 trading arrangements. 

Moreover, by drawing market scrutiny to the adoption and termination of trading arrangements, 

enhanced disclosure is expected to deter insider abuses of trading arrangements based on MNPI. 

This scrutiny is expected to reduce insider trading, benefiting investors and decreasing the 

economic costs and inefficiencies associated with insider trading, as discussed in Section V.A 



174 

above. The described benefits may be low or not realized in cases of trading arrangements 

initiated to meet officers’ and directors’ liquidity needs or for other reasons unrelated to MNPI.  

The requirement to provide disclosure regarding insider trading policies and procedures 

is expected to provide investors with valuable information about governance practices with 

respect to insider trading of issuer stock. It will allow investors to better understand the policies 

and procedures, if any, that guide issuers in which they invest and the conduct of officers, 

directors, and employees of those issuers and the issuers themselves, including whether, and if 

so, how, issuers adopt standards that are reasonably necessary to promote (i) honest and ethical 

conduct, including the handling of conflicts of interest, (ii) full, fair, and accurate disclosure in 

periodic reports, including the potential mitigation of pricing distortions from insider trading, and 

(iii) compliance with applicable government rules and regulations, including the prohibition on 

insider trading. The absence or presence, and the nature of, such policies and procedures can 

inform investors about the likelihood of use of MNPI by these parties and, thus, the likelihood of 

incurring the economic costs of insider trading discussed in Section V.A above. It will help 

investors better understand how issuers protect their confidential information—which “qualifies 

as property to which the company has a right of exclusive use”—as well as guard against the 

misappropriation of that information.490 Disclosure regarding insider trading policies and 

procedures could also aid shareholders’ voting and investment decisions. Moreover, requiring 

this disclosure would provide greater consistency in disclosures across issuers to the extent that 

they already disclose this type of information. In addition, the anticipation of market scrutiny 

following mandatory disclosure may incentivize issuers without specific insider trading policies 

                                                 

490  See United States v. O’Hagan, 521 U.S. 642, 654 (1997) (recognizing that the undisclosed misappropriation of 

MNPI in breach of a duty of trust and confidence is “fraud akin to embezzlement”). 



175 

to implement such policies and procedures (with some issuers possibly converging to a 

standardized insider trading policy). Such revisions to insider trading policies are, in turn, 

expected to reduce the likelihood of insider trading and the associated economic costs discussed 

in Section V.A above, particularly at issuers with weaker governance practices with respect to 

insider trading.  

The amendments adding a Rule 10b5-1 plan checkbox to Forms 4 and 5 will benefit 

investors by providing transaction-specific disclosures of sales and purchases under Rule 10b5-1 

trading arrangements. The checkbox disclosure will allow investors easier and timelier access to 

information about trades under Rule 10b5-1. This information will enable investors to more 

comprehensively identify insider trading pursuant to Rule 10b5-1 trading arrangements, as well 

as provide greater consistency in the disclosure of Rule 10b5-1 trades. Today, the disclosure of a 

purchase or sale under a Rule 10b5-1 trading arrangement in Forms 4 and 5 is voluntary, 

resulting in a lack of consistent and comprehensive information about such trades. Making this 

checkbox mandatory will allow investors to more readily interpret information in Forms 4 and 5. 

The mandatory Rule 10b5-1 checkbox disclosures, in combination with the quarterly 

disclosure regarding adoptions and terminations of officers’ and directors’ Rule 10b5-1 trading 

arrangements, will provide greater transparency to investors regarding the use of Rule 10b5-1 

trading arrangements for trading, in line with the suggestions of several commenters.491 Such 

information will provide investors with valuable context for interpreting other corporate 

disclosures in valuing the companies’ shares and making informed voting and investment 

decisions. Because Forms 4 and 5 would continue to use a structured data language, investors 

                                                 

491  See, e.g., letters from ACCO, CII, Quinn, and Cravath. 



176 

could extract and analyze comprehensive information about trades under Rule 10b5-1 trading 

arrangements across multiple time periods, individuals, and issuers.  

3. Costs 

First, we consider the direct (compliance-related) costs of the disclosure requirements for 

insiders and companies. Such costs include preparing the disclosure and gathering the 

information required to comply with the new disclosure requirements. Such costs are expected to 

be lower for companies that already disclose some information about Rule 10b5-1 trading 

arrangements and insider trading policies and procedures. Officers and directors are likely to 

have information about the adoption, modification, termination, duration, and number of 

securities to be sold through their trading arrangements readily available and/or accessible. 

However, issuers may not be systematically collecting such information from officers and 

directors today.492 In those cases, issuers will incur additional cost to establish processes and 

systems to collect information about officers’ and directors’ trading arrangements required to 

comply with the new Item 408(a) disclosure requirement.493 Officers and directors will incur an 

incremental cost to follow internal processes their companies establish, if any, to gather 

information about officer and director trading arrangements for the Item 408(a) disclosure. 

Issuers are likely to have information about their insider trading policies and procedures required 

to comply with Item 408(b) readily available. The tasks of identifying, and preparing a disclosure 

of, such policies and procedures (and, for issuers without such policies and procedures, the 

                                                 

492  See, e.g., letter from Sullivan (expressing concern that requiring disclosure of this information would impose a 

significant burden on issuers).  

493  Id.  



177 

reasons for not having them) are expected to result in some additional direct costs;494 however, 

such costs are likely to be relatively small.495  

In a modification from the proposal, the final rules do not require disclosure of the 

issuer’s policies and procedures in the body of the annual report, proxy statement, or information 

statement. Instead, they require registrants to disclose whether they have adopted insider trading 

policies and procedures governing the purchase, sale, and other dispositions of their securities by 

directors, officers, and non-executive employees or the registrant itself that are reasonably 

designed to promote compliance with insider trading laws, rules, and regulations, and any listing 

standards applicable to the registrant. If a registrant has not adopted such insider trading policies 

and procedures, it will be required to explain why it has not done so. These disclosures will be 

required in annual reports on Form 10-K and proxy and information statements on Schedules 

14A and 14C. FPIs will be required to provide analogous disclosure in their annual reports on 

Form 20-F. Registrants will also be required to file a copy of their insider trading policies and 

procedures as an exhibit to their annual reports on Form 10-K or 20-F. If all of the registrant’s 

insider trading policies and procedures are included in its code of ethics (as defined in Item 

406(b)) and the code of ethics is filed as an exhibit pursuant to Item 406(c)(1), a hyperlink to that 

exhibit, accompanying the issuer’s disclosure as to whether it has insider trading policies and 

procedures, would satisfy this component of the exhibit filing requirement. Requiring registrants 

to file their insider trading policies and procedures as an exhibit would facilitate investor access 

to the document as it would be available online through EDGAR and hyperlinked in the exhibit 

                                                 

494  See, e.g., letter from Dow (expressing concern about the administrative burden of the Item 408(b) disclosure 

requirement). 

495  The final amendments may impose higher additional costs on FPIs. Such additional costs would be relatively 

small to the extent an FPI already discloses similar information under its home country rules.  



178 

index. These modifications also may result in improved readability of the disclosure in the main 

body of the filing and incrementally facilitate compliance, compared to the proposed requirement 

to disclose the policies and procedures in the body of the filing. 

The requirement to tag the new Item 408(a) and Item 408(b)(1) disclosures in Inline 

XBRL will impose incremental compliance costs on issuers. Such costs are expected to be 

modest, because issuers affected by the Inline XBRL requirements (including SRCs) are already 

required (or, in the case of certain business development companies, will be required no later 

than February 2023) to use Inline XBRL to comply with other disclosure obligations.496 

Moreover, the limited scope of the disclosure will likely require a relatively narrow-in-scope 

taxonomy of additional tags (compared to the significantly more extensive taxonomies used for 

financial statement disclosure tagging requirements), thus limiting the initial and ongoing costs 

of complying with the tagging requirement.  

Next, we discuss the indirect costs of Item 408 and Item 16J. Indirect costs include 

potential reputational and investor relations costs associated with the disclosure. For example, 

issuers that have not implemented specific insider trading policies and procedures, as well as 

issuers at which the adoption, modification, or termination of officer and director Rule 10b5-1 

and non-Rule 10b5-1 trading arrangements appears to correlate to the release of MNPI, may 

experience reputational and legal costs and a weakening of investor confidence in their corporate 

governance after public disclosure of this information. Relatedly, officers and directors that 

adopt, modify, or terminate a Rule 10b5-1 or non-Rule10b5-1 trading arrangement around the 

release of MNPI may also suffer reputational or legal costs from the public disclosure of this 

                                                 

496  See Inline XBRL Filing of Tagged Data, Release No. 33-10514 (June 28, 2018) [83 FR 40846, 40847 (Aug. 16, 

2018)]; Securities Offering Reform for Closed-End Investment Companies, Release No. 33-10771 (Apr. 8, 

2020) at 33318 [85 FR 33290 (Jun. 1, 2020)]. 



179 

information. To the extent that the amendments to Rule 10b5-1(c)(1), such as the cooling-off 

period, eliminate or deter insider trading based on MNPI under Rule 10b5-1 trading 

arrangements, these legal and reputational costs of public disclosure may be minimal in cases of 

such trading arrangements.  

The information in the domestic issuers’ quarterly Item 408(a) disclosure of the material 

terms of officers’ and directors’ Rule 10b5-1 and non-Rule 10b5-1 trading arrangements, which 

may benefit investors and other market participants, may cause the affected officers and directors 

to incur costs to the extent that it reveals their future trading plans to other market participants – 

a concern expressed by various commenters.497 The application of a cooling-off period may 

enable other market participants to obtain some information498 about the timing and terms of the 

officer’s or director’s Rule 10b5-1 trading arrangement before trading begins, potentially 

enabling other market participants to incorporate this information in their own trading strategy 

before the officer’s or director’s trading arrangement may be executed. For Rule 10b5-1 trading 

arrangements relying on a simple trading strategy (e.g., equally-sized, equally-spaced periodic 

transactions), the combination of the Item 408(a) disclosure and the Rule 10b5-1 checkbox on 

Form 4 may enable investors to gauge some information about the officer’s or director’s trading 

strategy. This could lead to a potentially less favorable price than the officer or director might 

otherwise have obtained because other market participants are reacting to the officer’s or 

                                                 

497  See supra note 216. 

498  The Item 408(a) disclosure is limited to whether any director or officer adopted or terminated a Rule 10b5-1 

plan or non-Rule 10b5-1 trading arrangement and a description of its material terms, including the name of the 

officer or director, the adoption or termination date, plan duration, and the number of shares to be traded. Price 

terms are not required to be disclosed.  



180 

director’s trading strategy.499 Officers and directors may continue to use limit orders to partly 

insure against an unfavorable price impact of the Item 408(a) disclosure, if any. For planned 

trades motivated by liquidity needs and other considerations that do not involve MNPI 

(especially after the amendments to Rule 10b5-1 aimed to reduce potential for MNPI-based 

trading under such plans), the costs to officers and directors from the revelation of Item 408(a) 

information to market participants will likely be low. Moreover, such costs of Item 408(a) should 

be considered in the context of the baseline, under which officers’ and directors’ Form 4 filings 

already reveal some information about their trades to the market. Importantly, in a change from 

the proposal, the amendments exclude price terms of the trading arrangement from the scope of 

Item 408(a), which should significantly alleviate the potential costs to officers and directors.500    

Finally, some issuers may implement new insider trading policies and procedures or 

update existing insider trading policies and procedures in anticipation of the Item 408(b) 

disclosure requirement and the potential public scrutiny of their policies and procedures, if any. 

Additional restrictions on insider trading arrangements adopted in anticipation of the public 

disclosure could result in economic costs for insiders and, in some instances, changes in insider 

compensation and insider equity holdings that reduce their exposure to issuer stock (broadly in 

                                                 

499  However, the described effects may be modest due to the generally small size of individual officer and director 

trades. Further, even the revelation of large predictable planned trades may not result in front-running. See 

Hendrik Bessembinder et al., Liquidity, Resiliency and Market Quality Around Predictable Trades: Theory and 

Evidence, 121 J. FIN. ECON. 142 (2016) (showing, in a setting with large and predictable exchange-traded fund 

trades, that “traders supply liquidity to rather than exploit predictable trades in resilient markets” and not 

finding “evidence of the systematic use of predatory strategies”). 

500  See supra note 218 (noting that various commenters expressed concerns that disclosure of pricing information 

and other details of a Rule 10b5-1 trading arrangement could impose costs on issuers and their insiders). But see 

letter from Quest (stating that the final rule should not require disclosure of the number of shares covered by a 

trading arrangement and the duration of the arrangement) and letters from Fenwick and Shearman 

(recommending that the required disclosures should be limited to the person adopting the plan, the date of 

adoption or termination, and duration). While we recognize that the volume and duration information may 

potentially be informative to other market participants, we expect the potential costs to officers and directors 

from the disclosure of such information to be modest in the absence of pricing information.181 

line with the discussion of the potential indirect costs of restrictions on insider use of trading 

arrangements in Section V.B.3 above). Costs incurred by issuers would be borne by their 

existing shareholders.  

Insiders are likely to have information about which of their trades were executed pursuant 

to a Rule 10b5-1 trading arrangement readily available, likely resulting only in small direct costs 

of providing checkbox disclosure and the date of adoption of the trading arrangement on Forms 4 

and 5. Systematic identification of trades under Rule 10b5-1 trading arrangements on Form 4 

under the amendments, combined with existing time frames for Form 4 reporting (and for 

officers and directors, the new disclosures in Item 408(a)), may enable some market participants 

to infer the likely trading strategy employed by the insider under a Rule 10b5-1 trading 

arrangement. While this information may benefit investors and other market participants, it may 

result in the indirect cost of information spillovers to market participants, which may contribute 

to an unfavorable price movement prior to the execution of all trades under the plan.501 Such 

indirect costs will be lowest for insiders other than officers and directors given that they are not 

subject to Item 408(a) and for insiders who use Rule 10b5-1 trading arrangements largely for 

liquidity rather than due to information considerations (especially in conjunction with the 

amendments to Rule 10b5-1(c)(1) that reduce the potential for MNPI-based trades). Insiders that 

already voluntarily disclose Rule 10b5-1 use in their filings of Forms 4 and 5 will not incur these 

direct and indirect costs. 

4. Effects on Efficiency, Competition, and Capital Formation 

We expect the amendments to reduce the information asymmetry between insiders and 

outside investors by providing more granular and timelier detail about officers’ and directors’ 

                                                 

501  But see supra note 499. 



182 

trading arrangements and issuers’ insider trading policies and procedures. The reduction in 

information asymmetry as a result of the additional disclosure would result in more 

informationally efficient stock prices. Because disclosure of directors’ and officers’ trading 

arrangements and insider trading policies and procedures can inform investors about insider 

incentives and governance practices, which could affect shareholder value as discussed in 

Section V.A above, the additional disclosure about trading arrangements and insider trading 

policies and procedures could also better inform investment decisions (enabling more efficient 

allocation of capital in investor portfolios) and shareholder voting decisions. 

Importantly, we expect the amendments to draw market scrutiny to officers’ and 

directors’ Rule 10b5-1 and non-Rule 10b5-1 trading arrangements, decreasing the ability of 

insiders to trade on MNPI through such trading arrangements. As discussed in Section V.B.4 

above, this potential scrutiny should reduce insiders’ incentive conflicts associated with insider 

trading. In particular, it would decrease incentives for inefficient corporate investment decisions 

and other corporate decisions. Further, it would decrease insiders’ incentives to influence 

corporate disclosures, resulting in timelier and higher-quality disclosures that enable more 

informationally efficient share prices and more efficient allocation of capital in investor 

portfolios. 

A lower risk of trading against an informed insider is expected to increase investor 

confidence and the willingness of market participants to buy and trade in the issuer’s shares. 

These effects would indirectly make it easier for the issuer to raise capital from investors. Issuers 

that disclose robust insider trading policies and procedures in particular may elicit greater 

investor confidence, as well as interest from investors seeking issuers with stronger corporate 

governance practices, resulting in capital formation benefits for such issuers. 



183 

Finally, in line with the discussion in Section V.B.4 above, the amendments may affect 

competition. Decreasing the ability of insiders and issuers to trade on MNPI will weaken their 

competitive edge in trading, promoting competition among other investors in the market for the 

issuer’s shares. A lower risk of an insider with a significant private information advantage 

trading the issuer’s shares will strengthen the incentive of other market participants to trade those 

shares and compete in gathering and processing information about the issuer. Disclosure of 

insider trading policies and procedures will also enable investors to access and compare insider 

trading policies and procedures across issuers, potentially enhancing issuers’ incentives to 

compete in, and establish a reputation for, having strong governance practices in the area of 

insider trading. 

