# Insider Trading Arrangements and Related Disclosures > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2022-27675 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** December 29, 2022 - **Citation:** 87 FR 80362 ## Text SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 229, 232, 240, and 249 [Release Nos. 33-11138; 34-96492; File No. S7-20-21] RIN 3235-AM86 Insider Trading Arrangements and Related Disclosures AGENCY: Securities and Exchange Commission. ACTION: Final rule. SUMMARY: We are adopting amendments to the rule under the Securities Exchange Act of 1934 (“Exchange Act”) that provides affirmative defenses to trading on the basis of material nonpublic information in insider trading cases. The amendments add new conditions to this rule that are designed to address concerns about abuse of the rule to trade securities opportunistically on the basis of material nonpublic information in ways that harm investors and undermine the integrity of the securities markets. We are also adopting new disclosure requirements regarding the insider trading policies and procedures of issuers, the adoption and termination (including modification) of plans that are intended to meet the rule's conditions for establishing an affirmative defense, and certain other similar trading arrangements by directors and officers. In addition, we are adopting amendments to the disclosure requirements for director and executive compensation regarding equity compensation awards made close in time to the issuer's disclosure of material nonpublic information. Finally, we are adopting amendments to Forms 4 and 5 to require filers to identify transactions made pursuant to a plan intended to meet the rule's conditions for establishing an affirmative defense, and to require disclosure of bona fide gifts of securities on Form 4. DATES: Effective date: The final rules are effective on February 27, 2023. Compliance dates: See Section III for further information on transitioning to the final rules. FOR FURTHER INFORMATION CONTACT: Sean Harrison, Special Counsel, Office of Rulemaking, at (202) 551-3430, Division of Corporation Finance, 100 F Street NE, Washington, DC 20549. SUPPLEMENTARY INFORMATION: We are amending: Commission reference CFR citation (17 CFR) Regulation S-K [17 CFR 229.10 through 229.1305] Item 402 § 229.402 Item 408 § 229.408 Item 601 § 229.601 Regulation S-T [17 CFR 232.11 through 232.903] Item 405 § 232.405 Securities Exchange Act of 1934 (Exchange Act) [15 U.S.C. 78a et seq. ] Rule 10b5-1 § 240.10b5-1 Schedule 14A § 240.14a-101 Rule 16a-3 § 240.16a-3 Form 4 § 249.104 Form 5 § 249.105 Form 20-F § 249.220f Form 10-Q § 249.308a Form 10-K § 249.310 Table of Contents I. Introduction II. Discussion of the Final Amendments A. Amendments to Rule 10b5-1 1. Cooling-Off Period 2. Director and Officer Certifications 3. Restricting Multiple Overlapping Rule 10b5-1 Trading Arrangements and Single-Trade Arrangements 4. The Amended Good Faith Condition B. Additional Disclosures Regarding Rule 10b5-1 Trading Arrangement 1. Quarterly Reporting of Rule 10b5-1 and Non-Rule 10b5-1 Trading Arrangements 2. Disclosure of Insider Trading Policies and Procedures 3. Identification of Rule 10b5-1 and non-Rule 10b5-1 Transactions on Forms 4 and 5 C. Disclosure Regarding Option Grants and Similar Equity Instruments Made Close in Time to the Release of Material Nonpublic Information 1. Proposed Amendments 2. Comments on the Proposed Amendments 3. Final Amendments D. Structured Data Requirements 1. Proposed Amendments 2. Comments on the Proposed Amendments 3. Final Amendments E. Reporting of Gifts on Form 4 1. Proposed Amendments 2. Comments on the Proposed Amendments 3. Final Amendments III. Transition Matters IV. Other Matters V. Economic Analysis A. Broad Economic Considerations B. Amendments to Rule 10b5-1(c)(1) 1. Baseline and Affected Parties 2. Benefits 3. Costs 4. Effects on Efficiency, Competition, and Capital Formation 5. Reasonable Alternatives C. Disclosure of Trading Arrangements and Policies and Procedures in New Item 408 of Regulation S-K and Mandatory Rule 10b5-1 Checkbox in Amended Forms 4 and 5 1. Baseline and Affected Parties 2. Benefits 3. Costs 4. Effects on Efficiency, Competition, and Capital Formation 5. Reasonable Alternatives D. Additional Disclosure of the Timing of Option Grants and Related Company Policies and Practices 1. Baseline and Affected Parties 2. Benefits 3. Costs 4. Effects on Efficiency, Competition, and Capital Formation 5. Reasonable Alternatives E. Additional Disclosure of Insider Gifts of Stock 1. Baseline and Affected Parties 2. Benefits 3. Costs 4. Effects on Efficiency, Competition, and Capital Formation 5. Reasonable Alternatives VI. Paperwork Reduction Act A. Summary of the Collections of Information B. Summary of Comment Letters C. Summary of Collections of Information Requirements D. Burden and Cost Estimates Related to the Amendments VII. Final Regulatory Flexibility Act Analysis A. Need for, and Objectives of, the Amendments B. Significant Issues Raised by Public Comments C. Small Entities Subject to the Amendments D. Projected Reporting, Recordkeeping, and Other Compliance Requirements E. Agency Action To Minimize Effect on Small Entities Statutory Authority I. Introduction Congress enacted the Federal securities laws to promote fair and transparent securities markets, “avoid[ ] frauds,” and “substitute a philosophy of full disclosure for the philosophy of caveat emptor and thus to achieve a high standard of business ethics in the securities industry.” 1 The securities laws' antifraud prohibitions that proscribe certain insider trading, including Section 10(b) of the Exchange Act, 2 play an essential role in maintaining the fairness and integrity of our securities markets. The Securities and Exchange Commission (the “Commission”) has long recognized that insider trading 3 and the fraudulent misuse of material nonpublic information by corporate insiders 4 harms not only individual investors but also undermines the foundations of our markets by eroding investor confidence. 5 Congress has recognized the harmful impact of insider trading on multiple occasions, such as by providing for enhanced civil penalties specifically for insider trading. 6 1 Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 151 (1972); accord Lorenzo v. SEC, 139 S. Ct. 1094, 1103 (2019). 2 15 U.S.C. 78j(b). 3 “Insider trading” as used in this release refers to the purchase or sale of a security of any issuer, on the basis of material nonpublic information about that security or issuer, in breach of a duty of trust or confidence that is owed directly, indirectly, or derivatively, to the issuer of that security or the shareholders of that issuer, or to any other person who is the source of the material nonpublic information. See Rule 10b5-1(a). 4 We use the terms “insider” and “corporate insider” in this release to refer to persons (other than issuers) for whom the purchase or sale of a security of any issuer, on the basis of material nonpublic information about that security or issuer, would represent a breach of a fiduciary duty or a duty of trust or confidence that is owed directly, indirectly, or derivatively, to the issuer of a security or the shareholders of that issuer, or to any other person who is the source of the material nonpublic information. See Rule 10b5-1(a). 5 See In re Cady, Roberts & Co., 40 S.E.C. 907, 1961 WL 60638, at *4 n. 15 (1961) (“A significant purpose of the Exchange Act was to eliminate the idea that the use of inside information for personal advantage was a normal emolument of corporate office.”); see also United States v. O'Hagan, 521 U.S. 642, 658 (1997) (The insider trading prohibition is consistent with the “animating purpose” of the Federal securities laws: “to insure honest securities markets and thereby promote investor confidence.”) 6 See Insider Trading Sanctions Act of 1984, Public Law 98-376, 98 Stat. 1264; Insider Trading and Securities Fraud Enforcement Act of 1988, Public Law 100-704, 102 Stat. 4677, codified at Section 21A of the Exchange Act, 15 U.S.C. 78u-1. Congress has enacted other laws that build on the insider trading prohibition. See, e.g., Section 20(d) of the Exchange Act, 15 U.S.C. 78t(d); Section 20A of the Exchange Act, 15 U.S.C. 78t-1; STOCK Act, Public Law 112-105, 126 Stat. 291 (2012). Section 10(b) is one of the securities laws' primary antifraud provisions. This provision makes it unlawful “[t]o use or employ, in connection with the purchase or sale of any security . . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe.” 7 The Supreme Court has recognized that the “manipulative or deceptive device[s] or contrivance[s]” prohibited by Section 10(b) and Rule 10b-5 include the purchase or sale of a security of any issuer on the basis of material nonpublic information about that security or its issuer, in breach of a duty owed directly, indirectly, or derivatively to the issuer of that security, to the shareholders of that issuer, or to any person who is the source of the material nonpublic information. 8 7 Rule 10b-5, adopted pursuant to Section 10(b), prohibits the use of “any device, scheme, or artifice to defraud”; the making of “any untrue statement of a material fact” or the “omi[ssion]” of “a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading”; or “any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person” [17 CFR 240.10b-5]. In addition to potential insider trading liability, issuers—and those acting on their behalf—are also subject to other prohibitions under the Federal securities laws. 8 See Salman v. United States, 137 S.Ct. 420, 425 n. 2 (2016) (explaining that, under the classical theory of insider-trading liability, an insider who trades in the securities of his corporation on the basis of material nonpublic information “breaches a duty to, and takes advantage of, the shareholders of his corporation” while, under the misappropriation theory, “a person commits securities fraud `when he misappropriates confidential information for securities trading purposes, in breach of a duty owed to the source of the information,' such as an employer or client”); O'Hagan, 521 U.S. at 651-53 (“Under the `traditional' or `classical theory' of insider trading liability, § 10(b) and Rule 10b-5 are violated when a corporate insider trades in the securities of his corporation on the basis of material, nonpublic information,” and “the misappropriation theory outlaws trading on the basis of nonpublic information by a corporate `outsider' in breach of a duty owed not to a trading party, but to the source of the information.”); Chiarella v. United States, 445 U.S. 222, 228-29 (1980); see also 15 U.S.C. 78u-1(a)(1); 17 CFR 240.10b5-2 (setting forth a non-exclusive definition of circumstances in which a person has the requisite duty for purposes of the “misappropriation” theory of insider trading liability). Liability for insider trading under Section 10(b) and Rule 10b-5 requires “scienter,” i.e., “an intent on the part of the defendant to deceive, manipulate or defraud.” Aaron v. SEC, 446 U.S. 680, 686 & n. 5 (1980); see also Selective Disclosure and Insider Trading, Release No. 33-7881 (Aug. 15, 2000) [65 FR 51716 (Aug. 24, 2000)] (“2000 Adopting Release”) at 51727. The Commission adopted Rule 10b5-1 in 2000 to provide more clarity regarding the meaning of “manipulative or deceptive device[s] or contrivance[s]” prohibited by Section 10(b) and Rule 10b-5 with respect to trading on the basis of material nonpublic information. 