Developments and evolution of U.S. insider trading law since 2020

3. Prohibition of overlapping 10b5-1 plans: Where multiple plans exist, date overlaps may arise—enabling plan adopters to selectively execute the plan most advantageous to their trading interests, thereby raising suspicions of insider trading. To address this, the new rules expressly prohibit individuals (other than issuers) from maintaining more than one 10b5-1 plan simultaneously—i.e., overlapping plans are generally prohibited. Exceptions permitting multiple plans include the following: (1) Integrated agreements with multiple brokers: A plan adopter may enter into separate agreements with different broker-dealers or other agents; if these agreements collectively constitute a single integrated arrangement, they may be treated as one unified 10b5-1 plan—and thus satisfy and remain subject to Rule 10b5-1 requirements. In such cases, because an integrated approach applies, any amendment to one agreement constitutes an amendment to all others, triggering a new cooling-off period. However, switching broker-dealers or agents does not constitute an amendment—and therefore does not restart the cooling-off period—if the terms governing the number, price, or timing of securities purchases or sales under the 10b5-1 plan remain unchanged. (2) Later-starting plans: An individual may maintain two separate, sequential 10b5-1 plans provided that transactions under the later-starting plan do not commence until all transactions under the earlier-starting plan have been completed—or until the earlier plan has expired unexecuted. That is, execution periods must not overlap. If the earlier-starting plan terminates before its scheduled expiration date, the cooling-off period begins on the early termination date, and the later-starting plan may only commence after that cooling-off period expires. (3) 'Sell-to-cover' plans: Individuals may establish additional plans authorizing only qualified 'sell-to-cover' transactions—designed solely to satisfy tax withholding obligations arising upon receipt of equity awards (e.g., restricted stock or stock appreciation rights)—provided no alternative means exist for the individual to control the timing of such sales. The revised 10b5-1 plan rules also introduce enhanced disclosure requirements. U.S. public companies will be required to disclose 10b5-1 trading plans quarterly on Forms 10-Q and 10-K, and annually disclose their insider trading policies—or explain why no such policy has been adopted. Foreign private issuers (e.g., Cheetah Mobile, referenced above) must annually disclose their insider trading policies on Form 20-F. Issuers must specifically disclose: (1) whether any director or officer adopted or terminated any 10b5-1 plan—or any other non-10b5-1 trading arrangement—during the issuer’s most recent fiscal quarter; and (2) material terms of any such 10b5-1 plan or non-10b5-1 trading arrangement. In describing such terms, issuers need not disclose specific transaction prices under the plan or arrangement; however, mandatory disclosures must include, among other material matters, the names and titles of participating directors or officers, the dates the plan was adopted or terminated, the plan’s duration, and the total number of securities sold or purchased pursuant to the plan.

What is a '10b5-1 Plan' in U.S. securities regulation?

1. What is Rule 10b5-1? Rule 10b5-1 is a regulation adopted by the SEC in 2000 that permits insiders of publicly traded companies to trade the company’s securities under specified conditions—thereby enabling such insiders to engage in trading without being deemed to have committed insider trading. This rule clarifies Rule 10b-5—the primary SEC rule used to prosecute securities fraud—under the Securities Exchange Act of 1934. Under Rule 10b5-1, directors, major shareholders, executives, and other individuals who may possess material nonpublic information may pre-establish a written plan specifying the timing and parameters for buying or selling company stock. Such prearranged trades may then be executed when the individual does not possess material nonpublic information—thus shielding them from allegations of insider trading. These plans also apply to corporate stock repurchases. It is critically important that when insiders formulate, adopt, or modify a Rule 10b5-1 plan, they must not possess any material nonpublic information at that time—that is, the Rule 10b5-1 plan must have been established prior to acquiring knowledge of such material nonpublic information.