To the extent that the disclosure requirements impose a fixed cost on issuers, they would 

have a negative competitive effect on smaller issuers subject to the amendments and issuers that 

do not already provide disclosure regarding insider trading policies and procedures as well as 

Rule 10b5-1 and non-Rule 10b5-1 trading arrangements of their officers and directors. The final 

amendments defer by six months the date of compliance with the additional disclosure 

requirements for SRCs,502 potentially mitigating some of the adverse competitive effects of the 

amendments. The Item 408(a) disclosure requirements will not apply to FPIs, potentially placing 

them at a relative competitive advantage to domestic filers.503 With that exception, because the 

disclosure amendments will apply broadly across domestic public companies, generally, we do 

                                                 

502  Based on staff review of EDGAR filings for calendar year 2021, approximately 3,900 of the filers subject to the 

Item 408(a) amendments and 3,200 of the filers subject to Item 408(b) amendments are SRCs and thus will be 

eligible for the extended compliance date under the amendments. 

503  FPIs that file annual reports on Form 20-F will be subject to requirements similar to Item 408(b). Further, FPIs 

listed on U.S. exchanges will remain subject to insider trading laws and exchange listing standards.  



184 

not anticipate it to result in meaningful competitive disparities in the labor market for executive 

talent.504 

All of the effects described above will be smaller to the extent that some issuers already 

provide disclosure regarding their insider trading policies and procedures and the trading 

arrangements of their officers and directors today.  

5. Reasonable Alternatives 

The amendments require quarterly disclosure related to trading arrangements of officers 

and directors and disclosure of issuers’ insider trading policies and procedures, if any, as an 

exhibit to their annual reports, proxy statements, and information statements. As an alternative, 

we could modify the scope and granularity of the required disclosure of officer and director 

trading arrangements or insider trading policies and procedures. The alternatives of expanding 

(narrowing) the scope of the disclosures required by new Item 408 could potentially provide 

greater (lesser) detail to investors, enabling better (less) informed investment decisions and more 

(less) accurate assessment of the risk of the use of MNPI for informed trading through trading 

plans compared to the amendments. However, the alternative of expanding (narrowing) the scope 

of the disclosure could also increase (decrease) disclosure costs (discussed in greater detail in 

Section V.C.3 above) compared to the amendments. As another alternative, we could permit the 

Item 408(b) requirement to be satisfied by posting the insider trading policies and procedures on 

the issuer’s website, as suggested by some commenters.505 Compared to the proposal, this 

approach could marginally ease compliance for issuers that prefer to post the material on their 

                                                 

504  We do not expect significant effects on the labor market competition for executive talent between public and 

private companies. While the new disclosures will increase costs for public companies and, indirectly, their 

officers and directors, these amendments are likely to have only a marginal effect on the overall tradeoff of 

being an officer or director at a public company (including the liability risk and costs of public scrutiny of the 

insider’s holdings, trades, and other actions). 

505  See supra notes 246-247. 



185 

website rather than file it as an exhibit. However, compared to the proposal, this alternative 

would marginally increase investor effort required to access this information as the disclosure 

(including historical versions of the policies and procedures) would no longer be available online 

through EDGAR, and investors would not be able to follow a hyperlink directly to the EDGAR 

filing exhibit. 

As another alternative to the quarterly disclosure related to trading arrangements, we 

could require a different frequency of disclosure. Requiring more (less) frequent disclosure under 

Item 408(a) would provide timelier (less timely) information to investors about trading 

arrangements but also impose higher (lower) costs on issuers and insiders. A more detailed 

discussion of the benefits and costs of the Item 408(a) disclosure is included in Sections V.C.2 

and V.C.3 above.  

As another alternative to the quarterly disclosure requirement, we could narrow its scope 

to include only Rule 10b5-1 trading arrangements, consistent with the suggestions of some 

commenters.506 Under this alternative, officers and directors with non-Rule 10b5-1 trading 

arrangements would not incur the costs of the amendments (discussed in detail in Section V.C.3 

above). However, investors would receive less information about their non-Rule 10b5-1 trading 

arrangements compared to the amendments. This effect on investors would be more pronounced 

in cases where officers and directors forgo Rule 10b5-1 trading arrangements in favor of non-

Rule 10b5-1 trading arrangements as a result of the potential increased costs and complexity of 

Rule 10b5-1 trading arrangements under the amendments.507 

                                                 

506  See supra note 222. 

507  Some commenters indicated, however, that Item 408(a) disclosure of non-Rule 10b5-1 trading arrangements 

would not be informative to investors. See, e.g., letters from Cleary, Cravath, Shearman, and Simpson. While 

we agree that trades under such plans are subject to Section 16 reporting, Item 408(a) would require information 



186 

As another alternative to the quarterly disclosure requirement, we could narrow or 

expand the scope of information required to be disclosed about trading arrangements as 

suggested by some commenters.508 For instance, we could only require the disclosure of the dates 

of adoption or termination of the trading arrangement (and not require disclosure of the plan 

duration or the number of shares to be traded under the plan) or only require disclosure of the 

date of trading arrangement adoption. Alternatively, we could expand the scope of information 

required to be disclosed to include price terms of the trading arrangement, in line with the 

proposal. Under the alternative of narrowing (expanding) the scope of the information required 

to be disclosed, issuers that prepare the Item 408(a) disclosure, as well as officers and directors 

with trading arrangements subject to Item 408(a), would also incur lower (higher) costs 

(discussed in detail in Section V.C.3 above), compared to the amendments. Specifically, 

narrowing (expanding) the scope of the disclosure under Item 408(a) could decrease (increase) 

information spillovers to investors and other market participants and potentially decrease 

(increase) the likelihood of unfavorable price movement based on such disclosure prior to the 

officer’s or director’s own trades, compared to the amendments. In turn, narrowing (expanding) 

the scope of the Item 408(a) disclosure could decrease (increase) the information benefits of the 

disclosure to investors, compared to the amendments. The described effects may be attenuated if 

officers or director trades under the trading arrangements subject to the Item 408(a) disclosure 

are driven mainly by liquidity rather than information considerations. 

                                                 
about key material terms of such plans that cannot be obtained from examining Section 16 reports alone. 

Further, although non-Rule 10b5-1 officer and director trading arrangements by definition do not meet the 

conditions of the Rule 10b5-1(c)(1) affirmative defense, Item 408(a) disclosure of such plans can provide 

valuable additional insight to investors about the future trading plans of officers and directors (which, similar to 

Rule 10b5-1 plans can also be informative about officers’ and directors’ outlook on the issuer) and potentially 

inform investment decisions. 

508  See supra notes 219-221. 



187 

Item 408(a) and Item 408(b)(1) disclosures will be required to be tagged using a 

structured data language (specifically, Inline XBRL). Alternatively, we could forgo the tagging 

requirement (consistent with the suggestion of one commenter509) or narrow its scope, such as to 

cover only quarterly Item 408(a) disclosures. This alternative would provide incremental 

compliance cost savings for issuers, who would not be required to select, apply, and review 

Inline XBRL tags for the disclosure of whether they have insider trading policies and procedures 

in annual reports and proxy and information statements. Such cost savings, however, would 

likely be low given the very limited number of Inline XBRL tags that are expected to be needed 

to tag the new disclosures. This alternative would also remove the informational benefits to 

investors that would accrue from facilitating retrieval of such disclosures across issuers and time 

periods, compared to the amendments. 

Item 408(a) disclosure requirements will only apply to domestic filers. Disclosure 

requirements regarding insider trading policies and procedures, however, will apply to both 

domestic filers (through Item 408(b)) and FPIs that file Form 20-F.510 As an alternative, we 

could exempt Form 20-F filers from this disclosure requirement, as suggested by some 

commenters.511 Generally speaking, such an exemption would eliminate the direct and indirect 

costs of the rule (as described in detail in Section V.C.3 above) for FPIs. Exempting Form 20-F 

filers also would decrease the amount of information available to investors about the insider 

trading incentives and policies and procedures at such issuers, potentially limiting investors’ 

ability to make informed decisions with respect to such issuers. This exemption also could lead 

                                                 

509  See supra note 320. 

510  FPIs will be required to provide analogous disclosure in their annual reports pursuant to new Item 16J to Form 

20-F.  

511  See supra note 249. 



188 

to incrementally greater competitive disparities due to the higher compliance burden of domestic 

issuers with respect to this requirement.  

As another alternative, we could extend requirements similar to Item 408(a) requirements 

to FPIs that file annual reports on Form 20-F. Because such FPIs do not have a quarterly 

reporting obligation equivalent to a Form 10-Q, the incremental benefit of this alternative could 

be relatively more modest due to the less timely disclosure of information on trading 

arrangements, if it were required to be disclosed in annual reports.  

In addition, as another alternative, we could exempt SRCs from the Item 408(a) 

requirement, as suggested by one commenter,512 rather than defer the compliance date for SRCs. 

Compared to the amendments, this alternative would reduce the costs for SRCs, which may be 

disproportionately affected by the fixed component of the compliance costs (assuming any of the 

officers or directors have a trading plan reportable under this Item). However, this alternative 

also could prevent investors in such issuers from being able to evaluate trading plans and their 

material terms and potentially result in less informed voting and investment decisions, compared 

to the amendments. 

The amendments to Forms 4 and 5 add a mandatory Rule 10b5-1 checkbox and require 

the disclosure of the date of Rule 10b5-1 plan adoption. As an alternative, we also could require 

this type of disclosure on Forms 4 and 5 for trades made under non-Rule 10b5-1 trading 

arrangements. This alternative could provide investors with more comprehensive information 

and greater transparency about trades under a broader range of trading arrangements. However, 

to the extent that non-Rule 10b5-1 trading arrangements can take various forms, requiring trades 

                                                 

512  See letter from MD Bar. Based on staff analysis of EDGAR filings for calendar year 2021, we estimate there are 

approximately 3,900 unique filers with annual reports on Form 10-K and/or quarterly reports on Form 10-Q or 

amendments thereto (excluding asset-backed securities issuers and registered investment companies, which will 

not be subject to the amendments). 



189 

under such trading arrangements to be identified on Forms 4 and 5 separately from trades 

conducted without a trading arrangement under this alternative may provide less meaningful 

information to investors.513  

D. Additional Disclosure of the Timing of Option Grants and Related Company Policies 

and Practices  

The Commission is adopting new Item 402(x) of Regulation S-K to enhance the 

accessibility of information and transparency regarding issuers’ grants of stock options, SARs, or 

similar option-like instruments before or after the filing of a periodic report, or the filing or 

furnishing of a current report on Form 8-K that contains MNPI. As proposed, the amendments 

would have applied to grants made during a period beginning 14 calendar days before and 

ending 14 calendar days after the MNPI filing (to include periodic reports on Forms 10-K or 10-

Q, issuer share repurchases, or current reports on Form 8-K that contain MNPI). We are adopting 

the narrative disclosure requirement as proposed and the tabular disclosure requirement with 

several modifications. In a change from the proposal, partly in response to commenter 

feedback,514 the amendments sharpen the focus of the new table on the data that can help 

investors evaluate the potential presence of spring-loading as well as tailor the trigger 

requirements and shorten the coverage window. The new table will apply only to grants made 

within a period starting four business days before and ending one business day after a triggering 

event. Further, the final rules remove from the scope of triggering events the share repurchase 

triggering event and provide that Forms 8-K disclosing the grant of a material new option award 

                                                 

513  See letters from Cravath and Cleary (noting that the non-Rule 10b5-1 trading arrangement checkbox would not 

be informative to investors). 

514  See supra note 297. 



190 

under Item 5.02(e) do not trigger this disclosure.515 These changes are consistent with the 

suggestions of commenters to shorten the reporting window for the tabular disclosure and 

remove share repurchase as a triggering event.516  

We believe that the modified coverage window will make the tabular disclosure more 

useful to investors compared to the proposal, as discussed in Section II.C.3 above. By 

eliminating almost all of the post-filing period from the coverage window included in the 

proposal, the final amendments significantly reduce the potential noise in the tabular disclosure 

due to awards made after the release of MNPI intended as an effort to avoid spring-loading, 

rather than a strategic attempt at bullet-dodging.517 Nevertheless, by extending the coverage 

window to one business day after the filing date, the final amendments account for potential 

spring-loading in cases where it may take the market an additional trading day to incorporate 

information in the triggering filing into share prices (e.g., in the presence of MNPI filings made 

after trading hours518 or by companies with a less liquid market for their shares). The asymmetry 

in the modified coverage window is intended to balance the costs to companies against the 

different likelihood of a grant being strategic (as opposed to a result of a general attempt to avoid 

grants while in possession of MNPI) if a grant is made before versus after the MNPI release. 

Overall, the modified coverage window will give investors easier access to data about option 

                                                 

515  In a change from the proposal, issuer share repurchases will not trigger this disclosure, consistent with the 

suggestion of one commenter. See letter from Sullivan (noting that many issuers engage in repurchase activity 

regularly and, in some instances, daily, and that this requirement could pose a substantial burden on issuers 

without any potential benefit to investors). This change is expected to decrease the costs of the amendments 

relative to the proposal. 

516  See, e.g., letters from Davis Polk and Cravath. 

517  See infra note 564. 

518  See, e.g., Henk Berkman & Cameron Truong, Event Day 0? After-Hours Earnings Announcements, 2009 J. 

ACC. RES. 71. 



191 

grants in the days leading up to and immediately following the MNPI filing. While we recognize 

that it may capture some grants made on the date following the triggering filing in an attempt to 

avoid spring-loading, such grants should generally be discernible by investors from the provided 

disclosure519 and, on balance, this coverage window is more appropriately tailored, relative to the 

proposal. Overall, tailoring the tabular disclosure requirement in these ways is expected to 

enhance the benefits of the resulting disclosure to investors by improving its usability and 

including fewer details that could offer little information value for investors. These changes also 

should decrease the costs of the disclosure for issuers and affected NEOs compared to the 

proposal.  

Finally, we are combining the two columns that would have reported the market value of 

the underlying securities on the trading days before and after the MNPI filing, respectively, into 

a single column with the percentage change in the market value of the underlying securities 

between the trading day before and after the MNPI filing. Compared to the proposal, this column 

is expected to incrementally make it easier for investors to understand the impact that spring-

loading may have on the value realized by the NEOs, and somewhat condense the size of the 

new tabular disclosure without a meaningful effect on the cost to companies as the percentage 

change can be readily calculated from the market values in dollar terms for the two days.  

                                                 

519  For example, an investor reviewing the disclosure is unlikely to be concerned about grants made immediately 

after the triggering filing representing bullet dodging if the information in the triggering filing was not negative 

in nature or was not followed by much stock price movement or was instead followed by a share price increase. 



192 

1. Baseline and Affected Parties 

 New Item 402(x) will apply to filers of annual reports on Form 10-K and proxy and 

information statements.520 During calendar year 2021, we estimate that there were approximately 

6,300 affected filers. 

Existing Item 402 requires disclosure of option grant dates, thus potentially enabling 

investors today to compare the timing of grant dates and historical filings of a periodic report or 

another EDGAR filing that contains MNPI. The Commission provided interpretive guidance 

regarding option grants in the 2006 Executive Compensation Release.521 In considering the 

timing of option grants close in time to the release of MNPI, the Commission explained in the 

release that, if the issuer has such a program, plan, or practice, the issuer should disclose that the 

board of directors or compensation committee may grant options at times when the board or 

committee is aware of MNPI.522 To the extent that the existing disclosures of issuers that allow 

the timing of option grants around MNPI reflect such guidance, the incremental effects of a 

mandate to disclose policies and procedures related to option grants close in time to MNPI may 

be small. 

Some studies have noted that the regulatory reforms of the early and mid-2000s have led 

to the decline, if not disappearance, of questionable option timing practices.523 However, there is 

                                                 

520  Current filing requirements of Form 10-K permit filers to incorporate by reference executive compensation 

disclosures from a proxy or information statement involving the election of directors. See supra note 252. These 

estimates exclude registered investment companies and asset-backed securities issuers, which are not subject to 

the amendments. 

521  See 2006 Executive Compensation Release, supra note 277. 

522  Id. 

523  See Randall Heron & Erik Lie, What Fraction of Stock Option Grants to Top Executives Have Been Backdated 

or Manipulated?, 55 MGMT. SCI. 513 (2009); M. P. Narayanan & H. Nejat Seyhun, The Dating Game: Do 

Managers Designate Option Grant Dates to Increase Their Compensation?, 21 REV. FIN. STUD. 1907 (2008); 

Lucian Bebchuk et al., Lucky CEOs & Lucky Directors, 65 J. FIN. 2363 (2010); Linxiao Liu et al., Stock Option 



193 

evidence that strategic option grant timing persists.524 For example, one study, which examined 

4,852 scheduled CEO stock option grants from 2007 through 2011, found that managers 

accelerate bad news before a grant and delay good news until after a grant, consistent with self-

interested attempts at strategic option grant timing that maximizes their value to the CEO, and 

that “market reactions to SEC Form 8-K filings (which report material corporate events) tend to 

be negative in the months immediately before a scheduled CEO option grant and positive in the 

months after the grant.”525 Executives also appear to move earnings from the pre-grant period to 

the post-grant period, such as by changing a firm’s accounting choices (e.g., accruals 

management) and perhaps even by timing investments (e.g., real earnings management).526 

Another study concluded that spring-loading partly replaced the disappearing practice of option 

                                                 
Schedules and Managerial Opportunism, 41 J. BUS. FIN. ACCT 652 (2014); Rik Sen, The Returns to Spring-

Loading, 2008 N.Y.U. (Working Paper) (2008). 