9 At the time, Federal appellate courts diverged on the issue of what, if any, connection must be shown between a trader's possession of material nonpublic information and his or her trading to establish liability under Section 10(b) and Rule 10b-5. The Commission addressed this issue by providing that a purchase or sale of an issuer's security is on the basis of material nonpublic information about that security or issuer for purposes of Section 10(b) and Rule 10b-5 if the person making the purchase or sale was aware of the material nonpublic information when the person made the purchase or sale. 10 In addition, Rule 10b5-1(c) established an affirmative defense to liability under Section 10(b) and Rule 10b-5 for insider trading, which the Commission intended “to cover situations in which a person can demonstrate that the material nonpublic information did not factor into the trading decision.” 11 To that end, this defense provided that the trading was not made on the basis of material nonpublic information if the person can demonstrate, among other things, that the trade was made pursuant to a binding contract, an instruction to another person to execute the trade for the instructing person's account, or a written plan for the trading of securities (each a “trading arrangement” and collectively “trading arrangements”) adopted at a time that the person was not aware of material nonpublic information. 12 The Commission believed that this defense would “provide appropriate flexibility to those who would like to plan securities transactions in advance, at a time when they are not aware of material nonpublic information, and then carry out those pre-planned transactions at a later time, even if they later become aware of material nonpublic information.” 13 Rule 10b5-1(c)(2) provides a separate affirmative defense designed solely for non-natural persons ( e.g., entities) that trade. 14 9 See 2000 Adopting Release, supra note 8. 10 See Rule 10b5-1(b) (emphasis added). The final amendments do not alter the “awareness” standard, which courts have held is “entitled to deference.” United States v. Royer, 549 F.3d 886, 899 (2d Cir. 2008) (applying Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843-44 (1984)), cert. denied, 558 U.S. 934, and 558 U.S. 935 (2009); see also United States v. Rajaratnam, 719 F.3d 139, 157-61 (2d Cir. 2013), cert. denied, 134 S. Ct. 2820 (2014). Under that standard, a person is aware of material nonpublic information if they know, consciously avoid knowing, or are reckless in not knowing that the information is material and nonpublic. See SEC v. Obus, 693 F.3d 276, 286-88, 293 (2d Cir. 2012); United States v. Gansman, 657 F.3d 85, 91 n.7, 94 (2d Cir. 2011). The decision in Fried v. Stiefel Labs., Inc., 814 F.3d 1288, 1295 (11th Cir. 2016), which concerned a private action that did not involve Rule 10b5-1, erroneously suggests that a person must “use” the inside information to purchase or sell securities. See also infra at p. 45 n. 145. 11 2000 Adopting Release, supra note 8 at 51728. 12 Rule 10b5-1 does not modify or address any other aspect of insider trading law. It also does not provide an affirmative defense for other securities fraud claims, such as a claim under Rule 10b-5 for an “untrue statement of a material fact.” 17 CFR 240.10b-5(b). 13 2000 Adopting Release, supra note 8 at 51728. 14 See Rule 10b5-1(c)(2) [17 CFR 240.10b5-1(c)(2)]. This affirmative defense is available to a person other than a natural person that can demonstrate that the individual making the investment decision on behalf of the person was not aware of the material nonpublic information, and the person had implemented reasonable policies and procedures to prevent insider trading. Since the adoption of the Rule 10b5-1(c)(1) affirmative defense, courts, 15 commenters, 16 and members of Congress 17 have expressed concern that traders have sought to benefit from its liability protections while trading securities opportunistically on the basis of material nonpublic information. Furthermore, some academic studies have found that corporate insiders trading pursuant to Rule 10b5-1 plans 18 consistently outperform the trading of corporate insiders that is not conducted under such plans. These studies raise concerns that corporate insiders may be trading under Rule 10b5-1 in ways that harm investors and undermine the integrity of the securities markets. 19 Practices that have raised public concern include corporate insiders adopting multiple overlapping plans and subsequently selectively canceling certain trades under such plans while they are aware of material nonpublic information (allowing such insiders to buy or sell securities under the plans that provide the most advantageous price) or commencing trades pursuant to a new plan shortly after the adoption of such plan (in some cases on the same day as said adoption, which, when combined with comparatively larger trades made closer in time to adoption of a plan, suggests that those trades may be on the basis of material nonpublic information). 20 In September 2021, the Commission's Investor Advisory Committee (“IAC”) 21 recommended that we “take the necessary steps to establish meaningful guardrails around the adoption, modification, and cancellation of Rule 10b5-1 trading plans,” by addressing certain gaps in the rule that allow corporate insiders to unfairly exploit informational asymmetries. 22 15 District courts in private securities law actions have “acknowledge[d] the possibility that a clever insider might `maximize' their gain from knowledge of an impending [stock] price drop over an extended amount of time, and seek to disguise their conduct with a 10b5-1 plan.” In re Immucor Inc. Sec. Litig., 2006 WL 3000133, at *18 n.8 (N.D. Ga. Oct. 4, 2006); accord Nguyen v. New Link Genetics Corp., 297 F. Supp. 3d 472, 494-96 (S.D.N.Y. 2018); Freudenberg v. E*Trade Fin. Corp., 712 F. Supp. 2d 171, 200 (S.D.N.Y. 2010); Malin v. XL Cap. Ltd., 499 F. Supp. 2d 117, 156 (D. Conn. 2007), aff'd, 312 F. App'x 400 (2d Cir. 2009). 16 In Dec. 2020, the Commission proposed to amend Forms 4 and 5 to add a checkbox to permit filers to indicate that the reported transaction satisfied Rule 10b5-1. See Rule 144 Holding Period and Form 144 Filings, Release No. 33-10991 (Dec. 22, 2020) [85 FR 79936]. The Commission received several comment letters in response expressing concern about potential abuse of Rule 10b5-1. See, e.g., letter from David Larcker et al. (Mar. 10, 2021), https://www.sec.gov/comments/s7-24-20/s72420-8488827-229970.pdf; letter from Council of Institutional Investors (“CII”) (Apr. 22, 2021), https://www.sec.gov/comments/s7-14-20/s71420-8709408-236962.pdf; letter from CII (Mar. 18, 2021), https://www.sec.gov/comments/s7-24-20/s72420-8519687-230183.pdf. In response to its Fall 2018 semiannual regulatory agenda, the Commission also received a letter requesting that the Commission amend Rule 10b5-1 to address potential abuses of Rule 10b5-1 plans. See letter from CII (Dec. 13, 2018), https://www.sec.gov/comments/s7-20-18/s72018-4766666-176839.pdf. 17 See, e.g., “Waters and McHenry Introduce Bipartisan Legislation to Curb Illegal Insider Trading,” U.S. House Committee on Financial Services, (Jan. 18, 2019) https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=401725; letter from Senators Elizabeth Warren, Sherrod Brown and Chris Van Hollen (Feb. 10, 2021), https://www.warren.senate.gov/imo/media/doc/02.10.2021%20Letter%20from%20Senators%20Warren,%20Brown,%20and%20Van%20Hollen%20to%20Acting%20Chair%20Lee.pdf. 18 We use the terms “Rule 10b5-1 plan” and “Rule 10b5-1 trading arrangement” throughout this release to refer to a contract, instruction or written plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c)(1). 19 See, e.g., Alan D. Jagolinzer, SEC Rule 10b5-1 and Insiders' Strategic Trade, 55 Mgmt. Sci. 224 (2009); M. Todd Henderson et al., Offensive Disclosure: How Voluntary Disclosure Can Increase Returns from Insider Trading, 103 Geo. L.J. 1275 (2015); Taylan Mavruk & H. Nejat Seyhun, Do SEC's 10b5-1 Safe Harbor Rules Need to Be Rewritten?, 2016 Colum. Bus. L. Rev. 133 (2016); Artur Hugon & Yen-Jung Lee, SEC Rule 10b5-1 Plans and Strategic Trade Around Earnings Announcements, (2016), https://ssrn.com/abstract=2880878. 20 See, e.g., John P. Anderson, Anticipating a Sea Change for Insider Trading Law: From Trading Plan Crisis to Rational Reform, 2015 Utah L. Rev. 339 (2015); David Larcker et al., Gaming the System: Three “Red Flags” of Potential 10b5-1 Abuse , Stan. Closer Look Series (Jan. 2021) (“Gaming the System”) (noting from their analysis of a sample of sales transactions made pursuant to Rule 10b5-1 plans between Jan. 2016 and May 2020 that trades occurring within 30 days of adoption of a Rule 10b5-1 plan are approximately 50 percent larger than trades made six or more months later); see also infra note 40 and accompanying text. 21 The IAC was established in Apr. 2012 pursuant to Section 911 of the Dodd-Frank Wall Street Reform and Consumer Protection Act [Pub. L. 111-203, sec. 911, 124 Stat. 1376, 1822 (2010)] to advise and make recommendations to the Commission on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, and initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace. 22 See Recommendations of the Investor Advisory Committee Regarding Rule 10b5-1 Plans (Sept. 9, 2021) (“IAC Recommendations”), at https://www.sec.gov/spotlight/investor-advisory-committee-2012/20210916-10b5-1-recommendation.pdf. The IAC also held a panel discussion regarding Rule 10b5-1 plans at its June 10, 2021 meeting. See IAC, Meeting Minutes (June 10, 2021), https://www.sec.gov/spotlight/investor-advisory-committee-2012/iac061021-minutes.pdf. On January 13, 2022, the Commission proposed several rule and form amendments to address potentially abusive practices associated with Rule 10b5-1 plans, grants of options and other equity instruments with similar features, and the gifting of securities. 23 We received over 160 comment letters on the proposals, which we discuss in context below. 24 Having considered these comments, we are adopting the following amendments, which include modifications from the proposal in response to the comments: 23 See Rule 10b5-1 and Insider Trading, Release No. 33-11013 (Jan. 13, 2022) [87 FR 8686 (Feb. 15, 2022)] (“Proposing Release”). 