The SEC 10b5-1 rule changes adopted in December 2022 and effective in early 2023 added mandatory cooling-off periods, written certifications for directors and officers, restrictions on overlapping and single-trade plans, an explicit good faith operation requirement, and new company disclosure of plan activity.
Why the rule was amended
The original rule had been criticized for years. Insiders could adopt plans and begin selling almost immediately, run several plans at once and cancel the inconvenient ones, and adopt single-trade plans that resembled ordinary discretionary sales with a compliance label attached.
The amendments target each of those patterns. None of them changed the basic architecture: a plan adopted without material nonpublic information, with specified terms and no later influence, still provides an affirmative defense. What changed is how much structure the defense requires.
Change one: mandatory cooling-off periods
Directors and Section 16 officers must wait the later of 90 days after adoption or two business days after the company files financial results for the fiscal quarter in which the plan was adopted, with a 120-day maximum. All other persons wait 30 days.
The same waiting period applies to modifications, because a change to the amount, price, or timing of trades is treated as a termination and a new adoption. Executives who previously adjusted plans casually now face a multi-month gap each time they do.
There is a practical scheduling consequence. Because the second prong depends on the filing of quarterly results, the effective wait varies with where in the reporting cycle you adopt. Adopting a few days after a 10-Q is filed produces the shortest realistic delay; adopting late in a quarter usually pushes the first trade toward the 120-day cap.
Change two: certifications
Directors and Section 16 officers must include a representation in the plan that they are unaware of material nonpublic information and are acting in good faith at adoption. The representation is part of the plan document, creating a contemporaneous written record.
Two habits make the certification easier to stand behind. Keep the company’s window calendar showing the adoption date fell in an open period, and keep any written confirmation from legal that you were cleared to adopt. Neither is required by the rule, and both are useful if the date is ever examined.
Change three: no overlapping plans, and one single-trade plan a year
Individuals may generally not maintain multiple overlapping plans for open-market trades in the same class of securities. Sequential plans are permitted if the later plan’s first trade occurs after the earlier plan’s last trade, subject to the applicable cooling-off period.
Separately, the affirmative defense is available for only one single-trade plan in any consecutive 12-month period. Sell-to-cover arrangements that exist solely to satisfy tax withholding on vesting equity are excepted from these limits. The specifics matter in practice and are covered in the overlapping and single-trade plan restrictions.
Change four: good faith in operation, not just adoption
The rule now requires that the plan be operated in good faith, not merely entered into in good faith. This addresses cancellation as a strategic tool, sometimes called plan hopping, where an insider terminates a plan to avoid a sale that no longer looks attractive.
Cancelling a plan is still permitted, and terminating while clean does not automatically destroy the defense for trades already executed. But a pattern of terminations, or a cancellation while aware of material nonpublic information, invites the argument that the arrangement was never a genuine pre-commitment. Consequences are discussed in what modifying or terminating a plan actually costs you.
Change five: disclosure
Companies must now disclose, quarterly, whether directors and Section 16 officers adopted or terminated 10b5-1 plans during the period, along with the material terms other than pricing. Companies also describe their insider trading policies annually, and there is new disclosure around the timing of option grants relative to material information.
Form 4 and Form 5 filings include a checkbox indicating whether a reported transaction was made under a plan intended to satisfy Rule 10b5-1, and bona fide gifts by insiders are reported more promptly than before.
The practical result is that your selling program is now visible in a way it was not previously. Plan adoptions appear in filings with dates and terms, so the optics of timing deserve as much attention as the compliance mechanics.
What executives should actually do
Five habits cover most of the new burden.
- Adopt right after earnings. This minimizes the cooling-off wait and creates the cleanest record on the MNPI question.
- Write longer plans. Twelve months or more reduces how often you re-enter the cooling-off cycle.
- Stop modifying. Treat each plan as fixed once adopted, and build the flexibility you need into the original terms.
- Consolidate. Review whether you have arrangements at multiple brokers that could be treated as overlapping plans.
- Coordinate with your full equity picture before adopting, including vesting schedules, Rule 144 capacity, and tax timing, which is where a full review of your compensation stack is useful.
The bottom line on the SEC 10b5-1 rule changes
The amended rule keeps the affirmative defense but raises the price of using it: real waiting periods, written certifications, one plan at a time, one single-trade plan a year, good faith in operation, and public disclosure of what you adopt and when. The winning approach is to adopt long, simple plans immediately after earnings and then leave them alone.
When did the amendments take effect?
The SEC adopted them in December 2022, with compliance generally required from late February 2023. The related company disclosure requirements began with periodic reports for periods starting in April 2023, and later for smaller reporting companies.
Do the new cooling-off periods apply to companies buying back stock?
No. The cooling-off requirements, the overlapping plan restriction, and the single-trade plan limit apply to persons other than the issuer. Issuer repurchase plans are subject to their own separate disclosure regime.
Can I still run more than one plan?
Generally not for open-market trades in the same class of securities at the same time. Sequential plans are allowed if the later plan’s trades begin only after the earlier plan’s trades end, and sell-to-cover arrangements for tax withholding are excepted.
What is plan hopping and is it prohibited?
Plan hopping refers to cancelling and re-adopting plans to avoid unattractive sales. Cancellation is not itself prohibited, but the amended rule requires good faith in the operation of a plan, so a pattern of cancellations can undermine the defense for the arrangement as a whole.
This article is for general educational purposes only and is not tax, legal, or investment advice. Equity-compensation and wealth-planning rules are complex and depend on your specific situation; consult a qualified tax professional or financial advisor before acting.