524  See Insider Trading and Stock Option Grants: An Examination of Corporate Integrity in the Covid-19 

Pandemic, Memo from FSC Majority Staff to Members, Committee on Financial Services, September 17, 2020, 

available at https://financialservices.house.gov/uploadedfiles/hhrg-116-ba16-20200917-sd002.pdf, at pp. 2-5. 

525  See Robert M. Daines et al., Right on Schedule: CEO OPTION GRANTS AND OPPORTUNISM, 53 J. FIN. QUANT. 

ANAL. 1025 (2018) (finding that: “some CEOs have manipulated stock prices to increase option compensation, 

documenting negative abnormal returns before scheduled option grants and positive abnormal returns 

afterward;” “document[ing] several mechanisms used to lower stock price, including changing the substance 

and timing of disclosures;” and further contend[ing] that such opportunism “distorts stock prices, leading to 

capital misallocation, and may dissipate firm value if executives postpone valuable projects.”). 

526  Id.; see also David Aboody & Ron Kasznik, CEO Stock Option Awards and the Timing of Corporate Voluntary 

Disclosures, 29 J. ACCT. ECON. 73 (2000) (focusing on CEO option awards with fixed award schedules and 

showing that “CEOs make opportunistic voluntary disclosure decisions that maximize their stock option 

compensation,” based on changes in share prices, analyst earnings forecasts, and management earnings 

forecasts); Keith W. Chauvin & Catherine Shenoy, Stock Price Decreases Prior to Executive Stock Option 

Grants, 7 J. CORP. Fin. 53 (2001) (finding, in a May 1991 to February 1994 sample covering 313 CEOs, “a 

statistically significant abnormal decrease in stock prices during the 10-day period immediately preceding the 

grant date” and concluding that “[e]xecutives who expect to be granted stock options have the incentive, 

opportunity and ability to affect the exercise price with their inside information”). 

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194 

backdating.527 A different study documented spring-loading around stock splits but does not 

disaggregate the 1992-2012 period into pre- and post-2006 sub-periods.528 

2. Benefits 

As discussed in Section II.C above, certain practices related to the timing of executive 

compensation option grants may raise investor concerns about the use of MNPI. Improved 

disclosure may potentially enhance the transparency of such compensation awards (informing 

investment and voting decisions) and potentially mitigate the economic costs of the associated 

incentive distortions, consistent with the suggestions of commenters that supported the proposed 

amendments.529 

The amendments will make information that investors may seek to help them identify the 

occurrence and effects of potential spring-loading more salient and readily accessible. Spring-

loading increases the effective economic value of the options granted to the executive upon 

MNPI becoming public.530 Holding the number of the granted options and the policy to grant 

options with the exercise price equal to the current observable market price (i.e., “at-the-money”) 

constant, the executive would effectively receive a higher compensation award than if the timing 

of option grants were completely independent of MNPI releases.531 Further, lowering an option’s 

                                                 

527  See Giulian Bianchi, Stock Options: From Backdating to Spring Loading, 59 Q. REV. ECON. FIN. 215 (2016) 

(examining data through 2011). 

528  See Erik Devos et al., CEO Opportunism? Option Grants and Stock Trades around Stock Splits, 60 J. ACCT. 

ECON. 18 (2015). However, companies may adjust exercise prices to account for the effect of stock splits. 

529  See supra note 293. 

530  Past studies have focused primarily on options. In this context, the same economic effects can be expected in 

the case of awards of SARs and similar instruments. For purposes of this analysis, the term “option” includes 

stock options, SARs and similar instruments with option-like features. 

531  See David Yermack, Good Timing: CEO Stock Option Awards and Company News Announcements, 52 J. FIN. 

449 (1997); see also Iman Anabtawi, Secret Compensation, 82 N.C.L. REV. 835 (2004); Alex Edmans et al., 

Chapter 7 – Executive Compensation: A Survey of Theory and Evidence, HANDBOOK OF THE ECON. OF 

CORPORATE GOVERNANCE 383-539 (2017). They note that the use of “stealth compensation” is a “challenge for 



195 

exercise price through timing of an option award around an MNPI release affects the sensitivity 

of the awarded options to changes in the issuer’s share price.532  

Some have argued that these practices may be the result of an optimal compensation 

policy.533 Whether such practices constitute an optimal compensation policy or not, a lack of 

transparency about such compensation awards may limit investors’ ability to fully gauge the key 

terms of compensation arrangements and their implications for executives’ incentives and thus, 

potentially, firm value, and may limit shareholders’ ability to make informed voting decisions. 

The amendments incrementally improve the accessibility of information about option grant 

timing practices. Item 402(x) will require additional disclosure regarding practices related to the 

awards of stock options, SARs, and similar option-like instruments to provide a more 

comprehensive picture of the timing of these awards relative to MNPI releases. New Item 

402(x)(1) will require issuers to provide disclosure of their policies and procedures related to 

timing of these awards in relation to the disclosure of MNPI, which is not currently required. The 

tabular disclosure requirement of new Item 402(x)(2) will make information about such awards 

that are made shortly before MNPI releases more readily available to investors.  

                                                 
the shareholder value view” and that, in most cases, “[i]f executive pay were efficiently designed and 

competitive, there would be no need to disguise it from shareholders... hiding these compensation elements 

from shareholders is suggestive of rent extraction.” They further note that “[s]tock options can be a means of 

camouflaging pay if directors or shareholders do not fully understand their cost” and that opportunistic option 

timing practices “are correlated with weak corporate governance.” 

532  Spring-loading can cause a call option to be in-the-money when it would have otherwise been at-the-money, 

assuming favorable MNPI is about to be released. Everything else equal, the value of an in-the-money call 

option has a higher sensitivity to the share price than the value of an at-the-money call. The effects of such 

changes depend on the objectives of the overall compensation package with respect to inducing optimal 

executive incentives and the role of option and SAR awards in this package. 

533  See, e.g., Erik Devos et al., supra note 528 (stating that “it is not clear whether shareholders are necessarily 

harmed by this apparent option grant timing, as it is possible that this is just another way by which the [board of 

directors] attempts to reward and retain a high performing CEO”); see also Speech by SEC Commissioner: 

Remarks Before the International Corporate Governance Network 11th Annual Conference by Commissioner 

Paul S. Atkins, U.S. Securities and Exchange Commission, July 6, 2006, available at 

https://www.sec.gov/news/speech/2006/spch070606psa.htm. But see supra note 531. 

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196 

New Item 402(x)(3) will require issuers to submit this disclosure in Inline XBRL. This 

requirement is expected to offer incremental benefits to investors by facilitating automated 

extraction of the information for purposes of aggregation, analysis, and comparison (across time 

periods and filers), potentially enabling more informed investment and voting decisions. Even 

though investors can fairly readily extract the dates of MNPI disclosures and share prices around 

such MNPI disclosures respectively from EDGAR and third-party sources today, because option 

grant information in proxy statement disclosures does not use a structured data language, 

extracting such information from HTML filings for a large set of issuers requires additional cost 

and effort.534 

We recognize that there may be various reasons, besides strategic spring-loading, for 

option grants within the specified number of days before disclosure of MNPI. Nevertheless, we 

believe that making this data more accessible to investors will help them analyze whether spring-

loading is a concern as part of a comprehensive review of the various elements of compensation 

practices. Investors can then compare this information with the executive’s on-the-job 

performance in assessing the optimality of executive compensation, which, will, on the margin, 

benefit investors by equipping them to make better informed voting and investment decisions. 

Combined with the narrative disclosure of the applicable policies, the tabular disclosure also may 

incrementally help to alleviate information asymmetries between issuers and investors with 

respect to this aspect of executive compensation practices and better inform investors about 

                                                 

534  Daily market prices can be obtained from a wide variety of sources, including commercial databases that 

provide such data for a subscription fee. Some commercial databases extract option grant information from 

proxy statements and provide it for a subscription fee, but they tend to focus their coverage on large companies. 

To obtain comprehensive option grant information for all NEOs of mid-size and small companies, investors 

would presently need to analyze or “scrape” (apply a computer algorithm to extract information from) a large 

number of proxy statement filings in the HTML format. 



197 

executives’ incentives. Besides contributing to better informed voting and investment decisions, 

the disclosure may facilitate more informed shareholder say-on-pay votes and votes in director 

elections.535  

Another potential benefit of the disclosure is that, to the extent that strategically timed 

option grants were not the result of a value-maximizing compensation policy but rather an 

outcome of agency conflicts (such as executives’ attempts to extract additional compensation 

without drawing investor scrutiny to the full amount of such compensation),536 and to the extent 

that companies forgo such grants in anticipation of the additional disclosure, the disclosure 

requirement may improve shareholder value. However, if the extra compensation is currently 

optimally awarded, forgoing such compensation could negatively impact shareholder value.537 

Further, to the extent that the practice of strategically timed option grants in some 

instances created incentives for executives to change the timing and content of MNPI disclosures 

                                                 

535  See, e.g., Glass Lewis, 2020 Proxy Paper Guidelines: An Overview of the Glass Lewis Approach to Proxy 

Advice - United States, 12-13, 41-42 (2020), available at https://www.glasslewis.com/wp-

content/uploads/2016/11/Guidelines_US.pdf. See also, e.g., Anabtawi, supra note 531 (stating that “under state 

law fiduciary duty principles, a manager who receives stock options while in possession of inside information 

that will raise the stock price when it is later released discharges her fiduciary duty of loyalty through full 

disclosure to and ratification by a disinterested board. It is then the board’s responsibility, pursuant to its 

fiduciary duty of disclosure, to inform the corporation's shareholders of the favorable timing of the grant, if it 

disseminates to them information about the company's executive compensation arrangements”); Matthew E. 

Orso, ‘Spring-Loading’ Executive Stock Options: An Abuse in Need of a Federal Remedy, 53 ST. LOUIS U. L. J. 

629 (2009); Jonathan Tompkins, Opportunity Knocks, But the SEC Answers: Examining the Manipulation of 

Stock Options Through the Spring-Loading of Grants and Rule 10b-5, 26 WASH. U. J. L. & POL’Y 413 (2008). 

536  One article notes that “[t]here are, of course, constraints that check the extent to which the level and structure of 

executive compensation can deviate from what would be optimal for shareholders. . . To circumvent such 

pressures, managers will want to enhance their compensation as discreetly as possible. By ‘camouflaging’ 

elements of their pay, managers can maximize their compensation while minimizing adverse reaction. Timing 

option grants is an especially attractive way to enhance executive compensation both because it is difficult to 

detect and because it has generally eluded attention.” See, e.g., Anabtawi, supra note 531; see also, e.g., 

Bianchi, supra note 527 (stating that “[o]pportunistic option timing is found to be associated with weaker 

corporate governance. Indeed, practices such as backdating and spring loading raise governance concerns. . . 

Eventually, the opportunistic option timing casts doubt on the efficacy of incentives to address the principal 

agent models.”); see supra note 294. 

537  See, e.g., Tompkins, supra note 535; see also supra note 533. But see supra note 531. 

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198 

around option grant dates in an attempt to increase the economic value of compensation 

awards,538 the amendments may partly mitigate such incentives. In those instances, the indirect 

effect of the amendments may improve the information content, timeliness, and quality of 

disclosures and result in more efficient share prices and better informed voting and investment 

decisions. 

We recognize that several factors may potentially limit the magnitude of these economic 

benefits. First, the economic benefits of the amendments are likely to be modest because the 

information required by the new tabular disclosure can be obtained from other sources today. In 

particular, the benefits of the new tabular disclosure will be limited by the fact that investors 

today can research and assess, based on historical option grant dates already required to be 

disclosed under Item 402, how grant timing relates to EDGAR filings containing MNPI and to 

share price changes around such filings (information that is publicly accessible but not all found 

in one location), as indicated by various commenters.539 The new disclosure will aggregate this 

information in a more readily accessible tabular format in one location, potentially incrementally 

lowering investor search costs and increasing investor awareness of option grant timing around 

MNPI. The Inline XBRL tagging requirement also is expected to further facilitate automated 

extraction of the information for purposes of aggregation, analysis, and comparison across time 

periods and filers.  

Second, the discussed benefits may also be limited to the extent that issuers are already 

disclosing similar information today. 

                                                 

538  See supra note 526 and accompanying and following text. 

539  See supra note 298. 



199 

Third, the discussed benefits may be attenuated if some investors find the new tabular 

disclosure to be of limited use. For example, some investors may find the tabular disclosure 

difficult to parse for issuers with multiple filings containing MNPI and option awards. As 

another example, investors may find that the information value of the disclosure is diminished 

due to confounding events that occur between the option grant date and the dates of MNPI filings 

within the reporting window; however, the considerable narrowing of the reporting window from 

the proposal should partly alleviate this potential limitation. Investors in issuers with thinly 

traded securities may find that the percentage change in the market value of the underlying 

securities on the trading day following the MNPI disclosure, relative to the trading day before the 

MNPI disclosure, may not fully capture the effects of the MNPI disclosure. Some other investors 

may find that the information value of the disclosure is diminished due to market- or sector-wide 

events that may affect the issuer’s share price on some MNPI filing dates, notwithstanding the 

substance of the MNPI that was disclosed. Further, some issuers may issue these awards shortly 

prior to MNPI filings due to pure coincidence rather than strategic reasons, as noted by some 

commenters.540 For instance, several commenters noted that the timing of equity awards may be 

based on a meeting schedule established several months in advance without consideration of 

disclosure of MNPI.541 Further, issuers that routinely award options on a specified schedule (e.g., 

monthly or quarterly) may have grants within the reporting window of the new disclosure simply 

due to their obligations to file quarterly reports or to report current events on Form 8-K.542  

                                                 

540  See supra note 299. 

541  See supra note 300. Nevertheless, even if the grant schedule dates are set in advance, to the extent that some 

investors may be concerned about strategic management of MNPI disclosures around such pre-scheduled 

grants, the tabular disclosure may help investors more readily access information as they evaluate such 

occurrences. See Daines et al. (2018), supra note 525. 

542  See supra note 301. 



200 

New Item 402(x)(1) will require annual disclosure of policies and practices related to 

option grant timing close in time to the release of MNPI and will offer new information that is 

not presently available to investors. The disclosure of the presence or absence of such policies 

and practices may inform investment and voting decisions. The anticipation of public disclosure 

may also lead issuers to adopt policies and practices disallowing option grants around MNPI, 

leading to the benefits discussed above. To the extent such disclosures already are provided by 

issuers in light of the 2006 Executive Compensation Release,543 such indirect benefits 

incremental to the amendments would be diminished. 

A few other potential considerations may limit the economic benefits of the new 

disclosures (both in Items 402(x)(1) and 402(x)(2)). First, shareholders of some issuers may view 

the described option granting practices as an optimal compensation policy set by the board.544 

Second, the discussed benefits of the amendments are expected to be modest at issuers that rely 

less on stock options and primarily or exclusively grant restricted stock or do not grant equity-

linked compensation.545 Third, the effects of the amendments may be modest to the extent that 

other factors already deter spring-loading (for example, best practices implemented by the 

                                                 

543  See 2006 Executive Compensation Release, supra note 277. 

544  See supra notes 533 and 537 and accompanying and following text. But see supra note 531. 

545  The proportion of companies that grant options to executives has declined substantially after the introduction of 

FAS 123R in 2004 (now codified in Accounting Standards Codification Topic 718). See, e.g., Prevalence of 

Options Decreases as Companies Tie Awards to Performance, EQUILAR (Aug. 23, 2018), available at 

https://www.equilar.com/press-releases/103-prevalence-of-options-decreases-as-companies-tie-awards-to-

performance; Aubrey Bout et al., S&P 500 CEO Compensation Increase Trends, 2020 HARV. L. SCHOOL 

FORUM CORP. GOV. (Feb. 11, 2020), available at https://corpgov.law.harvard.edu/2020/02/11/sp-500-ceo-

compensation-increase-trends-3/. Based on the analysis of Execucomp data for fiscal year 2021 (version 

retrieved on June 27, 2022), approximately 34 percent of companies reported option grants. Execucomp data 

covers S&P 1500 companies and thus may not be representative of option compensation at smaller companies. 