24 The public comments we received are available at https://www.sec.gov/comments/s7-20-21/s72021.htm. Unless otherwise indicated, the comment letters cited herein are those received in response to the Proposing Release. One comment letter, dated Jan. 10, 2022, urged that the comment period for this proposal, among others, be extended to at least 60 days. See letter from Senator Pat Toomey and Representative Patrick McHenry. The Commission voted to issue the proposal at an open meeting on Dec. 15, 2021. The release was posted on the Commission website that day, and comment letters were received beginning that same date. On Jan. 13, 2022, the Commission voted to approve and issue a revised release that reflected certain, limited changes to the Paperwork Reduction Act and Initial Regulatory Flexibility Act Analysis sections. This proposal was posted on the Commission's website that same day, superseding the Dec. 15, 2021 release, and was published in the Federal Register on Feb. 15, 2022. The comment period closed on Apr. 1, 2022. We have considered all comments received since Dec. 15, 2021, and do not believe an extension of the comment period was necessary. Another comment letter raised concerns about the rulemaking process at the agency more broadly. See letter from Senator Thom Tillis. The process followed in adopting these amendments has complied with the Administrative Procedure Act and other legal requirements. • Amend the affirmative defense of Rule 10b5-1(c)(1) to: (1) include a cooling-off period applicable to directors and “officers” (as defined by 17 CFR 240.16a-1(f) (“Rule 16a-1(f)”) and a shorter cooling off period applicable to all other persons other than the issuer; (2) include a certification condition for directors and officers; (3) limit the ability of persons other than the issuer to use multiple overlapping Rule 10b5-1 plans; (4) limit the ability of these persons to rely on the affirmative defense for a single-trade plan to one single-trade plan during any consecutive 12-month period; and (5) add a condition that all persons entering into a Rule 10b5-1 plan must act in good faith with respect to that plan; 25 25 We use the term “the issuer” in this release to refer to the issuer of the particular security or securities that are the subject of trades for which a person seeks the benefit of the affirmative defense under Rule 10b5-1(c)(1). • Require: (1) quarterly disclosure by registrants regarding the use of Rule 10b5-1 plans and certain other trading arrangements by a registrant's directors and officers for the trading of its securities; and (2) annual disclosure regarding a registrant's insider trading policies and procedures in new Item 408 of Regulation S-K and corresponding amendments to Forms 10-Q and 10-K; • Add a mandatory Rule 10b5-1(c) checkbox to Forms 4 and 5; • Require certain tabular and narrative disclosures regarding awards of options, stock appreciation rights (“SARs”), and/or similar option-like instruments granted to corporate insiders shortly before and immediately after the release of material nonpublic information in new paragraph (x) to Item 402 of Regulation S-K; • Require registrants to tag the information specified by new Items 402(x), 408(a), and 408(b)(1) in Inline XBRL; and • Require reporting of dispositions of equity securities by bona fide gifts on Form 4, rather than on Form 5. These amendments are intended to improve investor confidence in the securities markets, and by extension enhance liquidity and capital formation, while continuing to provide appropriate flexibility to traders who would like to plan securities transactions in advance, when they are not aware of material nonpublic information. To achieve these goals, the amendments are designed to significantly reduce opportunities for corporate insiders to misuse Rule 10b5-1 to trade on material nonpublic information. Further, the amendments will increase transparency regarding the use of Rule 10b5-1 plans, issuers' insider trading policies and procedures, and their policies and practices with respect to awards of options, SARs, and/or similar option-like instruments close in time to the release of material nonpublic information. II. Discussion of the Final Amendments A. Amendments to Rule 10b5-1 Rule 10b5-1(c)(1) provides an affirmative defense to Section 10(b) and Rule 10b-5 liability if a person satisfies its conditions. First, the person must demonstrate that, before becoming aware of the material nonpublic information, they entered into a binding contract to purchase or sell the security, provided instruction to another person to execute the trade for the instructing person's account, or adopted a written plan for trading the securities. 26 Second, the person must demonstrate that the contract, instruction, or plan: 26 Rule 10b5-1(c)(1)(i)(A). • Specified the amount of securities to be purchased or sold and the price at which and the date on which the securities were to be purchased or sold; • Included a written formula or algorithm, or computer program, for determining the amount of securities to be purchased or sold and the price at which and the date on which the securities were to be purchased or sold; or • Did not permit the person to exercise any subsequent influence over how, when, or whether to effect purchases or sales; provided, in addition, that any other person who, pursuant to the contract, instruction, or plan, did exercise such influence must not have been aware of the material nonpublic information when doing so. 27 27 Rule 10b5-1(c)(1)(i)(B). Third, the person must demonstrate that the purchase or sale was pursuant to this contract, instruction, or plan. 28 A purchase or sale is not pursuant to a contract, instruction, or plan if, among other things, the person who entered into the contract, instruction, or plan altered or deviated from the contract, instruction, or plan (whether by changing the amount, price, or timing of the purchase or sale), or entered into or altered a corresponding or hedging transaction or position with respect to the securities. 29 Finally, this defense is only available if the contract, instruction, or plan “was given or entered into in good faith and not as part of a plan or scheme to evade the prohibitions” of Rule 10b-5. 30 28 Rule 10b5-1(c)(1)(i)(C). 29 Id. 30 Rule 10b5-1(c)(1)(ii). We are concerned that some corporate insiders use Rule 10b5-1 plans in ways that are not consistent with the objectives of the rule, and that harm investors and undermine the integrity of the securities markets. As the use of Rule 10b5-1 plans has become more widespread, 31 commentators have raised concerns that the design of Rule 10b5-1(c)(1) has enabled corporate insiders to trade on the basis of material nonpublic information while avoiding liability under Section 10(b) and Rule 10b-5. 32 Several commenters on the proposals reiterated those concerns. 33 These concerns stem from, among other things, the ability of corporate insiders to adopt multiple Rule 10b5-1 plans at a time when they lack material nonpublic information, and subsequently terminate some of the plans based on later-obtained material nonpublic information (notwithstanding the provision of the current affirmative defense that it is applicable only when the contract, instruction, or plan was entered into in good faith). For example, such plans might take financial positions that authorize trades at price points above and/or below the issuer's current stock price. When the insider becomes aware of material nonpublic information indicating likely future changes in the company's stock price, the insider could cancel the less advantageous plan or plans. Corporate insiders also could adopt multiple Rule 10b5-1 plans that direct trades only at price points above the current share price, anticipating that they will subsequently learn material nonpublic information that would reveal which of the plans would be most profitable. Then, when they become aware of material non-public information, they might cancel the less profitable ones. We are concerned that, in these situations, an insider's awareness of material nonpublic information may still “factor into the trading decision,” even if the insider's plans appear to satisfy the requirements of Rule 10b5-1(c)(1). 34 31 According to one survey, corporate insiders at 51% of S&P 500 companies used Rule 10b5-1 trading arrangements in 2015. See Morgan Stanley & Shearman & Sterling LLP, “Defining the Fine Line: Mitigating Risk with 10b5-1 Plans” (2018) https://advisor.morganstanley.com/austin.cornish/documents/field/a/au/austin-cornish/Mitigating%20Risk%20with%2010b5-1%20Plans.pdf. Rule 10b5-1 plans are also used by issuers. See Skadden Insights: Share Repurchases 4-6 (Mar. 16, 2020) https://www.skadden.com/insights/publications/2020/03/share-repurchases (discussing the use of Rule 10b5-1 plans for issuer share repurchases). 32 See Tom McGinty & Mark Maremont, CEO Stock Sales Raise Questions about Insider Trading, Wall St. J. (June 29, 2022) (retrieved from Factiva database); see also Jean Eaglesham & Rob Barry, Trading Plans Under Fire: Despite 2007 Warning, Experts Say Loopholes Remain for Corporate Insiders, Wall St. J. (Dec. 13, 2012) (retrieved from Factiva database). 33 See, e.g., letters from American Federation of Labor and Congress of Industrial Organizations (“AFL-CIO”), Colorado Public Employees' Retirement Association (“CO PERA”), Council of Institutional Investors (“CII”), International Corporate Governance Network (“ICGN”), Better Markets (“Better Markets”), Public Citizen (“Public Citizen”), and North American Securities Administrators Association, Inc. (“NASAA”). 34 See 2000 Release, supra note 8, at 51728. Furthermore, multiple studies examining Rule 10b5-1 plans have identified potentially abusive activity, including when trades occur shortly after adoption of a plan. Some of these studies have observed, among other things, that trades that occur shortly after adoption of a Rule 10b5-1 plan demonstrate abnormal profitability, which suggests that some corporate insiders may be aware of material nonpublic information at the time of adoption of a Rule 10b5-1 plan that otherwise appears to meet the existing requirements of Rule 10b5-1. 