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On April 25, 2025, the U.S. Securities and Exchange Commission’s Division of Corporation Finance (Corp Fin) updated its Compliance and Disclosure Interpretations (CDIs) relating to Rule 10b5-1 by issuing two new CDIs, revising 20 CDIs, and withdrawing three CDIs. Aside from the two new CDIs, this latest round of updates harmonizes many of the CDIs to the Rule 10b5-1 amendments adopted by the SEC in 2022 (2022 amendments). The 2022 amendments are discussed in detail in our previous Client Alert.  

New CDIs

As part of the 2022 amendments, Rule 10b5-1 was amended to provide that the affirmative defense is unavailable for multiple, overlapping trading plans, subject to limited exceptions. One of those limited exceptions is for a trading plan that provides for an “eligible sell-to-cover transaction” where the trading plan covers the sale of “only such securities as are necessary to satisfy tax withholding obligations.” New CDI 120.33 clarifies that the phrase “necessary to satisfy tax withholding obligations” means “tax withholding payments that are calculated in good faith to satisfy the employee or director’s effective tax obligation solely with respect to the vesting transaction, consistent with applicable tax law and accounting rules.”

The other new CDI provides guidance relating to company-sponsored 401(k) plans that permit both employer and employee contributions to be invested through a self-directed “brokerage window” and, in particular, how purchases and sales of issuer securities through the 401(k) plan are treated for purposes of Rule 10b5-1(c)(1). CDI 120.32 states that, as the counterparty to the self-directed “brokerage window” transaction is an open market participant, “the instruction for any self-directed ‘broker window’ transaction will need to satisfy all conditions of Rule 10b5-1(c)(1), including those applicable to purchases and sales of the issuer’s securities on the open market.”

Revised CDIs

The 2022 amendments imposed several new conditions to the availability of the affirmative defense under Rule 105b-1(c)(1). These new conditions include limitations on multiple, overlapping plans and single trade plans, as well as cooling-off periods, additional representations required to be made by directors and officers who enter into trading plans, and acting in good faith with respect to the trading plan. Several of the revised CDIs provide guidance with respect to a specified hypothetical scenario. In light of the 2022 amendments, Corp Fin revised these CDIs to add, as part of the facts underlying the hypothetical, that all of the conditions of Rule 10b5-1(c)(1)(ii) have been satisfied.

Other revisions to the Rule 10b5-1 CDIs include the following:

  • Revised CDI 120.15 and CDI 120.16 discuss the hypothetical scenario whereby a person establishes a written trading plan to sell a specified number of shares each month at or above a specified price.
    • In CDI 120.15, while the trading plan is in effect, the person places an order to sell additional shares at the market. The guidance provides that, under these facts, the market order would not affect the availability of the affirmative defense for the existing trading plan because the market order (1) does not result in an alteration or deviation from the trading plan (i.e., trading plan sales would continue to be executed per the plan instructions) and (2) is not a corresponding or hedging transaction because it does not reduce or eliminate the economic consequences of the sales under the trading plan. Moreover, the market order would not be an additional trading plan (i.e., would not result in a multiple, overlapping plan). Note, however, that the additional sales would not qualify for the affirmative defense provided by a trading plan.
    • In CDI 120.16, while the trading plan is in effect, the person seeks to increase the number of shares to be sold under his or her existing trading plan. The guidance includes a reminder that under the 2022 amendments, any modification or change to the amount of the securities to be sold under the trading plan is a termination of the existing trading plan, and the adoption of a new trading plan. Therefore, the sale of the increased number of shares would not be pursuant to the existing trading plan. Rather, the sale of the increased number of shares would be pursuant to a new trading plan and the person would “need to comply with Rule 10b5-1(c)(1)” with respect to the new trading plan.
  • Revised CDI 120.18 discusses whether a termination of a trading plans affects the availability of the affirmative defense for prior plan transactions. As discussed above, one of the new conditions under Rule 10b5-1(c)(1) is that the person must act in good faith with respect to the trading plan. Accordingly, the revision to the CDI states that the termination could affect the availability of the affirmative defense for prior plan transactions “if it calls into question whether the plan was entered into in good faith and not as part of a plan or scheme to evade the insider trading rules” (both of which were required pre-2022 amendments), “and whether the person who entered into the plan has acted in good faith with respect to the plan[.]”
  • Revised CDIs 120.21, 120.22, and 120.23 provide updated guidance with respect to employer 401(k) plans that allow for the purchase of employer stock including with respect to payroll deduction purchases and fund-switching transactions.

Withdrawn CDIs

As part of the 2022 amendments, Rule 10b5-1 was amended to provide that any modification or change to the amount, price, or timing of the transactions under a trading plan will result in a termination of the existing trading plan, and the adoption of a new trading plan. Amended Rule 10b5-1 further provides that the substitution of a broker-dealer for another broker-dealer that is executing trades pursuant to a trading plan is not a modification so long as the plan transaction instructions are identical with respect to the amount, price, and timing of the transactions. Corp Fin withdrew CDI 120.19, which discussed the impact of the cancellation of plan transactions (i.e., a modification) on the availability of the affirmative defense on future plan transactions, and CDI 220.01, which discussed broker substitutions. Corp Fin also withdrew CDI 120.02, which related to the Rule 144 amendments adopted by the SEC in 2007 that changed the Form 144 representation (i.e., if a person has adopted a Rule 10b5-1 trading plan, then the representation regarding the seller’s knowledge of material information relating to the issuer is made as of the plan adoption date).