Small business issuers and registrants other than small business issuers were required to comply with FAS 123R 

beginning with the first reporting period of the first fiscal year beginning on or after Dec. 15, 2005 and June 15, 

2005, respectively. See Amendment to Rule 4-01(a) of Regulation S-X Regarding the Compliance Date for 

Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment, Release No. 33-

8568 (Apr. 15, 2005) [70 FR 20717 (Apr. 21, 2005)]. 

https://www.equilar.com/press-releases/103-prevalence-of-options-decreases-as-companies-tie-awards-to-performance
https://www.equilar.com/press-releases/103-prevalence-of-options-decreases-as-companies-tie-awards-to-performance
https://corpgov.law.harvard.edu/2020/02/11/sp-500-ceo-compensation-increase-trends-3/
https://corpgov.law.harvard.edu/2020/02/11/sp-500-ceo-compensation-increase-trends-3/201 

compensation committee or generally robust internal corporate governance mechanisms). 

Finally, the effects of the amendments on executives may be small if issuers adjust compensation 

to offset the decline in spring-loading under the amendments (e.g., by changing option terms, the 

allocation of compensation between cash, options, and restricted stock, or the overall amount of 

compensation). 

3. Costs  

We recognize that the amendments to Item 402 requiring additional disclosure of the 

timing of option awards and related corporate policies will impose certain costs on issuers, as 

suggested by various commenters.546 The amendments will result in direct compliance-related 

costs for affected filers of compiling the information required in amended Item 402 for inclusion 

in the annual report or proxy or information statement. Because issuers either already provide 

such information (option grant information and dates) for other disclosures or can readily obtain 

the information (daily share prices and dates of EDGAR filings), the direct costs are expected to 

be modest. We acknowledge that issuers will incur some direct costs of aggregating such 

existing information into the tabular format. Further, issuers will incur compliance-related costs 

to assess which of the filings from the reporting period contained MNPI and thus should be a 

part of the tabular disclosure. These direct costs of complying with the new tabular disclosure 

may be potentially mitigated to the extent that issuers can leverage existing systems and 

recordkeeping practices used to prepare the plan-based table disclosure required today, as well as 

internal records on the dates of other disclosures filed on EDGAR with the Commission.  

Issuers will incur compliance costs of structuring the Item 402(x) disclosure in Inline 

XBRL. Such costs will be higher for filers with more option grants subject to the new disclosure. 

                                                 

546  See supra note 297. 



202 

However, because filers subject to the amendments already are or will soon be subject to other 

structured disclosure requirements (e.g., Inline XBRL requirements for financial statement 

information and cover page information in certain filings), the incremental cost of submitting the 

compensation disclosure using a structured data language will likely be relatively modest.547 We 

expect that the direct costs of Inline XBRL tagging of the new disclosure may be potentially 

mitigated to the extent that issuers subject to the amendments, which already utilize Inline XBRL 

tagging to comply with other filing obligations, may leverage existing systems or only incur an 

incremental cost when utilizing outside service providers to tag the new disclosures in proxy 

statements. 

The amendments also may result in indirect costs for issuers and executives. Disclosure 

of option grant timing practices could result in reputational harms for some issuers or individual 

executives, such as unfavorable say-on-pay votes, if investors perceive such practices as 

inconsistent with shareholder value maximization and optimal compensation policies. Outside 

scrutiny of this disclosure may cause issuers to forgo such option grant timing practices. For 

issuers at which such practices arose from efforts to implement an economically optimal 

compensation policy for issuers and executives,548 deviating from such a policy could result in 

less optimal compensation. Some commenters also indicated that these disclosures may mislead 

investors by causing them to infer a causal link between option awards and the release of MNPI 

where none exists.549 The shorter reporting window for the tabular disclosure in the final 

amendments and removal of the share repurchase triggering event are expected to substantially 

alleviate this concern. At issuers that forgo option grant timing but do not change other 

                                                 

547  See supra note 496. 

548  See supra notes 533 and 537. But see supra note 531. 

549  See supra note 540. 



203 

compensation terms to offset it, executives could experience smaller, more volatile compensation 

awards. However, it is important to note that the final rules do not require a particular option 

grant timing policy. Rather, the amendments aim to incrementally improve transparency about 

such compensation awards, enabling investors to more fully gauge the key terms of 

compensation arrangements and their implications for executives’ incentives and thus, 

ultimately, firm value.  

Several considerations would mitigate the potential indirect costs of the disclosure 

requirement to issuers. Given that this disclosure would incrementally improve access to 

information about option grant timing practices, in cases where such practices are optimal from 

the standpoint of shareholder value, issuers likely would not make inefficient changes to those 

compensation practices as a result of the improved investor access to such information under the 

new rules (however, the direct costs of compliance with the rule, discussed above, may 

potentially result in inefficient compensation changes). Issuers for which compensation awards 

timed in this manner are consistent with shareholder value maximization should be able to 

readily preserve the economic effects of such compensation for executives, either by continuing 

their existing compensation practices or by altering the size or other terms of the award to ensure 

a similar value of compensation. Moreover, issuers may be able to use other, readily available 

means to adjust compensation terms to achieve a similar outcome.550 

As discussed in Section V.D.2 above, several factors are expected to potentially limit the 

incremental impact of the new tabular disclosure and thus the magnitude of the discussed indirect 

economic costs. First, the indirect costs of the amendments likely will be modest due to the 

                                                 

550  Issuers could lower the exercise price, increase the number of options granted, decrease the proportion of 

options in overall pay, increase overall pay, modify performance-based or other compensation terms, or some 

combination of those.  



204 

availability of the information subject to the new disclosure requirement in other sources today, 

as indicated by various commenters.551 Second, the discussed indirect costs may also be reduced 

to the extent that the newly required information is already contained in compensation 

disclosures. Third, the discussed indirect costs may be partly attenuated to the extent that some 

investors may find the tabular disclosure to be too extensive or difficult to parse for issuers with 

multiple MNPI filings and option grants for different NEOs. 

Further, as discussed in Section V.D.2 above, some investors may incorrectly interpret 

information in the disclosure as evidence of spring-loading, which may in turn increase indirect 

costs for issuers and insiders. Such incorrect interpretations may happen due to confounding 

events between the option grant date and MNPI disclosure dates within the reporting window 

(with less potential for confounding with a shorter window); market prices being slow to adjust 

to the MNPI disclosure (e.g., at some issuers with thinly traded securities); market- or sector-

wide events affecting market prices on MNPI disclosure dates; or coincidental nature of option 

grants close in time with MNPI disclosures (e.g., with frequent or routine grants).552  

The above discussion has focused on the tabular disclosure of new Item 402(x)(2). In 

addition, new Item 402(x)(1) mandates disclosure of policies and practices related to option grant 

timing around MNPI, which is not presently required. While issuers are likely to have 

information readily available about policies and practices related to option grant timing, they will 

likely incur some direct compliance costs to compile and prepare that information for public 

disclosure. Issuers may also incur indirect costs of this disclosure. Specifically, issuers with 

policies and practices that allow strategic option grant timing may incur reputational costs of 

                                                 

551  See supra note 539. 

552  See supra note 540. 



205 

such disclosure. Further, the anticipation of public disclosure may lead such issuers to adopt 

policies and practices disallowing option grants around MNPI, which, in some cases may result 

in a deviation from optimal compensation policies.553 Such changes may also impose costs on 

executives, to the extent other compensation terms are not adjusted in an offsetting manner, as 

described above. To the extent that issuers already provide disclosures of policies and procedures 

related to option grant timing following the 2006 Executive Compensation Release,554 the costs 

incremental to the amendments will be lower.  

Finally, as discussed in Section V.D.2 above, the overall economic costs of the new 

disclosures required by Items 402(x)(1) and 402(x)(2) are expected to be more modest to the 

extent that fewer issuers rely on stock option compensation.555 Further, the cost to executives of 

the decline in strategic option grant timing may be lower if other factors already deter such 

option grant timing (e.g., compensation committee policies or other corporate governance 

mechanisms) or if issuers make offsetting adjustments to executive compensation (e.g., by 

changing option terms, the mix of cash, options, and restricted stock, or the amount of 

compensation). 

4. Effects on Efficiency, Competition, and Capital Formation 

We expect the disclosures required in new Item 402(x) to incrementally decrease the 

information asymmetry between insiders and investors about the issuer’s option compensation 

awards and associated policies, resulting in better information about the insiders’ incentives that 

may derive from such option awards. This effect may result in more informationally efficient 

prices and more efficient allocation of capital in investor portfolios. Greater accessibility to 

                                                 

553  See supra notes 533 and 537. 

554  See 2006 Executive Compensation Release, supra note 277. 

555  See supra note 545. 

https://sharepoint/sites/CF/Rulemaking/10b5-1/Shared%20Documents/Adopting%20Release/supra


206 

investors of information about the timing of option compensation awards may marginally reduce 

shareholders’ information gathering costs and enable them to make more efficient voting 

decisions in say-on-pay and director election votes. 

To the extent that option spring-loading is inconsistent with shareholder value 

maximization and the amendments draw market scrutiny to issuers engaged in spring-loading, 

the amendments may result in a decrease in option spring-loading. In turn, a decrease in spring-

loading may weaken insiders’ incentives to game corporate disclosures, which may result in 

potentially timelier and higher-quality disclosures (that enable more informationally efficient 

share prices and more efficient allocation of capital in investor portfolios). 

To the extent that the Item 402 requirements impose a fixed cost on issuers, they will 

have a negative competitive effect on smaller issuers subject to the amendments, as well as on 

issuers that do not already disclose policies and practices related to the timing of awards of stock 

options close in time to the release of MNPI. The final amendments defer by six months the date 

of compliance with the additional disclosure requirements for SRCs,556 potentially mitigating 

some of the adverse competitive effects of the amendments. The disclosure requirements will not 

apply to FPIs, placing them at a relative competitive advantage to domestic filers. 

Because the disclosure amendments will apply broadly across domestic public issuers, 

generally, we do not anticipate them to result in meaningful competitive disparities in the labor 

market for executive talent.557 

                                                 

556  Based on staff review of EDGAR filings for calendar year 2021, approximately 3,200 of the filers subject to the 

new Item 402(x) requirements are SRCs and thus will be eligible for the extended compliance date under the 

amendments. 

557  The amendments will not apply to FPIs. 



207 

The described effects are expected to be attenuated to the extent investors already can 

infer whether issuers time option awards prior to releases of MNPI based on existing disclosures 

of option grant dates and other public information. The described effects may also be attenuated 

to the extent that issuers engaged in option spring-loading already disclose such policies and 

practices as a result of the 2006 Executive Compensation Release.558 

5. Reasonable Alternatives 

New Item 402(x) includes both a new table with information on individual option grants 

and a requirement to disclose policies and practices regarding the timing of option awards in 

relation to the disclosure of MNPI. As an alternative, we could adopt only one of those 

requirements, which could reduce the costs of disclosure for filers discussed in Section V.D.3 

above.559 However, omitting one of the disclosure requirements would provide investors with 

less information about option compensation practices, resulting in potentially less informed 

investment and voting decisions. For example, omitting the tabular disclosure requirement could 

marginally reduce the salience of information about the actual timing of option grants around 

MNPI releases and the effects of such timing on the value of granted options in cases where an 

issuer discloses that it does not have policies restricting option awards around MNPI releases. In 

turn, omitting the requirement to disclose the issuer’s practices and policies regarding the timing 

of option awards would reduce the amount of information about potential future compensation 

practices, compared to the amendments. Nevertheless, there is likely to be some substitution 

between the information benefits of the two requirements, particularly in combination with the 

existing requirements to disclose grant dates. 

                                                 

558  See 2006 Executive Compensation Release, supra note 277. 

559  See letter from Dow (suggesting that the Commission’s concerns are sufficiently addressed by the narrative 

disclosure requirements of proposed Item 402(x)). 



208 

New Item 402(x)(2) will require tabular disclosure of awards made during a period 

starting four business days before and ending one business day after the filing of a periodic 

report on Form 10-Q or Form 10-K or the filing or furnishing of a current report on Form 8-K 

that discloses MNPI other than a current report on Form 8-K disclosing a material new option 

award grant under Item 5.02(e). A typical issuer files or furnishes multiple such reports in a 

given year and may include multiple option and SAR awards in the new tabular disclosure.560 As 

an alternative, we could use a shorter or longer time period around reports with MNPI during 

which awards would be subject to the tabular disclosure. A shorter (longer) time period could 

result in less (more) disclosure and thus incrementally lower (higher) disclosure costs for issuers, 

compared to the amendments. Because prices may change for reasons other than the release of 

MNPI when a longer time period is used, pre- and post-filing prices might be more informative 

                                                 

560  During calendar year 2021, the average annual report / proxy statement filer (excluding asset-backed securities 

issuers and registered investment companies) filed Forms 10-K, 10-Q, 8-K, or amendments to them, on 15 

different days. The use of a window starting four business days before and ending one business day after the 

date of a filing on Form 10-K, 10-Q, or 8-K results in a potential average disclosure coverage period of 

approximately 91 calendar days out of 365 (compared to the average disclosure coverage period of 220 calendar 

days based on the proposed +/-14 calendar day window). Because option grants, unlike EDGAR filings, are 

sometimes made on non-business days, the estimate reports the number of potentially affected calendar days. 

As issuers typically grant options only a few times a year, rather than on every one of those potentially affected 

days, we also evaluate the number of actual option grants that fall in the disclosure coverage period under the 

amendments. Based on staff analysis of Institutional Shareholder Services’ (ISS) Incentive Lab data on plan-

based option and SAR awards made during calendar year 2021 (retrieved Aug. 10, 2022), the use of this 

window results in 2.9 grants (out of 5.4 grants) subject to the disclosure for the average affected filer (compared 

to the 4.6 grants subject to the disclosure for the average affected filer based on the proposed +/-14 calendar day 

window). To account for potential lags in proxy data ingestion, which may make the data for 2021 

underinclusive of some affected filers with plan-based awards made in 2021, we also consider the ISS Incentive 

Lab estimate for calendar year 2020 (also based on data retrieved August 10, 2022): this results in 2.9 grants 

(out of 5.6 grants) subject to the disclosure for the average affected filer (compared to 4.8 grants subject to the 

disclosure for the average affected filer based on the proposed +/-14 calendar day window). As a caveat, ISS 

Incentive Lab data is constructed from proxy statement information for a subset of the affected filer universe, 

dominated by larger companies (371 issuers with option or SAR grant data for year 2021 and 461 for year 

2020), and thus may not be representative of all affected filers, such as smaller filers that may make fewer 

awards or file fewer current reports. The above estimates exclude from the list of MNPI filings those Forms 8-K 

that are classified as reporting compensation arrangements (Item 5.02(e)) to avoid mechanical effects (such 

filings are identified as Form 8-K filings that only report Item 5.02, based on EDGAR data, and that also 

mention either Item 5.02(e) or related keywords (“stock option”, “option” and “grant”, “named executive 

officer”) in the body of the filing, based on the analysis of Intelligize data). The definition of “business days” 

excludes weekends and Federal holidays.  



209 

for assessing the effects of the MNPI release on the valuation of option awards made during a 

shorter window around the filing. Shortening (lengthening) the window under these alternatives 

would reduce (increase) the amount of information aggregated in one location about options 

granted in proximity to MNPI releases, potentially resulting in marginally less (more) informed 

investment and voting decisions.  

As another alternative, we could further modify the scope of reports that trigger the 

tabular disclosure, such as by omitting Forms 8-K or limiting it to Forms 8-K that contain Items 

1.01 or 2.02, as suggested by some commenters.561 Narrowing the set of triggers in this manner 

would reduce the amount of information aggregated in one location about options granted in 

proximity to MNPI releases,562 potentially resulting in marginally less informed investment and 

voting decisions. At the same time, it would reduce the costs incurred by issuers, discussed in 

Section V.D.3 above. 

As another alternative, we could require tabular disclosure of awards made within four 

business days before and four business after the filing of a periodic report or the filing or 

furnishing of any Form 8-K that discloses MNPI.563 Compared to the amendments, this 

alternative would potentially improve the accessibility to investors of data that can be used to 

                                                 

561 See supra note 307. 

562  For example, requiring disclosure of option grants made during a window starting four business days before and 

ending one business day after the filing of Form 10-K or 10-Q (omitting the Form 8-K trigger) would shorten 

the disclosure coverage period to approximately 33 calendar days out of 365 for the average affected filer 

during calendar year 2021, based on EDGAR filings data, and decrease the number of affected grants to 

approximately 1.4 out of 5.4 for calendar year 2021 (1.4 out of 5.6 for calendar year 2020) for the average 

issuer, based on Incentive Lab data. See supra note 560 for a description of how these estimates were obtained. 

563  The use of a window starting four business days before and ending four business days after filings of Form 10-

K, 10-Q, or 8-K would result in a potential average disclosure coverage period of approximately 126 calendar 

days out of 365, based on EDGAR filings data for calendar year 2021, and approximately 3.7 grants (out of 5.4 

grants) subject to the disclosure for the average issuer, based on ISS Incentive Lab data for calendar year 2021 

(and approximately 3.8 affected grants out of 5.6 grants for the average filer, based on ISS Incentive Lab data 

for calendar year 2020). See supra note 560 for a description of how these estimates were obtained. 