35 35 See, e.g., Gaming the System, supra note 19 (observing that trades under Rule 10b5-1 plans systematically avoid losses and foreshadow considerable stock declines over the subsequent six months when: (1) trades executed under the plan occur as much as 60 days after plan adoption; or (2) a Rule 10b5-1 plan is adopted in a given quarter and begins trading before that quarter's earnings announcement); Yen-Jun Lee, Insiders' Foreknowledge of Earnings Results and Rule 10b5-1 Sales Trades, 38 J. Acctg., Auditing & Fin. 1, 9, 17, 19 (2020) (finding that insiders utilizing 10b5-1 plans tend to sell before negative earnings results, and that insiders particularly apt to engage in this behavior are also more likely to begin trading within three months of establishing the plan); Mavruk & Seyhun, supra note 19, at 165 (observing that first trade pursuant to a Rule 10b5-1 plan showed abnormal profitability, suggesting that insiders set up Rule 10b5-1 plans when in possession of material nonpublic information); McGinty & Maremont, supra note 32; see also Jagolinzer, supra note 19, at 234-35 (finding that Rule 10b5-1 plans appear to allow insiders to trade close in time to earnings releases, and that there is a statistical relationship between plan adoption and upcoming negative news events). We provide additional discussion of these sources, including potential caveats about the data they analyze, infra Section V.B.1. To address all of these concerns, we are amending Rule 10b5-1(c)(1) to apply a cooling-off period on persons other than the issuer, impose a certification requirement on directors and officers, limit the ability of persons other than the issuer to use multiple-overlapping Rule 10b5-1 plans, limit the use of single-trade plans by persons other than the issuer to one such single-trade plan in any 12-month period, and add a condition that all persons entering into a Rule 10b5-1 plan must act in good faith with respect to that plan. 1. Cooling-Off Period a. Proposed Amendments Rule 10b5-1(c)(1) does not currently impose a waiting period between the date that a trading plan is adopted and the date of the first transaction to be executed under the plan. A trader can therefore adopt a Rule 10b5-1 plan and execute a trade under it as early as the day of adoption. Investors and other commentators have suggested that requiring a minimum waiting period (a “cooling-off period”) between the adoption of a Rule 10b5-1 plan and the date on which trading can commence reduces the risk that corporate insiders could benefit from any material nonpublic information of which they may have been aware when adopting the plan. 36 The Commission proposed to amend Rule 10b5-1(c)(1) to add the following cooling-off periods as conditions of the affirmative defense: (1) a minimum 120-day cooling-off period after the date of adoption of any Rule 10b5-1 plan (including adoption of a modified trading arrangement) by a director or “officer” (as defined in Rule 16a-1(f)) 37 before any purchases or sales under the new or modified trading arrangement; and (2) a minimum 30-day cooling-off period after the date of adoption of any Rule 10b5-1 plan by an issuer before any purchases or sales under the new or modified trading arrangement. 36 See Rulemaking petition regarding Rule 10b5-1 Trading Plans, File No. 4-658 (Jan. 2, 2013) (“CII Rulemaking Petition”) at https://www.sec.gov/rules/petitions/2013/petn4-658.pdf; Alan D. Jagolinzer et al, How the SEC Can and Should Fix Insider Trading Rules, The Hill (Dec. 17, 2020), https://thehill.com/opinion/finance/530668-how-the-sec-can-and-should-fix-insider-trading-rules; IAC Recommendations, supra note 22. 37 Exchange Act Rule 16a-1(f) provides that the term “officer” “shall mean an issuer's president, principal financial officer, or principal accounting officer (or, if there is no such accounting officer, the controller), any vice-president of the issuer in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the issuer. Officers of the issuer's parent(s) or subsidiaries shall be deemed officers of the issuer if they perform such policy-making functions for the issuer.” The Commission proposed the cooling-off periods to address concerns that some insiders may be adopting Rule 10b5-1 plans while aware of material nonpublic information, such as an issuer's upcoming quarterly earnings results, and then shortly thereafter trading before the information becomes public. We understand that corporate insiders are often aware of material nonpublic information. Although Rule 10b5-1(c)(1) precludes reliance on the affirmative defense when a person is aware of such information at the time of adoption of a Rule 10b5-1 plan, in practice, it is difficult for an outside party to determine whether the insider satisfied this condition. 38 With cognizance of this difficulty, some corporate insiders may use Rule 10b5-1 plans to execute trades on the basis of material nonpublic information and seek to assert the affirmative defense to avoid potential liability. The academic studies discussed above suggest that this may be the case as researchers have observed that trades made under Rule 10b5-1 plans that occur before the next earnings announcement are abnormally profitable. 39 Some corporate insiders also undertake other actions, such as cancellation of sales scheduled under Rule 10b5-1 plans ahead of favorable issuer disclosures, which appears consistent with an effort to exploit material nonpublic information. 40 38 See Henderson et al., supra note 19, at 1289. 39 See Gaming the System, supra note 19 (“[P]lans that execute a trade in the window between when the plan is adopted and that quarter's earnings announcement anticipate large losses and foreshadow considerable stock price declines”). 40 See Jagolinzer, supra note 19, at 235 (observing that there is evidence “that participants terminate sales plans before positive shifts in firm returns”); Mavruk & Seyhun, supra note 19, at 120, 125 (noting patterns of trading consistent with cancellation of some planned trades are abnormally profitable). Based on our review of the data sources used in the sources cited, we understand them to use the term “earnings announcement” to refer to the earliest of quarterly or annual reporting or other earnings announcements for which the issuer furnishes a corresponding Form 8-K. To address concerns that certain corporate insiders misuse Rule 10b5-1 by adopting and trading under trading arrangements despite their awareness of material nonpublic information, and in light of the evidence that suggests that trading arrangements that commence close in time to the plan's adoption and prior to an earnings announcement are more likely to result in abnormal returns, the Commission proposed requiring insiders to wait a period of time before trading under a new (or modified) plan could commence. Although many companies already impose such a cooling-off period for their own insiders, 41 not all do so, and, furthermore, among those that have a cooling-off period, there is little uniformity with respect to the duration of such periods. The Commission proposed a 120-day cooling-off period for officers and directors because such a period would extend beyond the fiscal quarter 42 in which the trading arrangement is established, meaning that trading generally would not occur under a Rule 10b5-1 plan adopted during a particular quarter until after the registrant announced its financial results for that quarter. Although the cooling-off period proposed by the Commission for officers and directors may have been longer than the cooling-off period used by many issuers or recommended by certain financial advisors, the Commission believed that the proposed duration would deter insiders from exploiting material nonpublic information for the relevant quarter. In addition, the Commission noted that a 120-day cooling-off period would align with the recommendations of a wide range of commentators. 43 41 This practice suggests that many companies have concluded that in general a cooling-off period, rather than individualized efforts to identify instances where an executive is aware of material nonpublic information, strikes an appropriate balance of precision, cost of implementation, and investor confidence. 42 Quarters are about 90 days long and public reporting companies are required to disclose their quarterly results no later than 40 or 45 days after the end of their fiscal quarter, depending on their filing status. See 17 CFR 249.308(a). Nevertheless, companies on average disclose their quarterly results within 30 days of the end of the fiscal quarter. See Morgan Stanley & Shearman & Sterling LLP, supra note 29. 43 See IAC Recommendations, supra note 22 (recommending a cooling off period of four months); Gaming the System, supra note 12, at 3 (recommending a minimum cooling-off period and noting that “[a] cooling-off period of four to six months . . . is supported by the data in our sample”); letter from Senators Elizabeth Warren, Sherrod Brown and Chris Van Hollen supra note 17 (recommending a cooling off period of four to six months). Under the proposed amendments, the cooling-off periods would have applied to directors and “officers” (as defined in Rule 16a-1(f)) of the issuer, as well as to an issuer that structures a share repurchase plan as a Rule 10b5-1 plan, although in the latter case the Commission proposed a shorter, 30-day cooling-off period. This requirement would prevent directors, officers, and issuers who might be aware of material nonpublic information from adopting or modifying a trading arrangement and trading immediately pursuant to the arrangement. The proposed cooling-off period also was intended to discourage issuers, directors, and officers from selectively terminating or cancelling a planned trade under a Rule 10b5-1 plan because any subsequent trades upon the adoption of a new or modified plan would also be subject to a new cooling-off period. The Commission noted that applying a cooling-off period to directors and “officers” as defined in Rule 16a-1(f) was appropriate because such individuals are more likely than others to be aware of material nonpublic information in the general course of events, and also more likely to be involved in making or overseeing key corporate decisions that have the potential to affect the issuer's stock price, including decisions about the timing of the disclosure of such information. 44 The Commission also requested comment, however, on whether the Rule 16a-1(f) definition was the appropriate definition of “officer” for purposes of the proposed amendment and further inquired whether the cooling-off period should apply to all traders who rely on the Rule 10b5-1(c)(1) affirmative defense. 45 44 See O'Hagan, 521 U.S. at 651-52; Chiarella, 445 U.S. at 227; Steginsky v. Xcelera Inc., 741 F.3d 365, 370 n.5 (2d Cir. 2014); see also Colby v. Klune, 178 F.2d 872 (2d Cir. 1949). 45 Proposing Release, supra note 22, at 17. In addition, the Commission stated that applying a cooling-off period to issuers may help address the concern that issuers may conduct stock buybacks while aware of material nonpublic information. For example, corporate insiders who are aware of positive material nonpublic information can cause the issuer to buy its stock at a lower price from current shareholders who are unaware of this information because, once the information is publicly disclosed, the issuer's share price may increase. The Commission proposed a 30-day cooling-off period for issuers to help reduce the likelihood of this potential abuse and promote investor confidence. The Commission also proposed a note to Rule 10b5-1(c)(1) stating that any modification or amendment to a prior contract, instruction, or written plan would be deemed to be the termination of such prior contract, instruction, or written plan, and the adoption of a new contract, instruction, or written plan. 46 46 The proposed note would have codified prior Commission guidance on Rule 10b5-1(c)(1)(i)(C). See infra note 122 and accompanying text. b. Comments on the Proposed Amendments Commenters expressed a range of views on the proposed cooling-off periods. Many commenters expressed general support for a cooling-off period for directors and officers. 