SEC Chairman Gensler Telegraphs Potential 10b5-1 Plan Regulations

June 18, 2021

In a speech at the CFO Network Summit, SEC Chairman Gary Gensler highlighted his concerns with 10b5-1 stock trading plans used by executives and questioned whether they are effective in preventing insider trading.  His comments indicate that 10b5-1 reform will be a priority for the SEC moving forward. 

Background: 10b5-1 plans, which are passive investment vehicles established by executives to set predetermined dates for corporate insiders to buy and sell shares of company stock, are designed to protect companies against charges of insider trading.  However, the SEC rules governing them were implemented approximately 20 years ago and have not been updated to reflect current equity compensation practices or changes in the financial markets.

Mr. Gensler brought up four concerns with the existing rules around 10b5-1 plans, stating “in my view, these plans have led to real cracks in our insider-trading regime.”

  • No cooling off period between implementing the plan and the first trade.

    • He recommends a four-to-six month cooling-off period (previously supported by former SEC Chairman Jay Clayton as well as current Commissioners Caroline Crenshaw and Allison Herren Lee).

  • No limitations on canceling a plan.

  • No disclosure requirements.

  • No limits on the number of plans. 

Outlook:  If reform is proposed, we anticipate it will include a mandatory cooling-off period of 90-120 days, mandatory disclosure when a plan has been adopted or canceled, limitations on the ability to cancel a plan, and restrictions on the number of plans allowed per individual (potentially as low as just one).  While most companies that use 10b5-1 plans comply with best practices, individual "bad actor" plans raise the risk of sharper regulation for all plans.