210 

gauge the presence of bullet-dodging as well as spring-loading, rather than primarily focusing on 

spring-loading.564 This could incrementally improve the information benefits of the disclosure to 

investors. However, the improvement in information benefits under this alternative may be small 

if the additional disclosure introduces considerable noise. For example, if issuers schedule option 

grants shortly after the disclosure of MNPI in a periodic or current report, specifically because 

they are least likely to be in possession of MNPI during that time frame, the tabular disclosure 

would include a considerable number of options that are not granted strategically. In turn, this 

alternative could increase costs (discussed in detail in Section V.D.3 above), compared to the 

amendments. 

Consistent with other provisions of Item 402, the amendments apply to awards to NEOs. 

This approach ensures consistency with other existing compensation disclosures and provides 

information about awards to the subset of executives likely to have MNPI as well as the most 

influence on the issuer’s business decisions. As alternatives, we could limit the disclosure to the 

CEO or expand it to all executives. The alternative of narrowing (expanding) the set of 

executives whose awards are subject to the new disclosure requirement would result in lower 

(higher) disclosure costs but also would result in less (more) information about the timing of 

option awards and executive incentives, compared to the amendments. These alternatives would 

also decrease consistency across compensation disclosures. 

The amendments require the additional disclosure to be submitted using a structured (i.e., 

machine-readable) data language. As an alternative, we could require the disclosure but not 

require the use of a structured data language. Compared to the amendments, this alternative 

                                                 

564  Bullet-dodging can cause a call option to be at-the-money when it would have otherwise been out-of-the-

money, assuming negative MNPI is about to be released. Generally speaking, the value of an at-the-money call 

option has a higher sensitivity to the share price than the value of an out-of-the-money call. 



211 

could make it harder for investors to extract the disclosure information, potentially increasing the 

costs they incur in making investment and voting decisions. However, this alternative also would 

decrease costs for affected filers (particularly for filers with more option grants subject to the 

new disclosure), compared to the amendments.  

E. Additional Disclosure of Insider Gifts of Stock 

The amendments will require the disclosure of insiders’ gifts of stock within two business 

days on Form 4. This amendment is a change from the existing rules that allow a stock gift to be 

disclosed on Form 5, which is required to be filed within 45 days of the end of the year during 

which the gift was made. It will result in timelier disclosure of such transactions across all 

affected insiders.  

1. Baseline and Affected Parties 

The amendments will affect insiders that make gifts of stock and report them on Form 5 

today, although the majority of insiders already report gifts of stock on Form 4. We estimate that 

approximately 800 insiders reported gifts of stock on Form 5 during calendar year 2021 

(including approximately 200 insiders that reported gifts both on Form 4 and Form 5).565 The 

majority of insiders reporting gifts of stock already report gifts of stock on Form 4: during 

calendar year 2021 approximately 3,000 insiders reported stock gifts on Form 4 (including 

approximately 200 insiders that made both Form 4 and Form 5 filings reporting stock gifts).  

2. Benefits 

To the extent that not all insiders presently report gifts of stock on Form 4, the 

amendments to Form 4 to require disclosure of such gifts of stock will result in timelier 

                                                 

565  The estimate is based on Form 5 data in Thomson Reuters / Refinitiv insiders dataset (version retrieved June 27, 

2022). Gifts of stock are identified based on transaction code “G” (“bona fide gift”).  



212 

availability of information about beneficial ownership by the issuer’s insiders, which was 

supported by various commenters.566 Disposition of an insider’s shares through a gift in many 

cases reduces that insider’s economic exposure to the issuer, which potentially weakens the 

alignment of incentives with the shareholder value maximization objective. A scenario in which 

an insider gifts stock while aware of MNPI and the recipient sells the gifted securities while the 

information remains nonpublic and material is economically equivalent to a scenario in which 

the insider trades on the basis of MNPI and gifts the trading proceeds to the recipient (see 

Section II.E for more details). 

While non-pecuniary motives may be more important in a gift than in an open-market 

sale, the timing of a gift can reveal the insider’s beliefs about the issuer’s future share price. For 

an insider that has decided to make a gift, finding the time when the shares are priced higher 

(e.g., before the release of negative MNPI) will allow the insider to reduce the effective cost of 

the gift.567 In light of this, disclosure of timely information about the stock gift could be 

informative for investors evaluating the issuer’s share price and making investment or sale 

decisions.568 However, these information benefits will be lower if the officer or director does not 

                                                 

566  See supra notes 329-330 and accompanying text. 

567  In addition to any tax benefit from charitable stock gifts, an altruistic insider-donor may internalize the benefit 

to the donee. See, e.g., Louis Kaplow, A Note on Subsidizing Gifts, 58 J. PUBLIC ECON. 469 (1995); Louis 

Kaplow, Tax Policy and Gifts, 88 AM. ECON. REV. 283 (1998). 

568  See letter from Mittendorf (citing Anil Arya et al., Tax-favored Stock Donations by Corporate Insiders and 

Consequences for Equity Markets, 2022 MGMT. SCI. (forthcoming) (2022) (developing a “model of informed 

stock trading when disposal of stock by insiders takes the form of tax-favored charitable donations rather than 

direct trading” and demonstrating “that charitable gifts by insiders can reflect nonpublic information about firm 

value”) (“Arya et al. (2022)”) and concluding that “evidence suggests both prevalence of insiders making gifts 

strategically and potential consequences of accelerating public disclosure of such gifts as proposed in the 

amendment to Exchange Act Rule 16a-3.”); see also Sureyya Burcu Avci et al., Insider Giving, 2021 DUKE L. J. 

71 (2021) (finding evidence of informed timing of gifts of stock by the subset of insiders that are beneficial 

owners and also pointing to gift backdating as a potential consequence of delayed reporting of stock gifts with 

the latter providing inaccurate information to investors about changes to an insider’s ownership incentives and 

incentive alignment with shareholder interests); Yermack (2009), supra note 328 (demonstrating that these 



213 

consider the cost of a gift (e.g., because the amount of the gift is small or relatively 

inconsequential in the context of the insider’s overall net worth). 

Finally, the requirement to disclose insiders’ stock gifts on Form 4 will facilitate market 

scrutiny and may reduce an insider’s marginal incentive to donate stock based on MNPI, thereby 

reducing the associated incentive distortions.569 While an insider’s benefit from using MNPI to 

time stock gifts may be smaller than in the case of timing trades, the ability to profit from such 

stock gift timing is expected to have a similar direction of the effect on insider incentives (such 

as incentives to pursue inefficient corporate decisions or to distort disclosure, in line with the 

discussion in Section V.A above). 

We recognize that these benefits of the amended Form 4 requirements will be 

substantially reduced to the extent that most insider gifts of stock already are reported on Form 4, 

as noted in Section V.E.1 above. 

3. Costs  

As several commenters noted, amended Form 4 disclosure with regard to gifts of stock 

will result in additional costs for insiders.570 Direct costs of accelerated gift reporting will include 

additional compliance-related costs, which may be higher for more complex transactions 

involving gifts, such as estate planning transactions.571 Indirect costs may include reputational 

                                                 
effects of strategic giving behavior are even more pronounced when gifts are to (nonoperating) private 

foundations). 

569  But see letter from Mittendorf citing Arya et al. (2022) (demonstrating, in a “model of informed stock trading 

when disposal of stock by insiders takes the form of tax-favored charitable donations,” “that charitable gifts by 

insiders can reflect nonpublic information about firm value, and that they do so in a manner that promotes 

greater market efficiency” and that “relative to informed trading, insider donations yield greater market 

liquidity, more efficient equity prices, and superior investor protection.”) As an important caveat, the paper is 

based on a theoretical model rather than an empirical analysis of insider giving. 

570  See supra notes 331-332 and accompanying text. 

571  See, e.g., letters from Davis Polk and HRPA. 



214 

and investor relations costs stemming from increased market scrutiny of gifts of stock, as well as 

potential changes to gifting behavior in anticipation of such scrutiny.572 We note that these costs 

of the amended Form 4 requirements will be substantially reduced to the extent that most insider 

gifts of stock already are reported on Form 4, as noted in Section V.E.1 above. 

4. Effects on Efficiency, Competition, and Capital Formation 

We expect the amendments to incrementally decrease the information asymmetry 

between insiders and investors. Recent disposition of shares through gifts of stock informs 

investors about changes to officers’ and directors’ incentives derived from holdings of issuer 

stock. Timely information about the disposition of shares through stock gifts could in some 

circumstances inform investors about officers’ and directors’ outlook on future changes to the 

issuer’s share prices. Both factors may result in more informationally efficient prices and more 

efficient allocation of capital in investor portfolios.  

Importantly, we expect the amendments to draw market scrutiny to insiders’ use of MNPI 

in the timing of stock gifts, potentially decreasing the incidence of such stock gift timing. This 

reduces insiders’ incentives to manipulate corporate disclosures around stock gifts, which could 

in turn yield more informationally efficient share prices and more efficient allocation of capital 

in investor portfolios. The amendments also could marginally reduce insider incentives to pursue 

inefficient corporate investment decisions driven by personal gain from gifts based on MNPI, in 

line with the discussion in Sections V.A and V.E.2 above. 

Because this amendment will apply broadly across all insiders’ stock gifts, generally, we 

do not anticipate it to result in meaningful competitive disparities among insiders. 

                                                 

572  See supra note 333. In effect, then, allowing insiders to donate based on MNPI without Form 4 reporting would 

transfer value to donees at the expense of other traders and of market liquidity.  



215 

5. Reasonable Alternatives 

The amendments require timelier disclosure of insider gifts of stock. As an alternative, 

we could narrow the scope of the amended gift disclosure to apply only to officers and directors, 

or only to a certain type of gift of stock (e.g., charitable gifts to charities affiliated with the 

insider). Compared to the amendments, narrowing the scope of gifts subject to the disclosure 

could provide less information to market participants573 but also result in lower aggregate costs. 

Further, because the majority of insiders already disclose gifts on Form 4, the economic 

significance of potential exemptions under this alternative may be modest. The requirement will 

provide consistency in the timeliness of reporting of stock gifts across insiders.  

VI. Paperwork Reduction Act 

A. Summary of the Collections of Information 

 Certain provisions of our rules, schedules, and forms that would be affected by the rule 

amendments contain “collection of information” requirements within the meaning of the 

Paperwork Reduction Act of 1995 (“PRA”).574 The Commission published a notice requesting 

comment on revisions to these collections of information requirements in the Proposing Release 

and has submitted these requirements to the Office of Management and Budget (“OMB”) for 

review in accordance with the PRA.575 The hours and costs associated with preparing, filing, and 

sending the schedules and forms constitute reporting and cost burdens imposed by each 

collection of information. An agency may not conduct or sponsor, and a person is not required to 

comply with, a collection of information unless it displays a currently valid OMB control 

                                                 

573  See supra note 568 (discussing a recent study that documents widespread informed gift timing not limited to 

insider-affiliated charities). 

574  44 U.S.C. 3501 et seq. 

575
  See 44 U.S.C. 3507(d) and 5 CFR 1320.11. 



216 

number. The titles for the collections of information are:  

 Form 10-K (OMB Control No. 3235-0063); 

 Form 10-Q (OMB Control No. 3235-0070); 

 Schedule 14C (OMB Control No. 3235-0057); 

 Schedule 14A (OMB Control No. 3235-0059); 

 Form 4 (OMB Control Number 3235-0287); 

 Form 20-F (OMB Control Number 3235-0288); 

 Form 5 (OMB Control Number 3235-0362); and 

 Rule 10b5-1 (a new collection of information). 

 The forms, schedules, and regulations listed above were adopted under the Securities Act 

and/or the Exchange Act. These regulations, schedules, and forms set forth the disclosure 

requirements for registration statements, periodic and current reports, distribution reports, and 

proxy and information statements filed by registrants to help investors make informed 

investment and voting decisions. Compliance with these information collections is mandatory. 

Responses to these information collections are not kept confidential, and there is no mandatory 

retention period for the information disclosed. Rule 10b5-1 sets forth the conditions to the 

affirmative defenses under the rule. The use of the affirmative defenses is voluntary, and 

compliance with this information collection would be mandatory only if a respondent chooses to 

rely on the affirmative defenses. Responses to this information collection will not be confidential 

and there is no mandatory retention period for the collection of information. 

 A description of the amendments, including the need for the information and its use, as 

well as a description of the likely respondents, can be found in Section II above, and a discussion 

of the economic effects of the amendments can be found in Section V above. 



217 

B. Summary of Comment Letters 

 

 In the Proposing Release, the Commission requested comment on the PRA burden hour 

and cost estimates and the analysis used to derive such estimates. We did not receive any 

comments that directly addressed the PRA analysis of the proposed amendments. Several 

commenters, however, did provide responses to certain requests for comment that have informed 

some of our PRA estimates. As discussed, above, we have made some changes to the proposed 

amendments as a result of comments received in response to the Proposing Release. We have 

revised our estimates from the Proposing Release accordingly, taking into account the changes 

and the comments received. 

C. Summary of Collections of Information Requirements 

 As discussed in more detail in the Proposing Release,576 we derived the burden hour 

estimates by estimating change in paperwork burden as a result of the amendments. As discussed 

in Section II, we have made several changes to the proposed amendments as a result of 

comments received. Some of these changes impact our estimates.577  

 In the Proposing Release, the Commission estimated that the average incremental burden 

for an issuer to prepare the Item 408(a) disclosure would be 15 hours. The proposed estimate 

included the time and cost of preparing the disclosure, as well as tagging the data in XBRL 

                                                 

576  See Section V of the Proposing Release. 

577  The changes to new Item 408(b) and Item 16J, the amendments to Forms 4 and 5, and the new certification 

condition of Rule 10b5-1(c)(1)(ii)(C) did not impact our estimates. Item 408(b) and Item 16J of Form 20-F will 

require that an issuer file its insider trading policies and procedures as an exhibit to the applicable filing rather 

than in its body, and that exhibit will not be tagged. Because this change only moves the location of this 

disclosure and eliminates one tagging requirement, we believe a four hour burden estimate remains appropriate. 

Finally, the certification will be included in the Rule 10b5-1 plan as a representation rather than prepared as a 

separate document to be furnished to the issuer. We do not expect this change in disclosure location to change 

the PRA burden on the director or officer. The removal of the retention instruction for the certification similarly 

does not affect our PRA burden estimates as that retention instruction was not included in the PRA estimate in 

the Proposing Release. 



218 

format. We have revised new Item 408(a) to (1) clarify that Item 408(a) does not require 

disclosure of pricing terms, and (2) not require quarterly disclosure regarding the adoption and 

termination of Rule 10b5-1 plans and non-Rule 10b5-1 trading arrangements by an issuer. To 

reflect the impact of this change on our estimate, we first estimate the burden of each of the two 

proposed components we are not adopting and deduct this amount from the proposed 15 hours. 

We estimate that the burden of disclosing the proposed disclosure of pricing terms of Rule 10b5-

1 plans would have been two hours and that burden of preparing proposed disclosure regarding 

the adoption and termination of Rule 10b5-1 and non-Rule 10b5-1 trading arrangements by a 

registrant would have been three hours for a combined burden of five hours. Therefore, we are 

reducing the estimated the burden of Item 408(a) from 15 hours to 10 hours.  

 We also are not adopting the proposed optional checkboxes on Forms 4 and 5 that would 

allow a filer to indicate whether a reported transaction was made pursuant to a pre-planned 

contract, instruction, or written plan for the purchase or sale of equity securities of the issuer that 

did not satisfy the affirmative conditions of Rule 10b5-1(c). We do not believe this change would 

substantively modify the collection of information requirements or otherwise affect the overall 

burden estimates associated with these forms. We are, however, adjusting the burden estimate for 

Form 5 to reflect the impact of requiring the disclosure of dispositions of equity securities by 

bona fide gifts on Form 4, rather than on Form 5. We believe this change would result in a 

decrease in 0.25 hours in the information collection burden for Form 5. 

 In addition, the table required by new Item 402(x) will cover stock options, SARs, and/or 

similar option-like instruments awarded to a named executive officer within a four business day 

period before and a one day period after certain triggering events. This is a change from the 

proposal, in which the time window for disclosure would have been the 14 day period before and 



219 

after the event. We also narrowed the events that trigger this disclosure by removing the issuer 

share repurchase disclosure trigger and carving out Item 5.02(e) Forms 8-K that report the grant 

of a material new option award. As a result, we expect fewer awards will be disclosed. 

Accordingly, we have adjusted our PRA estimate for this disclosure from nine hours to six hours 

per form. 

 The following table summarizes the estimated effects of the final amendments on the 

paperwork burdens associated with the affected forms. 

PRA Table 1.  Estimated Paperwork Burden Effects of the Final Amendments 

 
Final Amendments Affected Forms or Schedules Estimated Burden Increase 

and/or Decrease 

 
Item 402(x): 

 

 Require disclosure of a 

registrant’s policies and 

practices on the timing of 

awards of stock options, SARs 

or similar option-like 

instruments in relation to the 

disclosure of material 

nonpublic information by the 

registrant, including how the 

board determines when to grant 

options, whether the board or 

compensation committee takes 

material nonpublic information 

into account when determining 

the timing and terms of an 

award; and whether the 

registrant has timed the 

disclosure of material 

nonpublic information for the 

purpose of affecting the value 

of executive compensation. 