47 Several of these commenters supported the proposed cooling-off period of 120 days. 48 For example, one commenter agreed that the proposed 120-day cooling-off period would deter officers and directors from adopting or modifying a Rule 10b5-1 plan while aware of material nonpublic information and prevent insiders from gaming Rule 10b5-1 plans by opportunistically canceling trades or modifying plans. 49 In addition, in expressing the view that this duration was appropriate, another commenter stated the concern that, given that directors and officers are more likely than other traders to be aware of material nonpublic information and involved in making or overseeing key corporate decisions that could affect the stock price, they could be involved with decisions regarding the timing of a range of issuer disclosures, including disclosures related to a merger or acquisition, departure of a named executive officer, or the financial statements. 50 Finally, another commenter, who did not support the proposed duration of the cooling-off period, nonetheless asserted that a cooling-off period would increase investor confidence that insiders were not using Rule 10b5-1 plans to benefit from nonpublic material information. 51 47 See, e.g., letters from American Federation of Labor and Congress of Industrial Organizations (“AFL-CIO”), Better Markets, Colorado Public Employees' Retirement Association (“CO PERA”), Council of Institutional Investors (“CII”), Cravath, Swaine & Moore LLP (“Cravath”), Davis Polk & Wardwell LLP (“Davis Polk”), DLA Piper (“DLA”), Fenwick & West (“Fenwick”), International Corporate Governance Network (“ICGN”), Craig M. Lewis et al. (“Lewis”), Manulife Financial Corp. (“Manulife”), Committee on Securities Law of the Business Law Section of the Maryland State Bar (“MD Bar”), North American Securities Administrators Association, Inc. (“NASAA”), New York City Comptroller (“NYCC”), NYSE Group, Inc. (“NYSE”), PNC Financial Services Group, Inc. (“PNC”), Public Citizen, Anthony O'Reilly (“O'Reilly”), Securities Industry and Financial Markets Association (“SIFMA”) (letter dated Apr. 1, 2022, from Kevin Carroll, “SIFMA 3”), and Sullivan & Cromwell LLP (“Sullivan”). 48 See, e.g., letters from AFL-CIO, CII, CO PERA, ICGN, Public Citizen, O'Reilly, and NASAA. 49 See letter from CII. 50 See letter from ICGN. 51 See letter from Manulife. At the same time, many commenters, including several commenters that expressed support for a cooling-off period for directors and officers, contended that the duration of the proposed cooling-off period was unnecessarily long. 52 For example, some of these commenters asserted that a 120-day cooling-off period would discourage insiders from adopting Rule 10b5-1 plans 53 and therefore result in larger, more concentrated volumes of insider-directed trades taking place during trading windows rather than being spread out under a Rule 10b5-1 plan, which could increase market volatility. 54 52 See, e.g., letters from Federal Regulation of Securities Committee of the Business Law Section of the American Bar Association (“ABA”); ACCO Brands Corp. (“ACCO”); Chevron Corp. (“Chevron”); Cravath; Davis Polk; DLA; Dow Inc. (“Dow”); Empire State Realty Trust (“Empire Trust”); FedEx Corporation (“FedEx”); Fenwick; HR Policy Association Center on Executive Compensation (“HRPA”); Jones Day; Kirkland & Ellis (“Kirkland”); Manulife, National Association of Manufacturers (“NAM”); National Venture Capital Association (“NVCA”); New York City Bar Association (“NYC Bar”); NYSE; Paul, Weiss, Rifkind, Wharton & Garrison LLP (“Paul Weiss”); PNC; Quest Diagnostics Inc. (“Quest”); William Quinn (“Quinn”); US Chamber of Commerce (letter dated Apr. 1, 2022) (“Chamber of Chamber 2”); American Property Casualty Insurance Association, American Securities Association, Center On Executive Compensation, U.S. Chamber of Commerce, Nareit, National Association of Manufacturers, and NIRI: The Association for Investor Relations (“Coalition Letter”); Shearman & Sterling LLP (“Shearman”); SIFMA 3; Simpson Thacher & Bartlett LLP (“Simpson”); Sullivan; and Wilson, Sonsini, Goodrich & Rosati (“Wilson Sonsini”). 53 See letter from NYC Bar. This comment letter was initially submitted in Apr. 2022 and posted on the Commission website on Oct. 2022. The delayed posting of this comment letter to the website is unrelated to the technological error that resulted in the Oct. 2022 reopening of the comment files of certain other Commission releases. See Resubmission of Comments and Reopening of Comment Periods for Several Rulemaking Releases Due to a Technological Error in Receiving Certain Comments, Release Nos. 33-11117, 34-96005, IA-6162, IC-34724; File Nos. S7-32-10, S7-18-21, S7-21-21, S7-22-21, S7-03-22, S7-08-22, S7-09-22, S7-10-22, S7-13-22, S7-16-22, S7-17-22, S7-18-22 (Oct. 7, 2022). In Apr. 2022, the submitter of this comment letter withdrew the comment letters submitted on this rule and the proposing release for another rule and submitted replacement comment letters. Staff posted the replacement comment letter on the other rule, but inadvertently failed to post the replacement comment letter for the Proposing Release until the submitter of the comment letter again contacted Commission staff in Oct. 2022. 54 See, e.g., letters from Chamber of Commerce 2, Davis Polk, DLA, Fenwick, NYSE, SIFMA 3, Simpson, and Sullivan. Some of these commenters recommended alternative durations for the cooling-off period for directors and officers. 55 Shorter alternatives ranged from a cooling-off period of 30 days from the date of adoption of a Rule 10b5-1 plan, 56 which some commenters asserted is a common practice many issuers have implemented, 57 to a maximum cooling-off period of 90 days after the adoption of a Rule 10b5-1 plan. 58 Other commenters recommended shortening the cooling-off period, in part, by taking into account when the issuer publishes its earnings announcement or results. These commenters suggested that the cooling-off period last until: (1) the earlier of 60 days or one business day after the earnings release for the fiscal quarter of adoption; 59 (2) the earlier of 60 days or 48 hours after the next release of annual or quarterly results; 60 (3) 90 days or fewer or, if the officer or director enters into the Rule 10b5-1 plan within five trading days of an earnings release, 30 days; 61 (4) the earlier of 90 days or the publication of results for the quarter during which the plan was adopted; 62 (5) one trading day after the next earnings announcement covering at least one fiscal quarter and filed or furnished with an Exchange Act report; 63 and (6) the earlier of 30 days or the release of quarterly earnings with an exception for plans entered into within five business days after an earnings release. 64 Another commenter, however, urged the Commission to consider lengthening the cooling-off period to 180 days. 65 55 See, e.g., letters from ACCO, Chamber of Commerce 2, Dow, DLA, Fenwick, NAM, NYSE, Paul Weiss, Quinn, Simpson, and Sullivan. 56 See, e.g., letters from ACCO, Chamber of Commerce 2, DLA, Fenwick, NYC Bar, NYSE, Paul Weiss, Quinn, and Sullivan. 57 See, e.g., letters from Chamber of Commerce 2, NYSE, Paul Weiss, and Simpson. 58 See, e.g., letters from Chevron, Dow, and Cleary, Gottlieb, Steen & Hamilton LLP (“Cleary”). 59 See letter from ABA. 60 See letter from Manulife. 61 See letter from Dow. 62 See letter from Cleary. 63 See letter from Davis Polk. 64 See letter from NAM. 65 See letter from Senators Elizabeth Warren, Chris Van Hollen, Tammy Baldwin, and Bernard Sanders (“Sen. Warren et al.”). Among commenters who recommended that we link the end of the cooling-off period to the release of earnings or other financial results, most did not specify whether the end of the cooling-off period should be tied to the publication of such results in the form of a quarterly report on Form 10-Q or annual report on Form 10-K, or instead to the announcement of such results in a Form 8-K, that is filed or furnished with the Commission. 66 Some commenters suggested that the end of the cooling-off period should be tied to the “next” (relative to the adoption or modification of the Rule 10b5-1 plan) such release; 67 we understand that if an earnings announcement accompanied by a Form 8-K is made, it typically precedes the filing of a Form 10-Q or Form 10-K. One commenter suggested that the end of the cooling-off period should be tied to the earlier of the release of financial results or the start of the issuer's open trading window under the insider's trading policy. 68 66 See, e.g., letters from ABA, Cleary, and PNC. 67 See, e.g., letters from Davis Polk, DLA, and Simpson. 68 See letter from DLA; see also letter from Quest (suggesting that there is no incremental material nonpublic information disclosed in a Form 10-Q when an issuer has already released an earnings announcement). Finally, some commenters asked the Commission to provide exceptions from the cooling-off period. For example, one commenter asked that the cooling-off period not apply in cases of financial hardship for the officer or director, such as an unanticipated financial liability that is unrelated to the trading of securities. 69 Another commenter asked the Commission to exclude venture capital funds from the cooling-off period condition, or to provide a shorter cooling-off period for venture capital funds. 70 69 See letter from Wilson Sonsini. 70 See letter from NVCA. Many commenters opposed a cooling-off period for issuers, 71 largely due to issuers' use of Rule 10b5-1 plans in connection with share repurchase plans under Exchange Act Rule 10b-18. 72 One of these commenters stated that Rule 10b5-1 plans allow issuers to more effectively coordinate and execute their share repurchases during open and closed trading windows. 73 Given this practice, several commenters contended that the proposed cooling-off period would limit the usefulness of Rule 10b5-1 plans and impede the ability of issuers to effectively carry out share repurchases and other transactions used by issuers to manage their capital. 74 Some of these commenters stated the concern that a cooling-off period for issuers could increase market volatility as issuer repurchase activity would be limited to much shorter trading windows. 75 71 See, e.g., letters from the Bank Policy Institute and the American Bankers Association (“BPI”), Home Depot, Inc. (“Home Depot”), Dow, Chevron, Empire Trust, FedEx, International Bancshares Corporation (“IBC”), Manulife, NYSE, HudsonWest LLC (“HudsonWest”), Guzman & Company (“Guzman”), Quest, Coalition Letter, Chamber of Commerce 2, HRPA, Lewis, NAM, NVCA, NYC Bar, Society for Corporate Governance (“SCG”), SIFMA (letter dated Apr. 1, 2022, from Joseph P. Corcoran) (“SIFMA 2”), ABA, Cravath, Davis Polk, Dorsey & Whitney LLP (“Dorsey”), Fenwick, Jones Day, Kirkland, Paul Weiss, Simpson, Shearman, Sullivan, Wilson Sonsini, and Vistra Corp. (“Vistra”). 