SEC Publishes New Rule 10b5-1 C&DIs

On August 25, 2023, the SEC issued new compliance and disclosure interpretations (C&DIs) related to (i) the December 2022 Rule 10b5-1 amendments and (ii) the related issuer disclosure requirements.  The full text of the Rule 10b5-1 amendment C&DIs and the issuer disclosure C&DIs is available here and here, and our December 2022 blog post regarding the Rule 10b5-1 amendments is available here.

Rule 10b5-1 Amendment C&DIs

Rule 10b5-1(c)(1)(ii)(B)(1) provides that the required cooling-off period for directors and officers is the later of 90 days after the adoption of a 10b5-1 plan or “[t]wo business days following the disclosure of the issuer’s financial results in a Form 10-Q or Form 10-K for the completed fiscal quarter in which the plan was adopted.” C&DI 120.29 clarifies that the filing date of the Form 10-Q or 10-K disclosing the financial results for the period in which a 10b5-1 plan is adopted does not count as the “first business day”. Per the C&DI, if the relevant form is filed on a Monday, trading may commence under the 10b5-1 plan on Thursday (assuming no intervening Federal holidays). Whether a form is filed before or after trading opens on a given day has no bearing on the calculation. However, filing a Form 10-Q or 10-K after 5:30pm Eastern time (the Edgar filing deadline) would cause the “filing date” to fall on the following business day, which could extend the cooling-off period (i.e., if the relevant form is filed after 5:30pm Eastern time on Monday, trading could not commence until Friday).

For purposes of the restriction on overlapping plans, C&DI 120.30 indicates that a 401(k) plan participant relying on Rule 10b5-1 for open market matching grant purchases could still take advantage of the Rule 10b5-1 affirmative defense for a concurrent 10b5-1 plan for purchases and sales on the open market, so long as the 401(k) plan administrator (and not the plan participant) is directing the 401(k) open market purchases to make matching grants of the issuer’s common stock to the plan participant.

With respect to the new Form 4 check box requiring reporting persons to indicate whether reported transactions were made pursuant to a 10b5-1 plan, C&DI 120.31 clarifies that reporting persons are not required to check the box for transactions made pursuant to a trading plan that was adopted prior to the effective date of the Rule 10b5-1 amendments.

Issuer Disclosure C&DIs

C&DI 133A.01 clarifies that the required disclosure of plan terminations pursuant to Item 408(a)(1) of Regulation S-K does not apply to a plan that terminates due to its expiration or completion (e.g., the plan ends by its terms and without any action by an individual).

Item 408(a) of Regulation S-K requires disclosure of whether any director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the fiscal quarter.  C&DI 133A.02 provides that Item 408(a) applies to any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement covering securities in which an officer or director has a direct or indirect pecuniary interest that is reportable under Section 16 that the officer or director has made the decision to adopt or terminate.

Leave a Reply

Your email address will not be published. Required fields are marked *