 

 Require tabular disclosure of 

each option award granted 

within four business days 

before and one business day 

after the filing of a periodic 

report or the filing or 

furnishing of a current report 

on Form 8-K that contains 

material nonpublic information 

 

 

Form 10–K* and Schedules 14A, 

and 14C. 

 

 

6 hour increase in compliance 

burden per form.  

 



220 

Final Amendments Affected Forms or Schedules Estimated Burden Increase 

and/or Decrease 

 
(other than disclosure of a 

material new option award 

grant under Item 5.02(e) of 

Form 8-K).  

 

 Require information to be 

reported using a structured data 

language. 

 

Item 408(a): 

 Require disclosure of the 

adoption or termination of any 

contract, instruction or written 

plan for the purchase or sale of 

securities intended to satisfy 

the affirmative defense 

conditions of Rule 10b5-1(c) 

and non-Rule 10b5-1 trading 

arrangements, by directors and 

officers (as defined in 

Exchange Act Rule 16a-1(f)), 

including the name and title of 

the director or officer; and a 

description of the material 

terms of the contract, 

instruction or written plan 

(other than pricing terms). 

 

 Require information to be 

reported using a structured data 

language. 

 

 

Forms 10–K and 10–Q. 

 

10 hour increase in compliance 

burden per form.  

 

 

Item 408(b) and Item 16J: 

 Require disclosure of whether 

the registrant has adopted (and 

if not, why) insider trading 

policies and procedures 

governing the purchase, sale, 

and other dispositions of the 

registrant’s securities and 

require filing of a copy of its 

insider trading policies and 

procedures as an exhibit to 

Form 10-K. 

 

 Require information to be 

reported using a structured data 

language. 

 

 

Forms 10–K,* 20-F, and Schedules 

14A, and 14C. 

 

4 hour increase in compliance 

burden per form.  

 

 

Form 4:221 

Final Amendments Affected Forms or Schedules Estimated Burden Increase 

and/or Decrease 

 
 Require reporting of 

dispositions of equity securities 

by bona fide gifts. 

 

 Require new checkbox 

disclosure to indicate that a 

sale or purchase reported on 

the form was made pursuant to 

a contract, instruction, or 

written plan that is intended to 

satisfy the Rule 10b5-1(c)(1) 

affirmative defense, and 

require disclosure of the date of 

adoption of the plan. 

 

Form 4. 0.5 hour increase in compliance 

burden per form. 

 

Form 5: 
 

 Require new checkbox 

disclosure to indicate that a 

sale or purchase reported on 

the form was made pursuant to 

a contract, instruction, or 

written plan that is intended to 

satisfy the Rule 10b5-1(c)(1) 

affirmative defense, and 

require disclosure of the date of 

adoption of the plan. 

 

 Require reporting of 

dispositions of equity securities 

by bona fide gifts on Form 4, 

rather than on Form 5. 

 

 

 

Form 5. 

 

 

0.25 hour increase in compliance 

burden per form. 

 

 

 

 

 

 

 

 

 

0.25 hour decrease in compliance 

burden per form. 

Rule 10b5-1(c)(1)(ii): 
 

 Require directors and 

“officers” (as defined in 

Exchange Act Rule 16a-1(f)) 

as a condition to the 

affirmative defense, to provide 

representations in written Rule 

10b5-1 plans that, on the date 

of adoption of the plan, (i) they 

are not aware of any material 

nonpublic information about 

the security or issuer or any 

subsidiary of the issuer; and (ii) 

that they are adopting the 

contract, instruction, or plan in 

good faith and not as part of a 

plan or scheme to evade the 

prohibitions of this section. 

  

1.5 hour compliance burden per 

written Rule 10b5-1 plan. 

 



222 

Final Amendments Affected Forms or Schedules Estimated Burden Increase 

and/or Decrease 

 

 
Notes: 

* The burden estimate for Form 10-K assumes that Schedules 14A and 14C would be the primary disclosure 

documents for the information provided in response to Item 402(x) and Item 408(b) of Regulation S-K and the 

disclosure requirement under Form 10-K would be satisfied by incorporating the information by reference from 

the proxy or information statement. 

 

 

D. Burden and Cost Estimates Related to the Amendments 

 Below we estimate the incremental and aggregate increase in paperwork burden as a 

result of the final amendments. These estimates represent the average burden for all respondents, 

both large and small. In deriving our estimates, we recognize that the burdens will likely vary 

among individual respondents based on a number of factors. 

 We do not believe that the final amendments will change the frequency of responses to 

the existing collections of information; rather, we estimate that the proposed amendments would 

change only the burden per response. For the new collection of information, we estimate that 

there would be 8,700 responses based on the staff’s analysis, discussed in Section V.B.1, of 

beneficial ownership filings on Forms 3, 4, and 5 made in the 2021 calendar year.578 Based on 

the data from these filings, approximately 5,800 officers and directors reported a transaction 

pursuant to a Rule 10b5-1 trading arrangement. As noted above, the number of officers and 

directors using a Rule 10b5-1 trading arrangement is likely larger. Accordingly, we adjusted the 

estimate upward by 50 percent.  

 The burden estimates were calculated by multiplying the estimated number of responses 

by the estimated average amount of time it would take a respondent to prepare and review the 

disclosures that will be required under the final amendments. For purposes of the PRA, the 

                                                 

578 See supra note 377 and accompanying text. 



223 

information collection burden is allocated between internal burden hours and outside 

professional costs.  

 The table below sets forth the percentage estimates we typically use for the burden 

allocation for each form.579 We also estimate that the average cost of retaining outside 

professionals is $600 per hour.580  

PRA Table 2.  Standard Estimated Burden Allocation for Specified Forms and Schedules. 

 

Form / Schedule Type Internal Outside Professionals 

Forms 10-K, 10-Q, and Schedules 

14A and 14C 

75% 25% 

Form 20-F 25% 75% 

Forms 4 and 5 100% 

 

Rule 10b5-1 100%  

 

 The table below illustrates the incremental change to the total annual compliance burden 

of affected forms and schedules, in hours and in costs, as a result of the final amendments.581 

PRA Table 3.  Calculation of the Incremental Change in Burden Estimates of Current 

Responses Resulting from the Final Amendments 

                                                 

579  In the Proposing Release, we used a 75% company and 25% outside professional allocation for Form 20-F, but 

upon further consideration we believe that a 25% company and 75% outside professional allocation for Form 

20-F better reflects current practice for this form because FPIs rely more heavily on outside counsel for their 

preparation. 

580  We recognize that the costs of retaining outside professionals may vary depending on the nature of the 

professional services, but for purposes of this PRA analysis, we estimate that such costs would be an average of 

$600 per hour. At the proposing stage, we used an estimated cost of $400 per hour. We are increasing this cost 

estimate to $600 per hour to adjust the estimate for inflation from August 2006 to the present. The inflation-

adjusted hourly amount is $583.88, which we have rounded up to $600. 

581  The number of estimated affected responses is based on the number of responses in the Commission’s current 

OMB PRA filing inventory. The OMB PRA filing inventory represents a three-year average. These averages 

may not align with the actual number of filings in any given year. 

Form or 

Schedule 

Number of 

Estimated 

Affected 

Responses  

(A) 

Estimated 

Burden 

Hour  

Increase 

/Affected 

Response 

(B) 

Total 

Incremental 

Increase in 

Burden Hours 

(C) 

 

= (A) x (B) 

 

Estimated  

Increase in 

Internal 

Burden Hours 

(D) 

= (C) x 

(Allocation %) 

Estimated  

Increase in 

Outside 

Professional 

Hours  

(E) 

= (C) x 

(Allocation %) 

Total Increase 

in Outside 

Professional 

Costs 

(F) 

= (E) x $600 



224 

 

 PRA Table 4 illustrates the change to the annual cost burden of the affected forms as a 

result of the adjustment to the average cost of retaining outside professionals from $400 to $600 

per hour.582  

PRA Table 4.  Calculation of the Change in Costs of Current Responses Resulting from the 

Average Hourly Cost Adjustment 

 

 The following tables summarizes the requested paperwork burden changes to existing 

information collections, including the estimated total reporting burdens and costs, under the final 

amendments.583 

PRA Table 5. Requested Paperwork Burden Under the Final Amendments 
 

                                                 

582  See supra note 580. The table adjusts the average cost of retaining outside professionals from $400 to $600 per 

hour for the affected Exchange Act forms. 

583  Figures in this table have been rounded to the nearest whole number. Figures in column (I) are the sum of 

column (F) and the adjusted cost burdens for each affected form calculated in PRA Table 4 above. 

10-K 8,292 11 91,212 68,409 22,803 $13,681,800 

10-Q 22,925 10 229,250 171,937.5 57,312.5 $34,387,500 

20-F 729 4 2,916 729 2,187 $1,312,200 

14A  6,369 10 63,690 47,767.5 15,922.5 $9,553,500 

14C 569 10 5,690 4,267.5 1,422.5 $853,500 

4 338,207 0.5 169,103.5 169,103.5 0 0 

5 5,939 0   0 0 

Total    461,485  $59,788,500 

Form or Schedule 

 

Number of Affected 

Responses  

Current Cost Burden At 

$400 Per Hour 

Adjusted Cost Burden At $600 Per 

Hour 

10-K 8,292 $1,840,481,319 $2,805,092,400  

10-Q 22,925 $414,613,154 $626,150,400  

20-F 729 $576,927,825 $862,826,400  

14A 6,369 $101,958,512 $152,989,800  

14C 569 $7,350,144 $11,023,600  

  

Current Burden 

 

 

Program Change 

 

Requested Change in Burden 

Form 

or 

Sch. 

Current 

Annual 

Responses 

(A) 

Current 

Burden 

Hours 

(B) 

Current Cost 

Burden 

(C) 

Number 

of 

Affected 

Responses 

(D) 

Increase 

in Internal 

Hours 

(E) 

Increase in 

Outside 

Professional 

Costs 

(F) 

Annual 

Responses 

 (G) = (A) 

Burden 

Hours 

(H) = (B)     

+ (E) 

Cost Burden 

  (I)  



225 

 

 PRA Table 6 summarizes the requested paperwork burden for the collection of 

information for the representations that will be required under Rule 10b5-1(c)(1)(ii), including 

the estimated total reporting burdens and costs. For purposes of the PRA, we estimate that the 

Rule 10b5-1(c)(1)(ii) representation would entail a 1.5 compliance burden per response with 

8,700 annual responses. 

PRA Table 6.  Requested Paperwork Burden for the New Collection of Information 

 

VII. Final Regulatory Flexibility Act Analysis 

 This Final Regulatory Flexibility Analysis (“FRFA”) has been prepared in accordance 

with the Regulatory Flexibility Act (“RFA”).584 It relates to amendments to Rule 10b5-1(c)(1); 

Regulation S-K, Forms 10-K, 20-F, 10-Q, 4, and 5; and Schedules 14A and 14C. 

                                                 

584  5 U.S.C. 601 et seq. 

 

10-K 8,292 14,025,462 $1,840,481,319 8,292 68,409 $13,681,800 8,292 14,093,871 $2,818,774,200 

10-Q 22,925 3,130,752 $414,613,154 22,925 171,938 $34,387,500 22,925 3,302,690 $660,537,900  

20-F 729 479,348 $576,927,825 729 729 $1,312,200 729 480,077 $864,138,600  

14A 6,369 764,949 $101,958,512 6,369 47,768 $9,553,500 6,369 812,717 $162,543,300  

14C 569 55,118 $7,350,144 569 4,268 $853,500 569 59,386 $11,877,100  

4 338,207 169,104 0 338,207 169,104 0 338,207 338,208 0 

5 5,939 5,939 0 5,939 0 0 5,939 0 0 

 Paperwork Burden 
 

Collection of Information 

 

Annual Responses 

(A) 

 

Burden Hours 

(A) x 1.5 

 

 

Rule 10b5-1(c)(1)(ii) 

Representation 

 

8,700 13,050 



226 

A. Need for, and Objectives of, the Amendments 

 The purpose of the final amendments is to address potentially abusive practices 

associated with Rule 10b5-1 trading arrangements, grants of options and other equity instruments 

with similar option-like features and the gifting of securities. The final amendments are also 

intended to provide greater transparency to investors about issuer and insider trading 

arrangements and restrictions, as well as insider compensation and incentives, enabling more 

informed voting and investment and decisions about an issuer. The need for, and objectives of, 

the final rules are described in greater detail in Sections I and II above. We discuss the economic 

impact and potential alternatives to the amendments in Section V, and the estimated compliance 

costs and burdens of the amendments under the PRA in Section VI above. 

B. Significant Issues Raised by Public Comments 

 In the Proposing Release, the Commission requested comment on any aspect of the Initial 

Regulatory Flexibility Analysis (“IRFA”), including how the proposed amendments could 

achieve their objective while lowering the burden on small entities, the number of small entities 

that would be affected by the proposed rule and form amendments, the existence or nature of the 

potential effects of the proposed amendments on small entities discussed in the analysis, and how 

to quantify the effects of the proposed amendments. We did not receive any comments that 

specifically addressed the IRFA. However, some commentators addressed aspects of the 

proposals that could potentially affect small entities.585 In particular, one commenter supported 

exempting SRCs from proposed Item 408(a),586 while other commenters expressed support for 

                                                 

585  See Section II above. 

586  See letter from MD Bar. 



227 

requiring SRCs to provide the proposed disclosures.587 For the reasons discussed above, we have 

not adopted such an exception.588 

C. Small Entities Subject to the Amendments 

 The final amendments would apply to registrants that are small entities. The RFA defines 

“small entity” to mean “small business,” “small organization,” or “small governmental 

jurisdiction.”589 For purposes of the RFA, under our rules, a registrant, other than an investment 

company, is a “small business” or “small organization” if it had total assets of $5 million or less 

on the last day of its most recent fiscal year and is engaged or proposing to engage in an offering 

of securities that does not exceed $5 million.590 Under 17 CFR 270.0-10, an investment 

company, including a business development company, is considered to be a small entity if it, 

together with other investment companies in the same group of related investment companies, 

has net assets of $50 million or less as of the end of its most recent fiscal year. An investment 

company, including a business development company,591 is considered to be a “small business” 

if it, together with other investment companies in the same group of related investment 

companies, has net assets of $50 million or less as of the end of its most recent fiscal year.592 The 

Commission staff estimates that, as of January 2022, there were approximately 1,380 issuers and 

two business development companies that may be considered small entities that would be subject 

                                                 

587  See, e.g., letters from ICGN, and Cravath. 

588  See supra Section II.B.2.c. 

589  5 U.S.C. 601(6). 

590  See Exchange Act Rule 0-10(a) [17 CFR 240.0-10(a)]. 

591
  Business development companies are a category of closed-end investment company that are not registered 

under the Investment Company Act [15 U.S.C. 80a-2(a)(48) and 80a-53-64].  

592  17 CFR 270.0-10(a). 



228 

to the proposed amendments.593 

D. Projected Reporting, Recordkeeping, and Other Compliance Requirements 

 The final amendments to Rule 10b5-1(c) will apply to small entities to the same extent as 

other entities, irrespective of size. They also do not directly impose any recordkeeping or 

compliance requirements on small entities.  

 The amendments to Regulation S-K, Forms 10-K, 20-F, 10-Q, and Schedules 14A and 

14C are designed to provide greater transparency about officer and director trading 

arrangements; policies and procedures with respect to insider trading; and the timing of certain 

equity compensation awards to NEOs close in time to the release of material nonpublic 

information. These amendments generally will require: 

 Disclosure regarding the adoption and termination of Rule 10b5‑1 plans and non-Rule 

10b5-1 trading arrangements of officers (as defined in Rule 16a-1(f)) and directors, as 

well as the material terms of such trading arrangements (other than pricing terms); 

 Disclosure of whether the registrant has adopted (and if not, why) insider trading 

policies and procedures governing the purchase, sale, and other dispositions of the 

registrant’s securities by directors, officers and employees that are reasonably 

designed to promote compliance with insider trading laws, rules and regulations, and 

any listing standards applicable to the issuer, and filing such policies and procedures 

as an exhibit to the registrant’s annual report; 

                                                 

593  This estimate is based on staff analysis of Form 10-K filings on EDGAR, or amendments thereto, filed during 

the calendar year of Jan. 1, 2021 to Dec. 31, 2021, and on data from XBRL filings, Compustat, and Ives Group 

Audit Analytics. The staff noted that the estimated number of small entities includes approximately 344 entities 

that are special purpose acquisition companies (“SPACs”). A SPAC is typically a shell company that is 

organized for the purpose of merging with or acquiring one or more unidentified private operating companies 

within a certain time frame. Some of these small entities that are SPACs are unlikely to remain small entities 

once the SPAC has completed its initial business combination and becomes an operating company. 