72 17 CFR 240.10b-18. Rule 10b-18 provides issuers with a safe harbor from liability for manipulation under Sections 9(a)(2) and 10(b) of the Exchange Act [15 U.S.C. 78i(a)(2) and 78j(b)] when they repurchase their common stock in the market in accordance with the Rule's manner, timing, price, and volume conditions. 73 See letter from Simpson. 74 See, e.g., letters from BPI, Home Depot, Dow, Chevron, FedEx, Quest, Chamber of Commerce 2, Coalition Letter, NAM, SCG, SIFMA 2, ABA, Cravath, Davis Polk, Jones Day, Paul Weiss, Simpson, Shearman, and Wilson Sonsini. 75 See, e.g., letters from NYSE and Sullivan. In addition, several of these commenters asserted that a cooling-off period for issuers was unnecessary because existing safeguards under the Federal securities laws and market practices protect investors from issuer abuse of Rule 10b5-1 plans. 76 Some commenters contended the Commission did not set forth any evidence of issuers abusing Rule 10b5-1 trading arrangements to justify this cooling-off period. 77 76 See, e.g., letters from Cravath, Davis Polk, Dow, FedEx, Fenwick, Lewis, NAM, Paul Weiss, Quest, SCG, SIFMA 2, and Wilson Sonsini. 77 See, e.g., letters from BPI, Davis Polk, Cravath, and Wilson Sonsini. In contrast, other commenters supported a cooling-off period for issuers. 78 One of these commenters contended that the proposed 30-day period was too short to address the concerns underlying the proposal and advocated for a 120-day cooling-off period for issuers, similar to the proposed cooling-off period for directors and officers. 79 78 See, e.g., letters from CO PERA, CII, ICGN, NYCC, Better Markets, Public Citizen, Stern Tannenbaum Bell LLP (“Stern”), ACCO, PNC, NASAA, and Sen. Warren et al. 79 See letter from NASAA. Several commenters urged the Commission to clarify that immaterial or administrative modifications to an existing Rule 10b5-1 trading arrangement would not constitute a modification that triggers a new cooling-off period. 80 For example, some commenters asserted that modifications should not trigger the cooling-off period unless they address the pricing, amount of securities to be purchased or sold, and/or the timing of purchases or sales. 81 In addition, another commenter urged the Commission not to trigger a new cooling-off period upon a modification of a Rule 10b5-1 plan. 82 80 See, e.g., letters from Chamber of Commerce 2, NAM, SIFMA 2, ABA, Cleary, Cravath, Davis Polk, DLA, Fenwick, and Sullivan. 81 See, e.g., letters from Cravath, Cleary, Davis Polk, and DLA. 82 See letter from NAM. We also received comment on whether some or all of the proposed amendments should apply only to directors and officers, as defined in Rule 16a-1(f), or whether they should also apply to other insiders or traders more broadly. Several commenters indicated that the proposed cooling-off period and limitations on overlapping and single-trade plans should apply to all traders or all natural persons. 83 One of these commenters generally observed that the limitations should apply broadly because other officers and employees can potentially have access to and trade on material nonpublic information. 84 Another commenter suggested that any individual involved in a company's trading program or “corporate decisions” should be subject to the cooling-off requirement. 85 Two commenters also suggested that we extend the new Item 408(a) reporting obligation to cover any employee who adopts a 10b5-1 plan. 86 83 See letters from Better Markets, NASAA; see also letter from Sen. Warren et al. (suggesting the limitation apply to “all employees”). 84 See letter from NASAA. 85 See letter from ICGN. 86 See letters from BrilLiquid LLC (“BrilLiquid”) and NASAA. Other commenters opposed any expansion of the amendments beyond directors and Rule 16a-1(f) officers. 87 Some of these commenters agreed with our observation that these officers were those most likely to have access to material nonpublic information. 88 Two commenters argued that trading by employees other than Rule 16a-1(f) officers is unlikely to adversely affect financial markets because of the limited authority of these employees over corporate decisions. 89 One of these commenters further observed that because other employees do not generally file Form 4, their trading activities are unlikely to affect public confidence in a company's securities. 90 Two other commenters suggested that non-executive employees are particularly likely to need to liquidate and diversify their company stock holdings, and so would be disproportionately harmed by limitations such as the cooling-off period. 91 One commenter also stated that making the affirmative defense more difficult to establish would reduce the likelihood that companies would require their non-executive employees to use Rule 10b5-1 plans, reducing the benefits of the rule. 92 87 See letters from Chamber of Commerce 2, CII, Cravath, Davis Polk, NAM, SCG, and SIFMA. 88 See letters from CII, Cravath, and SIFMA. 89 See letters from Cravath and Davis Polk. 90 See letter from Davis Polk. 91 See letters from Chamber of Commerce 2 and NAM. 92 See letter from Davis Polk. c. Final Amendment After consideration of the comments, we are adopting a modified cooling-off period that will apply to all persons other than the issuer, with directors and “officers” (as defined in Rule 16a-1(f)) 93 of the issuer subject to a longer cooling-off period than applies to other persons (other than the issuer) who rely on the Rule 10b5-1(c)(1) affirmative defense. 93 We are declining the request from one commenter to adopt a definition of “officer or director” that would expressly exclude certain venture capital funds whose partners may serve as a director on the board of an issuer. As we have noted, Rule 10b5-1 does not alter the law of insider trading and any potential liability under the circumstances described by the commenter would be determined according to established principles. We also are not convinced that the business circumstances of such a director are unique and thus warrant a distinctive set of affirmative defense requirements. We further note that Rule 10b5-1(c)(2) can provide an alternative affirmative defense for persons other than natural persons. Under the final rule, a director or “officer” (as defined in Rule 16a-1(f)) who adopts (including a modification of) a Rule 10b5-1 plan would not be able to rely on the Rule 10b5-1 affirmative defense unless the plan provides that trading under the plan will not begin until the later of (1) 90 days after the adoption of the Rule 10b5-1 plan or (2) 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). 94 94 The good faith requirement in Rule 10b5-1(c)(1)(ii) will continue to apply as a condition of the affirmative defense. This cooling-off period is intended to deter opportunistic trading that may be occurring under the current rule and, by extension, as noted by commenters, it may increase investor confidence that directors and officers are not using Rule 10b5-1 plans for such purposes. 95 The purpose of a cooling-off period is to provide a separation in time between the adoption of the plan and the commencement of trading under the plan so as to minimize the ability of an insider to benefit from any material nonpublic information. In addition, academic studies documenting abnormal trading results indicate that opportunistic trading may be occurring notwithstanding current Rule 10b5-1(c)(1) and that certain corporate insiders are earning profits unavailable to others. 96 For example, directors, officers, and other corporate insiders commonly have access to preliminary quarterly financial data before it is released to the public. As academic commentary has observed, “[q]uarterly earnings announcements . . . offer the most important and frequent dates of material information disclosure by firms.” 97 A cooling-off period could serve to avoid a situation in which, for example, an insider adopts a Rule 10b5-1 plan while aware of likely directional trends in quarterly results and trades under the plan before the disclosure of such information. 95 See, e.g., letters from AFL-CIO, CII, and Manulife. 96 See supra note 35 and accompanying text. 97 See U. Ali & D. Hirshleifer, Opportunism as a Firm and Managerial Trait: Predicting Insider Trading Profits and Misconduct, 126 J. Fin. Econ. 490, 491 (2017). In addition, as the Proposing Release indicated, we are concerned that this type of opportunistic trading could occur in contexts other than in connection with quarterly results. For example, as a commenter noted, corporate insiders may be aware of material nonpublic information related to other types of upcoming events, such as a potential merger, acquisition, or departure of a named executive officer, and, with such information, adopt a Rule 10b5-1 plan and trade under it before that information is made public. 98 98 See letter from ICGN; see also Henderson et al., supra note 19, at 1301 (noting that 25% of the price changes observed in their data are the results of corporate news events other than earnings). Accordingly, the cooling-off period for officers and directors that we are adopting includes both a fixed (90-day) and a variable (two business days after the disclosure of the issuer's financial results) component. This cooling-off period is targeted at reducing information asymmetries in general as well as providing separation in time between adoption of the plan and trading under the plan so as to reduce the ability of corporate insiders to trade on material nonpublic information. The approach we are adopting takes into account considerations raised by commenters. Some commenters observed that we could accomplish our goals by linking the end of the cooling-off period to the release of earnings results for the current quarter instead of a fixed period of days, and suggested that we adopt a variable cooling-off period that ends one or two business days following the issuer's next reporting of quarterly results. 99 Others suggested that we adopt a cooling-off period that would be the earlier of this date or some other fixed period, such as 60 days. 100 In addition, while several commenters supported a 120-day cooling-off period, 101 other commenters expressed concerns that this duration would discourage the use of Rule 10b5-1 plans. 102 We agree that, in some cases, a full 120-day cooling-off period would be longer than needed to prevent the opportunistic trading with which we are concerned. Therefore, we have shortened the cooling off period for officers and directors from 120 days to the later of 90 days or the second business day following disclosure of the issuer's financial results for the fiscal quarter in which the plan was adopted. 103 This will result in a shortened cooling-off period, relative to what was proposed, when such results are disclosed sooner than 120 days following adoption of the plan. 99 See supra note 63. 100 See supra note 59. 101 See, e.g., letters from AFL-CIO, CII, CO PERA, ICGN, Public Citizen, O'Reilly, and NASAA. 102 See, e.g., letters from Chamber of Commerce 2, Davis Polk, DLA, Fenwick, SIFMA 3, Simpson, and Sullivan. 