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Time flies when you are having fun – it seems like we were just taking down the holiday decorations, and now the end of February is rapidly approaching! That means that the SEC’s amendments to Rule 10b5-1 will be effective next Monday, February 27, 2023. While there is a longer compliance period for the disclosure elements of the SEC’s rulemaking, the major changes to the conditions in Rule 10b5-1(c) will be effective next week. As a result, new (or substantially modified) Rule 10b5-1 plans adopted next week will be subject to the following additional conditions:

1. A cooling-off period must be imposed before trading can commence under a Rule 10b5-1 plan as follows: (1) For directors or officers, the later of (x) 90 days after the adoption of the Rule 10b5-1 plan or (y) 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 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); and (2) for persons other than directors, officers or the issuer, 30 days following the adoption or modification of a Rule 10b5-1 plan;

2. No overlapping Rule 10b5-1 plans are permitted, subject to limited exceptions;

3. No more than one single-trade Rule 10b5-1 plan per 12-month period is permitted, subject to limited exceptions;

4. Directors and officers must include a representation in their Rule 10b5-1 plan certifying that: (i) they are not aware of any material nonpublic information; and (ii) they are adopting the trading plan in good faith and not as part of a plan or scheme to evade the prohibitions in Rule 10b-5; and

5. All persons who enter into a Rule 10b5-1 plan must act in good faith with respect to that plan.

The SEC noted in the adopting release that the amendments to Rule 10b5-1(c) do not affect the availability of the affirmative defense for an existing Rule 10b5-1 plan that was entered into prior to February 27, 2023, except to the extent that such a plan is modified or changed in the manner described in Rule 10b5-1(c)(1)(iv) after the effective date. Such a modification or change would be equivalent to adopting a new trading arrangement, thus subjecting the new Rule 10b5-1 plan to the new conditions described above. Under Rule 10b5-1(c)(1)(iv), 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 deemed to be a termination of such plan and the adoption of a plan.

What should you do now that this important deadline is rapidly approaching? Check out the latest issue of The Corporate Counsel, of course, which provides the resources that you will need to update your insider trading policy and tackle the tricky issues that will inevitably arise with Rule 10b5-1, as amended. If you do not have access to the January-February 2023 issue of The Corporate Counsel and the Special Supplement to that issue, email sales@ccrcorp.com to subscribe today.

– Dave Lynn