229 

 Narrative disclosure of a registrant’s policies and practices on the timing of awards of 

stock options, SARs, and/or similar option-like instruments; and  

 Tabular disclosure of each such award granted to an NEO within four business days 

before and one business day after the filing of a periodic report or the filing or 

furnishing of a current report on Form 8-K that contains material nonpublic 

information (other than a current report on Form 8-K disclosing a material new option 

award grant under Item 5.02(e)). 

 In addition, the amendments to Forms 4 and 5 will: 

 Add a Rule 10b5-1 checkbox to these forms that will require a Form 4 or 5 filer to 

indicate whether a sale or purchase reported on that form was made pursuant to a 

contract, instruction or written plan that is intended to satisfy the affirmative defense 

conditions of Rule 10b5-1(c). Filers would also be required to provide the date of 

adoption of such trading arrangement; and  

 Require the reporting of dispositions of bona fide gifts of equity securities on Form 4. 

 We anticipate that the direct costs of preparing disclosures in response to the amendments 

will likely be relatively small as such information will be readily available to issuers. To the 

extent that the disclosure requirements have a greater effect on small filers relative to large filers, 

they could result in adverse effects on competition. The fixed component of the legal costs of 

preparing the disclosure could be one contributing factor. Compliance with certain provisions of 

the final amendments may require the use of professional skills, including accounting, legal, and 

technical skills. The final amendments are discussed in detail in Sections I and II above. We 

discuss the economic impact, including the estimated compliance costs and burdens of the final 

rules on all issuers, including small entities, in Sections V and VI above. 



230 

E. Agency Action to Minimize Effect on Small Entities 

 The RFA directs us to consider alternatives that would accomplish our stated objectives, 

while minimizing any significant adverse impact on small entities.  In connection with the 

amendments, we considered the following alternatives: 

 Establishing different compliance or reporting requirements that take into account the 

resources available to small entities; 

 Clarifying, consolidating, or simplifying compliance and reporting requirements 

under the rules for small entities; 

 Using performance rather than design standards; and 

 Exempting small entities from all or part of the requirements. 

Insider trading imposes costs on the investors in a company.594 The disclosure 

amendments and the amendments to Rule 10b5-1(c)(1) are intended to provide greater 

transparency to investors; decrease information asymmetries between corporate insiders and 

outside investors; and to deter abusive and problematic practices associated with the use of Rule 

10b5-1 plans, grants of option awards, and the gifting of securities. Importantly, we anticipate 

the final amendments will work in tandem to significantly reduce improper insider trading 

through Rule 10b5-1 plans. As discussed in above in Section V, deterring insider trading will 

result in benefits for investor protection, capital formation, and orderly and efficient markets. In 

addition, the amendments will disincentivize insider behavior that undermines investor 

confidence and harms the securities markets. For these reasons, we generally do not believe it 

would be appropriate to provide simplified or consolidated reporting requirements, a differing 

compliance timetable, or an exemption for small entities from all or part of the final 

                                                 

594  See supra Section V. 



231 

amendments, although the final amendments provide for scaled disclosure for SRCs under new 

Item 402(x), consistent with our scaled approach to executive compensation disclosure. 

However, to minimize the initial compliance burden on SRCs we are providing a six month 

transition period for compliance with the new issuer disclosure requirements to mitigate the 

compliance burdens that SRCs may experience.595 

 With respect to using performance rather than design standards, the final amendments use 

design standards to promote uniform compliance requirements for all registrants and to address 

the concerns underlying the amendments, which apply to entities of all sizes.  For example, the 

amendments set forth specific requirements that a trader must satisfy to rely on the Rule 10b5-

1(c)(1) affirmative defense. These design standards will better ensure that our concerns related to 

the misuse of Rule 10b5-1 plans are addressed and that traders understand how they can plan 

securities transactions in advance and satisfy the conditions of this defense. 

 Finally, we generally have not exempted small entities from all of part of the 

requirements, as some commenters requested, as the concerns related to insider trading that 

underlie these amendments apply to entities of all sizes. For example, as discussed in more detail 

above, 596 while we are sensitive to the potential that Item 408(a) could have a disproportionate 

impact on SRCs, we have not exempted SRCs from providing this disclosure as doing so would 

deprive investors in those issuers of material information about the use and potential abuse of 

Rule 10b5-1 plans and non-Rule 10b5-1 trading arrangements by an SRC’s officers or directors. 

We note, however, that, to remain consistent with the scaled approach to SRCs’ executive 

compensation disclosure, SRCs may limit the new tabular disclosure of option awards to the 

                                                 

595  See supra Section III. 

596  See supra Section II.B.2.c. 



232 

PEO, the two most highly compensated executive officers other than the PEO at fiscal year-end, 

and up to two additional individuals who would have been the most highly compensated but for 

not serving as executive officers at fiscal year-end. 

Statutory Authority  

 The amendments contained in this release are being adopted under the authority set forth 

in Sections 3(b), 6, 7, 10, 17, 19(a), and 28 of the Securities Act; Sections 3, 9, 10, 12, 13, 14, 

15(d), 16, 20A, 21A, 23(a), and 36 of the Exchange Act; and Sections 8, 20(a), 24(a), 30 and 38 

of the Investment Company Act; and 15 U.S.C. 7264. 

List of Subjects in 17 CFR Parts 229, 232, 240 and 249  

Reporting and recordkeeping requirements, Securities.  

Text of the Amendments  

 For the reasons set out in the preamble, the Commission- amends title 17, chapter II of 

the Code of Federal Regulations as follows: 

PART 229–STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES 

ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND 

CONSERVATION ACT OF 1975 – REGULATION S-K 

 1. The authority citation for part 229 continues to read as follows: 

 Authority:  15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 77z-3, 77aa(25), 77aa(26), 

77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 77nnn, 77sss, 78c, 78i, 78j, 78j-3, 78l, 78m, 78n, 78n-1, 

78o, 78u-5, 78w, 78ll, 78 mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-31(c), 80a-37, 80a-

38(a), 80a-39, 80b-11 and 7201 et seq.; 18 U.S.C. 1350; sec. 953(b), Pub. L. 111-203, 124 Stat. 

1904 (2010); and sec. 102(c), Pub. L. 112-106, 126 Stat. 310 (2012). 

 2. Section 229.402 is amended by adding paragraph (x) to read as follows: 



233 

§229.402 (Item 402) Executive compensation. 

*   *   *   *   * 

 (x) Disclosure of the registrant's policies and practices related to the grant of certain 

equity awards close in time to the release of material nonpublic information. 

 (1) Discuss the registrant’s policies and practices on the timing of awards of options in 

relation to the disclosure of material nonpublic information by the registrant, including how the 

board determines when to grant such awards (for example, whether such awards are granted on a 

predetermined schedule); whether the board or compensation committee takes material 

nonpublic information into account when determining the timing and terms of such an award, 

and, if so, how the board or compensation committee takes material nonpublic information into 

account when determining the timing and terms of such an award; and whether the registrant has 

timed the disclosure of material nonpublic information for the purpose of affecting the value of 

executive compensation.  

 (2) (i) If, during the last completed fiscal year, the registrant awarded options to a named 

executive officer in the period beginning four business days before the filing of a periodic report 

on Form 10-Q (§ 249.308a of this chapter) or Form 10-K (§ 249.310 of this chapter), or the filing 

or furnishing of a current report on Form 8-K (§ 249.308 of this chapter) that discloses material 

nonpublic information (other than a current report on Form 8-K disclosing a material new option 

award grant under Item 5.02(e) of that form), and ending one business day after the filing or 

furnishing of such report provide the information specified in paragraph (x)(2)(ii) of this section, 

concerning each such award for each of the named executive officers in the following tabular 

format: 

Table 13 to paragraph (x)(2)(i) 



234 

Name 

    

 

 

 

 

 

(a) 

Grant date  

 

 

 

 

 

 

(b) 

Number of 

securities 

underlying 

the award 

 

 

(c) 

Exercise  

price of the 

award ($/Sh) 

 

(d) 

Grant date fair 

value of the 

award 

 

 

 

 

(e) 

Percentage change in the 

closing market price of 

the securities underlying 

the award between the 

trading day ending 

immediately prior to the 

disclosure of material 

nonpublic information 

and the trading day 

beginning immediately 

following the disclosure 

of material nonpublic 

information 

 

(f)  

PEO      

PFO      

A      

B      

C      

 

 (ii) The Table shall include:   

 (A) The name of the named executive officer (column (a));  

 (B) On an award-by-award basis, the grant date of the option award reported in the table 

(column (b)); 

 (C) On an award-by-award basis, the number of securities underlying the options, 

(column (c)); 

 (D) On an award-by-award basis, the per-share exercise price of the options (column (d));  

 (E) On an award-by-award basis, the grant date fair value of each award computed using 

the same methodology as used for the registrant’s financial statements under generally accepted 

accounting principles (column (e)).  

 (F) For each instrument reported in column (b), disclose the percentage change in the 

market price of the underlying securities between the closing market price of the security one 

trading day prior to and the trading day beginning immediately following the disclosure of 

material nonpublic information (column (f)). 

 Instruction to paragraph (x)(2). A registrant that is a smaller reporting company or 



235 

emerging growth company may limit the disclosures in the table to its PEO, the two most highly 

compensated executive officers other than the PEO who were serving as executive officers at the 

end of the last completed fiscal year, and up to two additional individuals who would have been 

the most highly compensated but for the fact that the individual was not serving as an executive 

officer at the end of the last completed fiscal year. 

(3) The disclosure provided pursuant to this paragraph (x) must be provided in an 

Interactive Data File as required by 17 CFR 232.405 (Rule 405 of Regulation S-T) in accordance 

with the EDGAR Filer Manual. 

 3. Add §229.408 to read as follows: 

§229.408 (Item 408) Insider trading arrangements and policies. 

 (a)(1) Disclose whether, during the registrant’s last fiscal quarter (the registrant’s fourth 

fiscal quarter in the case of an annual report), any director or officer (as defined in § 240.16a-1(f) 

of this chapter) adopted or terminated: 

(i) Any contract, instruction or written plan for the purchase or sale of securities of the 

registrant intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) (§ 240.10b5-

1(c) of this chapter) (a “Rule 10b5-1 trading arrangement”); and/or  

(ii) Any “non-Rule 10b5-1 trading arrangement” as defined in paragraph (c) of this 

section.   

(2) Identify whether the trading arrangement is intended to satisfy the affirmative defense 

of Rule 10b5-1(c), and provide a description of the material terms, other than terms with respect 

to the price at which the individual executing the Rule 10b5-1 trading arrangement or non-Rule 

10b5-1 trading arrangement is authorized to trade, such as:  

 (A) The name and title of the director or officer;  



236 

 (B) The date on which the director or officer adopted or terminated the trading 

arrangement;  

 (C) The duration of the trading arrangement; and 

 (D) The aggregate number of securities to be purchased or sold pursuant to the trading 

arrangement. 

(3) The disclosure provided pursuant to paragraphs (a)(1) and (2) of this section must be 

provided in an Interactive Data File as required by 17 CFR 232.405 (Rule 405 of Regulation S-T) 

in accordance with the EDGAR Filer Manual. 

 (b)(1) Disclose whether the registrant has adopted insider trading policies and procedures 

governing the purchase, sale, and/or other dispositions of the registrant’s securities by directors, 

officers and employees, or the registrant itself, that are reasonably designed to promote 

compliance with insider trading laws, rules and regulations, and any listing standards applicable 

to the registrant. If the registrant has not adopted such policies and procedures, explain why it 

has not done so. 

 (2) If the registrant has adopted insider trading policies and procedures, the registrant 

must file such policies and procedures as an exhibit. If all of the registrant’s insider trading 

policies and procedures are included in its code of ethics (as defined in 17 CFR 229.406(b)) and 

the code of ethics is filed as an exhibit pursuant to 17 CFR 229.406(c)(1), that would satisfy the 

exhibit requirement of this paragraph. 

 (3) The disclosure provided pursuant to paragraph (b)(1) of this section must be provided in 

an Interactive Data File as required by 17 CFR 232.405 in accordance with the EDGAR Filer 

Manual.  



237 

 (c) For purposes of this Item 408, a director or officer (as defined in § 240.16a-1(f) of this 

chapter) (each a “covered person”) has entered into a non-Rule 10b5-1 trading arrangement 

where: 

 (1) The covered person asserts that at a time when they were not aware of material 

nonpublic information about the security or the issuer of the security they had adopted a written 

arrangement for trading the securities; and  

 (2) The trading arrangement: 

 (i) Specified the amount of securities to be purchased or sold and the price at which and 

the date on which the securities were to be purchased or sold; 

 (ii) Included a written formula or algorithm, or computer program, for determining the 

amount of securities to be purchased or sold and the price at which and the date on which the 

securities were to be purchased or sold; or 

 (iii) Did not permit the covered person to exercise any subsequent influence over how, 

when, or whether to effect purchases or sales; provided, in addition, that any other person who, 

pursuant to the trading arrangement, did exercise such influence must not have been aware of 

material nonpublic information when doing so. 

 4. Amend § 229.601 by:  

 a. In the exhibit table in paragraph (a), revising entry 19; and 

 b. Revising paragraph (b)(19). 

 The revisions read as follows: 

§ 229.601 (Item 601) Exhibits. 

 (a) *    *    * 

EXHIBIT TABLE 

 Securities Act Forms Exchange Act Forms 



238 

S-1 S-3 SF-1 SF-3 S-41 S-8 S-11 F-1 F-3 F-41 10 8-K2 10-D 10-Q 10-K 
ABS-

EE 

*   *   *   *   *   *   * 

(19) Insider trading policies and 

procedures              
 

 X 
 

*   *   *   *   *   *   * 

 

1An exhibit need not be provided about a company if: (1) With respect to such company an 

election has been made under Form S-4 or F-4 to provide information about such company at a 

level prescribed by Form S-3 or F-3; and (2) the form, the level of which has been elected under 

Form S-4 or F-4, would not require such company to provide such exhibit if it were registering a 

primary offering. 

 
2A Form 8-K exhibit is required only if relevant to the subject matter reported on the Form 8-K 

report. For example, if the Form 8-K pertains to the departure of a director, only the exhibit 

described in paragraph (b)(17) of this section need be filed. A required exhibit may be 

incorporated by reference from a previous filing. 

 

*    *    *    *    * 

 (b) *   *   * 

 (19) Insider trading policies and procedures. Any insider trading policies and 

procedures, or amendments thereto, that are the subject of the disclosure required by § 

229.408(b) (Item 408(b) of Regulation S-K). 

*    *    *    *    * 

PART 232 — REGULATION S-T — GENERAL RULES AND REGULATIONS FOR 

ELECTRONIC FILINGS  

 

 5. The general authority citation for part 232 continues to read as follows: 

 Authority:  15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s(a), 77z-3, 77sss(a), 78c(b), 78l, 78m, 

78n, 78o(d), 78w(a), 78ll, 80a-6(c), 80a-8, 80a-29, 80a-30, 80a-37, 80b-4, 80b-10, 80b-11,7201 

et seq.; and 18 U.S.C. 1350, unless otherwise noted. 

*    *    *    *    * 

 6. Amend §232.405 by adding paragraph (b)(4)(iii) to read as follows: 



239 

§232.405  Interactive Data File Submissions. 

*    *    *    *    * 

 (b) *    *    * 

   (4)  * * * 

 (iii) Any disclosure provided in response to: §229.402(x) of this chapter (Item 402(x) of 

Regulation S-K); §229.408(a)(1) and (2) of this chapter (Item 408(a)(1) and (2) of Regulation S-

K); §229.408(b)(1) of this chapter (Item 408(b)(1) of Regulation S-K); and Item 16J(a) of § 

249.220f of this chapter (Item 16J(a) of Form 20-F). 

*    *    *    *    * 

PART 240—GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE 

ACT OF 1934 

 7. The general authority citation for part 240 continues to read as follows: 

 Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 77eee, 77ggg, 77nnn, 77sss, 

77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 

78o, 78o-4, 78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm, 80a-20, 80a-23, 

80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 

5221(e)(3); 18 U.S.C. 1350; Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-106, 

sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted. 

*   *   *   *   * 

 8. Amend § 240.10b5-1 by: 

 a. Removing the Preliminary Note;  

 b. Revising paragraphs (a), (b), (c)(1), (c)(1)(i), and (c)(1)(ii); and  

 c. Adding new paragraph (c)(1)(iv). 



240 

 The revisions and additions read as follows: 

§ 240.10b5-1 Trading on the basis of material nonpublic information in insider trading 

cases. 