103 If financial results are disclosed more than 120 days after adoption of the plan, 120 days would be the maximum duration of the required cooling-off period. In those circumstances, we agree with commenters who asserted that a 120-day cooling-off period would be an appropriate duration to better ensure that a corporate insider would not benefit from material nonpublic information related to earnings. See, e.g., letters from AFL-CIO, and CII. The final rule would not foreclose issuers that may choose to impose a longer cooling-off period. In addition, to enhance clarity, the final rule provides that an issuer will be considered to have disclosed its financial results at the time it files a Form 10-Q or Form 10-K, or, in the case of foreign private issuers, files a Form 20-F or furnishes a Form 6-K that discloses the financial results. We disagree with commenters who suggested that there cannot be material nonpublic information contained in a Form 10-Q or similar filing when the issuer has already announced its earnings results. 104 For example, some academic researchers have found that information in periodic filings affects stock prices for issuers that also made an earlier earnings announcement for the same quarter. 105 104 See letters from DLA and Quest. 105 See Erik R. Holzman et al., Is All Disaggregation Bad for Investors? Evidence from Earnings Announcements, 26 Rev. Acctg. Studies 520, 540-41 (2021); Yifan Li et al., Opportunity Knocks But Once: Delayed Disclosure of Financial Items in Earnings Announcements and Neglect of Earnings News, 25 Rev. Acctg. Studies 159 (2020); Bin Miao et al., Limited Attention, Statement of Cash Flow Disclosure, and the Valuation of Accruals, 21 Rev. Acctg. Studies 473 (2016). Some earlier work finds that there are incremental market responses to Form 10-K filings but not to Form 10-Q filings. Edward Xuejun Li & K. Ramesh, Market Reaction Surrounding the Filing of Periodic SEC Reports, 84 Acctg. Rev. 1171 (2009). Further, the cooling-off period for officers and directors includes a two-business day period following the disclosure of the issuer's financial results, which provides a short interval for investors and other market participants to analyze those results. 106 Although some commenters suggested that the next business day after results are released would be adequate to ensure that market participants have access to the same information as the corporate insider, we have adopted a cooling-off period that extends to the second business day after results are released, as other commenters suggested. 107 We disagree with those commenters who suggested that a next-day approach would provide all market participants with the same access as the corporate insider, as it may be challenging to obtain and analyze the full details of an issuer's quarterly results within one day. In some cases, allowing trading such a short period after release would effectively authorize the director or officer to trade in the first minutes after that information's availability to the market. 106 See SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 854 & n.18 (2d Cir. 1968) (noting that the “permissible timing of insider transactions after disclosures of various sorts is one of the many areas of expertise for appropriate exercise of the SEC's rule-making power”). 107 See supra note 63. While some commenters suggested that the cooling-off period need only take into account the publication of an issuer's quarterly results, we find that including a minimum duration of 90 days for the cooling-off period is necessary to deter the full scope of opportunistic trading that we intend to address and appropriately balances the comments, academic studies, and the purpose of an affirmative defense. This minimum period is a reduction from the proposed 120-day cooling-off period, in response to comments received stating that the length of the proposed cooling-off period could discourage corporate insiders from using Rule 10b5-1 plans, although we acknowledge that some of these commenters requested a shorter period than we are adopting. 108 Given that directors and officers may be aware of material nonpublic information related to upcoming events other than quarterly results, a cooling-off period based solely on the timing of the publication of quarterly results would be too narrow to accomplish the objective of assuring that trading under these plans is not on the basis of material nonpublic information. 109 For example, as noted above, directors and officers may be aware of material nonpublic information about a potential merger, acquisition, or departure of a named executive officer. 110 108 See, e.g., letters from Fenwick, Simpson, and Sullivan. 109 See letter from ICGN. 110 See Jagolinzer, supra note 18, at 234 (finding that 10b5-1 plan adoption is associated with adverse news events occurring an average of 72.2 days after adoption). Further, a cooling-off period that is linked only to the release of the next quarterly results (plus two business days) would in some cases cause the time between plan adoption and initial trading to be very short, such as two to three days, raising the risk that directors and officers could easily adopt and trade under a Rule 10b5-1 plan while aware of material nonpublic information that is unrelated to the earnings information that has been released. For all of these reasons, we are requiring a minimum cooling-off period of 90 days for officers and directors regardless of the date of the release of the subsequent quarter's results. 111 111 We also note that, consistent with this view, many commenters stated that a cooling-off period for a fixed period of days ( i.e., one which in some cases would necessarily extend beyond release of the next quarter's results) is a common industry practice. We acknowledge that the cooling-off period that we are adopting for directors and officers is longer than many of the cooling-off periods recommended by several commenters and that academic studies do not provide a precise estimate of the length of time a cooling-off period should be to prevent insiders from realizing abnormal returns on their trades. 112 However, we have tailored the cooling-off period to provide a greater separation in time between plan adoption and commencement of trading under the plan to better ensure that the affirmative defense is available only in situations in which material nonpublic information, including information other than earnings information, did not factor into the trading decision. Finally, although a commenter recommended increasing the length of the cooling-off period, 113 we decline to do so to minimize the risk of excessively long cooling-off periods, which, as commenters stated, may discourage the use of Rule 10b5-1 plans. 112 One study found that abnormal returns persist on average among all observed Rule 10b5-1 plans for up to 60 days after plan adoption, but that abnormal returns for single-trade plans, which represent about half of the observed Rule 10b5-1 plans, persist for 120 days or more. See Gaming the System, supra note 20, at 2-3. The authors conclude that a cooling-off period of four to six months would be “supported by our data,” id. at 3, although the study did not consider whether this would still be the case if there were also limits on single-trade plans. A second study consistently found abnormal returns for the 60-day period after a Rule 10b5-1 plan is adopted, and found such returns under two of the three statistical methods employed for the 90-day period after plan adoption. See McGinty & Maremont supra note 32. Another study reported evidence that insiders trade on information that on average has value for between three and six months, and the authors suggest that a cooling-off period of that length would curtail these trades. See Mavruk & Seyhun, supra note 19 at 136, 163, 179. And another study found that insiders continue to earn abnormal returns after the fifth planned trade over a 350-day period, suggesting that Rule 10b5-1 plans do not on average involve very short-run information. See Jagolinzer, supra note 19, at 234-35. It also found that Rule 10b5-1 plans are statistically associated with negative news items occurring an average of 72.2 days after a plan is established. 113 See supra note 65. Moreover, while we recognize that some issuers impose their own cooling-off periods, those cooling-off periods are voluntary and vary in duration. Including a cooling-off period as a condition of the affirmative defense will provide greater consistency for Rule 10b5-1 plans and thereby help address the investor protection concerns that motivated the adoption of Rule 10b5-1. In choosing an appropriate cooling-off period for officers and directors, we are mindful of some commenters' concerns that a cooling-off period might reduce the appeal of Rule 10b5-1 plans, which could have undesirable effects on investor confidence. 114 We expect, however, that the period we are adopting will not have a significant impact on directors' and officers' desire to satisfy the requirements of the affirmative defense. Directors and officers have strong incentives to rely on a Rule 10b5-1 plan, due to the potential effects of the affirmative defense on the likelihood and outcome of any litigation. In addition, many issuers maintain trading windows that may restrict the trading activity of corporate insiders during an issuer's “closed window” period except through the use of a Rule 10b5-1 plan, and such periods may cover significant portions of the year. Similarly, Section 306 of the Sarbanes-Oxley Act, 115 and our implementing regulations, 116 prohibit most trades during issuer pension blackout periods other than through the use of a plan that satisfies the affirmative defense conditions of Rule 10b5-1(c). 117 Accordingly, for these reasons, we have selected a cooling-off period for officers and directors that we conclude strikes the proper balance in deterring insider trading without unduly discouraging the adoption of Rule 10b5-1 plans. 114 See, e.g., letters from Chamber of Commerce 2, NAM and SIFMA. 115 15 U.S.C. 7244. 116 See 17 CFR 245.100 et seq. 117 See 17 CFR 245.101(c)(2). Our rules also provide trades made pursuant to a Rule 10b5-1 plan more flexibility with respect to when an insider must report the trade on Form 4. See 17 CFR 240.16a-3(g)(2); 17 CFR 240.16a-3(g)(4). We are not imposing the same cooling-off period required for directors and officers to other persons, as some commenters suggested, 118 Instead, we are requiring a cooling-off period of 30 days for persons other than directors, officers or the issuer. We generally agree that persons other than directors and officers often have access to material nonpublic information. At the same time, we recognize that each of the proposed requirements of the affirmative defense may impose costs on such persons, whose needs for diversification and liquidity may differ from those of officers and directors, as some commenters noted. 