 (a) Manipulative or deceptive devices. The “manipulative or deceptive device[s] or 

contrivance[s]” prohibited by Section 10(b) of the Act (15 U.S.C. 78j) and § 240.10b-5 (Rule 

10b-5) thereunder include, among other things, the purchase or sale of a security of any issuer, 

on the basis of material nonpublic information about that security or issuer, in breach of a duty of 

trust or confidence that is owed directly, indirectly, or derivatively, to the issuer of that security 

or the shareholders of that issuer, or to any other person who is the source of the material 

nonpublic information. 

 (b) Awareness of material nonpublic information. Subject to the affirmative defenses in 

paragraph (c) of this section, a purchase or sale of a security of an issuer is on the basis of 

material nonpublic information for purposes of Section 10(b) and Rule 10b-5 if the person 

making the purchase or sale was aware of the material nonpublic information when the person 

made the purchase or sale. The law of insider trading is otherwise defined by judicial opinions 

construing Rule 10b-5, and Rule 10b5-1 does not modify the scope of insider trading law in any 

other respect. 

 (c) Affirmative defenses. (1) (i) Subject to paragraph (c)(1)(ii) of this section, a person’s 

purchase or sale is not on the basis of material nonpublic information if the person making the 

purchase or sale demonstrates that:  

 (A) Before becoming aware of the information, the person had:  

 (1) Entered into a binding contract to purchase or sell the security,  

 (2) Instructed another person to purchase or sell the security for the instructing person's241 

account, or  

 (3) Adopted a written plan for trading securities;  

 (B) The contract, instruction, or plan described in paragraph (c)(1)(i)(A) of this section:  

 (1) Specified the amount of securities to be purchased or sold and the price at which and 

the date on which the securities were to be purchased or sold;  

 (2) Included a written formula or algorithm, or computer program, for determining the 

amount of securities to be purchased or sold and the price at which and the date on which the 

securities were to be purchased or sold; or 

 (3) Did not permit the person to exercise any subsequent influence over how, when, or 

whether to effect purchases or sales; provided, in addition, that any other person who, pursuant to 

the contract, instruction, or plan, did exercise such influence must not have been aware of the 

material nonpublic information when doing so; and  

 (C) The purchase or sale that occurred was pursuant to the contract, instruction, or plan. 

A purchase or sale is not “pursuant to a contract, instruction, or plan” if, among other things, the 

person who entered into the contract, instruction, or plan altered or deviated from the contract, 

instruction, or plan to purchase or sell securities (whether by changing the amount, price, or 

timing of the purchase or sale), or entered into or altered a corresponding or hedging transaction 

or position with respect to those securities. 

 (ii) Paragraph (c)(1)(i) of this section is applicable only when: 

 (A) The contract, instruction, or plan to purchase or sell securities was given or entered 

into in good faith and not as part of a plan or scheme to evade the prohibitions of this section, 

and the person who entered into the contract, instruction, or plan has acted in good faith with 

respect to the contract, instruction or plan; 



242 

 (B) If the person who entered into the contract, instruction, or plan is: 

(1) A director or officer (as defined in § 240.16a-1(f) (Rule 16a-1(f)) of the issuer, no 

purchases or sales occur until expiration of a cooling-off period consisting of the later of: 

  (i) Ninety days after the adoption of the contract, instruction, or plan or  

 (ii) Two business days following the disclosure of the issuer’s financial results in a Form 

10-Q (§ 249.308a of this chapter) or Form 10-K (§ 249.310 of this chapter) for the completed 

fiscal quarter in which the plan was adopted or, for foreign private issuers, in a Form 20-F (§ 

249.220f of this chapter) or Form 6-K (§249.306 of this chapter) that discloses the issuer’s 

financial results (but, in any event, this required cooling-off period is subject to a maximum of 

120 days after adoption of the contract, instruction, or plan); or 

 (2) Not the issuer and not a director or officer (as defined in § 240.16a-1(f) (Rule 16a-

1(f)) of the issuer, no purchases or sales occur until the expiration of a cooling-off period that is 

30 days after the adoption of the contract, instruction or plan;   

 (C) If the person who entered into a plan as described in paragraph (c)(1)(i)(A)(3) of this 

section is a director or officer (as defined in Rule 16a-1(f) (§ 240.16a-1(f)) of the issuer of the 

securities, such director or officer included a representation in the plan certifying that, on the 

date of adoption of the plan: 

 (1) The individual director or officer is not aware of any material nonpublic information 

about the security or issuer; and  

 (2) The individual director or officer is adopting the plan in good faith and not as part of a 

plan or scheme to evade the prohibitions of this section;  

 (D) The person (other than the issuer) who entered into the contract, instruction, or plan 

has no outstanding (and does not subsequently enter into any additional) contract, instruction, or 



243 

plan that would qualify for the affirmative defense under paragraph (c)(1) of this section for 

purchases or sales of the issuer’s securities on the open market; except that: 

 (1) For purposes of this paragraph (c)(1)(ii)(D), a series of separate contracts with 

different broker-dealers or other agents acting on behalf of the person (other than the issuer) to 

execute trades thereunder may be treated as a single “plan,” provided that the individual 

constituent contracts with each broker-dealer or other agent, when taken together as a whole, 

meet all of the applicable conditions of and remain collectively subject to the provisions of this 

rule, including that a modification of any individual contract acts as modification of the whole 

contract, instruction of plan, as defined in paragraph (c)(1)(iv) of this section. The substitution of 

a broker-dealer or other agent acting on behalf of the person (other than the issuer) for another 

broker-dealer that is executing trades pursuant to a contract, instruction or plan shall not be a 

modification of the contract, instruction, or plan (as defined in paragraph (c)(1)(iv) of this 

section) as long as the purchase or sales instructions applicable to the substitute and substituted 

broker are identical with respect to the prices of securities to be purchased or sold, dates of the 

purchases or sales to be executed, and amount of securities to be purchased or sold; and  

 (2) The person (other than the issuer) may have one later-commencing contract, 

instruction, or plan for purchases or sales of any securities of the issuer on the open market under 

which trading is not authorized to begin until after all trades under the earlier-commencing 

contract, instruction, or plan are completed or expired without execution; provided, however, that 

if the first trade under the later-commencing contract, instruction, or plan is scheduled during the 

Effective Cooling-Off Period, the later-commencing contract, instruction, or plan may not rely 

on this paragraph (c)(1)(ii)(D)(2). For purposes of this paragraph (c)(1)(ii)(D)(2), “Effective 

Cooling-Off Period” means the cooling-off period that would be applicable under paragraph 



244 

(c)(1)(ii)(B) of this section with respect to the later-commencing contract, instruction, or plan if 

the date of adoption of the later-commencing contract, instruction, or plan were deemed to be the 

date of termination of the earlier-commencing contract, instruction, or plan; and 

 (3) A contract, instruction, or plan providing for an eligible sell-to-cover transaction shall 

not be considered an outstanding or additional contract, instruction, or plan under paragraph  

(c)(1)(ii)(D) of this section, and such eligible sell-to-cover transaction shall not be subject to the 

limitation under paragraph (c)(1)(ii)(D) of this section. A contract, instruction, or plan provides 

for an eligible sell-to-cover transaction where the contract, instruction, or plan authorizes an 

agent to sell only such securities as are necessary to satisfy tax withholding obligations arising 

exclusively from the vesting of a compensatory award, such as restricted stock or stock 

appreciation rights, and the insider does not otherwise exercise control over the timing of such 

sales; and 

 (E) With respect to persons (other than the issuer), if the contract, instruction, or plan 

does not provide for an eligible sell-to-cover transaction as described in paragraph 

(c)(1)(ii)(D)(3) of this section and is designed to effect the open-market purchase or sale of the 

total amount of securities as a single transaction, the person who entered into the contract, 

instruction, or plan has not during the prior 12-month period adopted a contract, instruction, or 

plan that: 

 (1) was designed to effect the open-market purchase or sale of all of the securities 

covered by such prior contract, instruction or plan, in a single transaction; and  

 (2) Would otherwise qualify for the affirmative defense under paragraph (c)(1) of this 

section.  

*   *   *   *   * 



245 

 (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. A plan modification, such as the 

substitution or removal of a broker that is executing trades pursuant to a Rule 10b5-1 

arrangement on behalf of the person, that changes the price or date on which purchases or sales 

are to be executed, is a termination of such plan and the adoption of a new plan. 

*   *   *   *   * 

 9. Amend § 240.14a-101 by revising paragraph (b) introductory text of Item 7 to read as 

follows: 

§ 240.14a-101 Schedule 14A.  Information required in proxy statement. 

*    *    *    *    * 

Item 7. *   *   * 

*   *   *   *   * 

 (b) The information required by Items 401, 404(a) and (b), 405, 407 and 408(b) of 

Regulation S-K (§§ 229.401, 229.404(a) and (b), 229.405, 229.407, and 229.408(b) of this 

chapter), other than the information required by: 

*   *   *   *   * 

 10. Amend § 240.16a-3 by revising paragraphs (f)(1)(i)(A) and (g)(1) to read as follows: 

§ 240.16a-3  Reporting transactions and holdings. 

*   *   *   *   * 

 (f) *   *   * 

 (1) *   *   * 



246 

 (i) *   *   * 

 (A) Exercises and conversions of derivative securities exempt under either § 240.16b-3 or 

§ 240.16b-6(b), dispositions by bona fide gifts exempt under § 240.16b-5, and any transaction 

exempt under § 240.16b-3(d), § 240.16b-3(e), or § 240.16b-3(f), (these are required to be 

reported on Form 4); 

*   *   *   *   * 

 (g)(1) A Form 4 must be filed to report: All transactions not exempt from section 16(b) of 

the Act; all transactions exempt from section 16(b) of the Act pursuant to § 240.16b-3(d), § 

240.16b-3(e), or § 240.16b-3(f); and dispositions by bona fide gifts and all exercises and 

conversions of derivative securities, regardless of whether exempt from section 16(b) of the Act. 

Form 4 must be filed before the end of the second business day following the day on which the 

subject transaction has been executed. 

*   *   *   *   * 

PART 249 — FORMS, SECURITIES EXCHANGE ACT OF 1934 

 11. The authority citation for part 249 continues to read, in part, as follows: 

 Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C. 5461 et seq.; 18 U.S.C. 

1350; Sec. 953(b) Pub. L. 111-203, 124 Stat. 1904; Sec. 102(a)(3) Pub. L. 112-106, 126 Stat. 309 

(2012), Sec. 107 Pub. L. 112-106, 126 Stat. 313 (2012), Sec. 72001 Pub. L. 114-94, 129 Stat. 

1312 (2015), and secs. 2 and 3 Pub. L. 116-222, 134 Stat. 1063 (2020), unless otherwise noted. 

*  *  *  *  * 

 Section 249.220f is also issued under secs. 3(a), 202, 208, 302, 306(a), 401(a), 401(b), 

406 and 407, Pub. L. 107-204, 116 Stat. 745, and secs. 2 and 3, Pub. L. 116-222, 134 Stat. 1063. 

*  *  *  *  * 



247 

 Section 249.308a is also issued under secs. 3(a) and 302, Pub. L. 107-204, 116 Stat. 745. 

*  *  *  *  * 

 Section 249.310 is also issued under secs. 3(a), 202, 208, 302, 406 and 407, Pub. L. 107-

204, 116 Stat. 745. 

*  *  *  *  * 

 12. Amend Form 4 (referenced in §249.104) by: 

 a. Adding new General Instruction 10; and  

 b. Adding text and one check box at the top of the first page immediately below the text 

“Check this box if no longer subject to Section 16. Form 4 or Form 5 obligations may continue. 

See Instruction 1(b).” 

 The additions read as follows: 

Note: The text of Form 4 does not, and this amendment will not, appear in the Code of 

Federal Regulations. 

FORM 4 

*    *    *    *    * 

General Instructions 

*    *    *    *    * 

 10. Rule 10b5-1(c) Transaction Indication 

 Indicate by check mark whether a transaction was made pursuant to a contract, 

instruction or written plan for the purchase or sale of equity securities of the issuer that is 

intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act 

[§240.10b5-1(c) of this chapter]. Provide the date of adoption of the Rule 10b5-1(c) plan in the 

“Explanation of Responses” portion of the Form. 



248 

*    *    *    *    * 

  Check this box to indicate that a transaction was made pursuant to a contract, instruction 

or written plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c). 

See Instruction 10. 

*    *    *    *    * 

 13. Amend Form 5 (referenced in §249.105) by: 

 a. Adding new General Instruction 10; and  

 b. Adding text and one check box at the top of the first page immediately below the text 

“Form 4 Transactions Reported”. 

 The additions read as follows: 

Note: The text of Form 5 does not, and this amendment will not, appear in the Code of 

Federal Regulations. 

FORM 5 

*    *    *    *    * 

General Instructions 

*    *    *    *    * 

 10. Rule 10b5-1(c) Transaction Indication 

 Indicate by check mark whether a transaction was made pursuant to a contract, 

instruction or written plan for the purchase or sale of equity securities of the issuer that is 

intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act 

[§240.10b5-1(c) of this chapter]. Provide the date of adoption of the Rule 10b5-1(c) plan in the 

“Explanation of Responses” portion of the Form.  

*    *    *    *    * 



249 

  Check this box to indicate that a transaction was made pursuant to a contract, instruction 

or written plan for the purchase or sale of equity securities of the issuer that is intended to satisfy 

the affirmative defense conditions of Rule 10b5-1(c). See Instruction 10. 

*    *    *    *    * 

 14. Amend Form 20-F (referenced in § 249.220f) by: 

a. Adding new Item 16J; and 

b. Revising exhibit 11. 

The additions read as follows: 

Note: The text of Form 20-F does not, and this amendment will not, appear in the Code of 

Federal Regulations. 

FORM 20-F 

*   *   *   *   * 

Item 16J. Insider trading policies 

 (a) Disclose whether the registrant has adopted insider trading policies and procedures 

governing the purchase, sale, and other dispositions of the registrant’s securities by directors, 

senior management, and employees that are reasonably designed to promote compliance with 

applicable insider trading laws, rules and regulations, and any listing standards applicable to the 

registrant. If the registrant has not adopted such policies and procedures, explain why it has not 

done so. 

 (b) If the registrant has adopted insider trading policies and procedures, the registrant 

must file such policies and procedures as an exhibit. If all of the registrant’s insider trading 

policies and procedures are included in its code of ethics (as defined in Item 16B(b)) and the 

code of ethics is filed as an exhibit pursuant to Item 16B(c)(1), the registrant may satisfy the 



250 

exhibit requirement of this paragraph by filing the code of ethics that would satisfy the exhibit 

requirement of Item 16B(c)(1). 

 (c) The disclosure provided pursuant to Item 16J(a) must be provided in an Interactive Data 

File as required by Rule 405 of Regulation S-T (17 CFR 232.405) in accordance with the 

EDGAR Filer Manual. 

 Instruction to Item 16J: Item 16J applies only to annual reports, and does not apply to 

registration statements, on Form 20-F. 

*    *    *    *    * 

INSTRUCTIONS AS TO EXHIBITS 

*    *    *    *    * 

 11. (a) Any code of ethics, or amendment thereto, that is the subject of the disclosure 

required by Item 16B of Form 20-F, to the extent that the registrant intends to satisfy the Item 

16B requirements through filing of an exhibit 

 (b) Any insider trading policies and procedures that is the subject of the disclosure 

required by Item 16J. If all of the registrant’s insider trading policies and procedures are included 

in its code of ethics and the code of ethics is filed as an exhibit, that exhibit filing would satisfy 

the exhibit requirement of this paragraph (b). 

*    *    *    *    * 

 15. Amend Form 10-Q (referenced in § 249.308a) by adding paragraph (c) to Item 5 in 

Part II to read as follows: 

Note: The text of Form 10-Q does not, and this amendment will not, appear in the Code of 

Federal Regulations. 

FORM 10-Q 



251 

*    *    *    *    * 

Part II—Other Information 

*    *    *    *    * 

Item 5. Other Information. 

*    *    *    *    * 

 (c) Furnish the information required by Item 408(a) of Regulation S-K (17 CFR 

229.408(a)). 

*    *    *    *    * 

 16. Amend Form 10-K (referenced in § 249.310) by revising Item 9B in Part II and Item 

10 in Part III to read as follows: 

Note:  The text of Form 10-K does not, and this amendment will not, appear in the Code of 

Federal Regulations. 

FORM 10-K 

*    *    *    *    * 

PART II 

Item 9B. Other Information. 

*    *    *    *    * 

 Furnish the information required by Item 408(a) of Regulation S-K (§ 229.408(a) of this 

chapter). 

*    *    *    *    * 

PART III 

*    *    *    *    * 

Item 10. Directors, Executive Officers and Corporate Governance. 



252 

 Furnish the information required by Items 401, 405, 406, 407(c)(3), (d)(4), (d)(5), and 

408(b) of Regulation S-K (§ 229.401, § 229.405, § 229.406, § 229.407(c)(3), (d)(4), (d)(5), and § 

229.408(b) of this chapter). 

*   *   *   *   * 

By the Commission. 

Dated: December 14, 2022. 

 

 

Vanessa A. Countryman, 

Secretary.