119 In particular, we recognize that some persons will experience meaningful delays in their ability to liquidate a stock position, which may cause some financial strain particularly for employees who may lack the resources and access to alternative liquidity sources available to directors and officers. Therefore, we disagree with commenters who urged us to impose the same cooling-off period required for directors and officers to all other traders. 118 See letters from Better Markets, NASAA, and Senator Warren et al. 119 See letters from Chamber of Commerce 2 and NAM. The 30-day cooling-off period we are adopting for persons other than directors, officers, or the issuer reflects a balancing of the considerations we have outlined above. We believe that when any insider enters into a Rule 10b5-1 plan, a period of time should elapse before trading under the plan can commence to help ensure that a trade is not on the basis of material nonpublic information. At the same time, we recognize the heightened burdens a cooling-off period may impose on insiders who are not directors or officers, and who may have more limited financial resources. In light of these considerations, we have adopted a shorter cooling-off period for persons other than officers and directors that is still long enough to reduce the potential for some opportunistic trades. 120 120 We recognize that we have previously observed that the affirmative defense would be available to an employee who acquires company stock through an employee stock purchase plan or a Section 401(k) plan. See 2000 Adopting Release, supra note8, at 51728. We do not believe that a 30-day cooling-off period will significantly affect non-officer employees' use of such plans, as we think that employees employ these plans primarily to make relatively regular purchases over long periods of time, such that a waiting period of two biweekly pay periods before planned trades can begin will not appreciably affect the employees' preferences. We are not implementing commenters' suggestions to adopt a financial hardship exception from the cooling-off period due to the practical difficulties of administering this type of exception. 121 Assessing financial hardship would require careful scrutiny and balancing of each insider's assets, liabilities, and obligations, and this fact-intensive inquiry would undermine the predictability that the affirmative defense is intended to provide. 121 See supra note 69. In addition, we agree with commenters that only certain types of modifications of an existing Rule 10b5-1 plan should trigger a new cooling-off period. We therefore are adopting a new paragraph to Rule 10b5-1(c)(1) that specifically provides that a modification or change to the amount, price, or timing of the purchase or sale of the securities (or a modification or change to a written formula or algorithm, or computer program that affects the amount, price, or timing of the purchase or sale of the securities) underlying a contract, instruction, or written plan as described in Rule 10b5-1(c)(1)(i)(A) is a termination of such contract, instruction, or written plan, and the adoption of a new contract, instruction, or written plan, and such new adoption will trigger a new cooling-off period. The final amendment codifies prior Commission guidance on existing Rule 10b5-1(c)(1)(i)(C) about the effect of modifications. 122 Under the final amendment, modifications that do not change the sales or purchase prices or price ranges, the amount of securities to be sold or purchased, or the timing of transactions under a Rule 10b5-1 plan (such as an adjustment for stock splits or a change in account information) will not trigger a new cooling-off period. We disagree with the commenter that urged us to not trigger a new cooling-off period upon a modification, because a corporate insider could easily change the key terms of an existing plan at a time when they are aware of material nonpublic information, such as by increasing the sales price to take advantage of favorable news, allowing the insider to profit from such information. 123 122 See 2000 Adopting Release, supra note 8, at 51718 n 111. 123 See letter from NAM. Finally, we are not adopting a cooling-off period for the issuer at this time. In light of the comments we received on this aspect of the proposed rules, we believe that further consideration of potential application of a cooling-off period to the issuer is warranted. 124 Although we are aware that many issuers currently use cooling-off periods in connection with their securities transactions and that such cooling-off periods may significantly mitigate the risk of investor harm, we are also mindful that the use and length of such cooling off periods is not uniform and that the misuse of material nonpublic information by issuers when trading in their own securities can result in significant investor harm because transactions by issuers often involve substantial quantities of securities. We are continuing to consider whether regulatory action is needed to mitigate any risk of investor harm from the misuse of Rule 10b5-1 plans by the issuer, such as in the share repurchase context. We note that, in general, a corporation is considered an insider with regard to its duty to either disclose or abstain when purchasing its own shares on the basis of material, nonpublic information. 125 124 See supra note 71 and accompanying text. 125 See, e.g., McCormick v. Fund Am. Cos., 26 F.3d 896 (9th Cir. 1994) (“Numerous authorities have held or otherwise stated that the corporate issuer in possession of material nonpublic information must, like other insiders in the same situation, disclose that information to its shareholders or refrain from trading with them.”) (citations omitted); Shaw v. Digital Equip. Corp., 82 F.3d 1194, 1203-04 (1st Cir. 1996) (“Courts . . . have treated a corporation trading in its own securities as an `insider' for purposes of the `disclose or abstain' rule.”) (citations omitted); Rogen v. Ilikon Corp., 361 F.2d 260, 266-68 (1st Cir. 1966); Levinson v. Basic Inc., 786 F.2d 741, 746 (6th Cir. 1986), vacated on other grounds, 485 U.S. 224, 108 S. Ct. 978 (1988) (“[c]ourts have held that a duty to disclose [merger] negotiations arises in situations, such as where the corporation is trading in its own stock”); Kohler v. Kohler Co., 319 F.2d 634, 638 (7th Cir. 1963) (the “underlying principles” regarding trading on inside information “apply not only to majority stockholders of corporations and corporate insiders, but equally to corporations themselves”). Other rules promulgated pursuant to Section 10(b) demonstrate that issuers trading in their own stock have a duty to disclose or abstain. For example, Exchange Act Rule 10b-18 provides an issuer with a “`safe harbor' from liability” under Rule 10b-5 under certain circumstances when the issuer is repurchasing its own stock. [17 CFR 240.10b-18]. But, as the Commission has explained, Rule 10b-18 “confers no immunity from possible Rule 10b-5 liability where the issuer engages in repurchases while in possession of favorable, material non-public information concerning its securities.” Purchases of Certain Equity Securities by the Issuer and Others, Release No. 33-6434, 1982 WL 33916 at *2, *16 n.5 (Nov. 17, 1982). 2. Director and Officer Certifications a. Proposed Amendments The Commission proposed to amend Rule 10b5-1(c)(1)(ii) to impose a certification requirement as a condition to the affirmative defense. Under the proposed amendment, if a director or officer (as defined in Rule 16a-1(f)) of the issuer of the securities adopts a new written Rule 10b5-1 plan, such director or officer would be required, as a condition to the affirmative defense, to promptly furnish to the issuer a separate written certification, certifying that at the time of the adoption of the plan: • They are not aware of material nonpublic information about the issuer or its securities; and • They are adopting the plan in good faith and not as part of a plan or scheme to evade the prohibitions of Exchange Act Section 10(b) and Exchange Act Rule 10b-5. In doing so, the Commission indicated that the use of the term “officer” as defined in Rule 16a-1(f) is appropriate for the reasons discussed above with respect to the cooling-off period ( i.e., these individuals are more likely to be aware of material nonpublic information regarding the issuer and its securities, as well as more likely to be involved in making or overseeing corporate decisions about whether and when to disclose information). The Commission intended the proposed certification requirement to reinforce directors' and officers' cognizance of their obligation not to trade or adopt a trading plan while aware of material nonpublic information, their responsibility to determine whether they are aware of material non-public information when adopting Rule 10b5-1 plans, and the fact that the affirmative defense under Rule 10b5-1 requires them to act in good faith and not to adopt such plans as part of a plan or scheme to evade the insider trading laws. The Commission noted in the Proposing Release that the proposed certification involves important considerations, especially because directors and officers are often aware of material nonpublic information. In addition, the Commission clarified that, subject to their confidentiality obligations, directors and officers can consult with experts to determine whether they can make this representation truthfully. Legal counsel can assist directors and officers in understanding the meaning of the terms “material” and “nonpublic information.” 126 The Commission stated, however, that the issue of whether a director or officer has material nonpublic information is an inherently fact-specific analysis. Thus, a director's or officer's completion of the proposed certification would reflect their personal determination that they do not have material nonpublic information at the time of adoption of a Rule 10b5-1 plan. 126 As the Commission has stated previously, we rely on existing definitions of the terms “material” and “nonpublic” established in case law. Information is material if “there is a substantial likelihood” that its disclosure “would have been viewed by the reasonable investor as having significantly altered the `total mix' of information made available.” See Basic v. Levinson, 485 U.S. 224, 231 (1988) (quoting and applying TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976) to the Section 10(b) and Rule 10b-5 context); Rule 405 [17 CFR 230.405] of the Securities Act of 1933 (the “Securities Act”) [15 U.S.C. 77a et seq. ]; Exchange Act Rule 12b-2 [17 CFR 240.12b-2]. Information is nonpublic until the information is broadly disseminated in a manner sufficient to ensure its availability to the investing public generally, without favoring any special person or group. See Dirks v. SEC, 463 U.S. 646, 653-54 & n.12 (1983); SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 854 (2d Cir. 1968), cert. denied, 394 U.S. 976 (1969); Regulation FD [17 CFR 243.101(e)]. For purposes of insider trading law, insiders must wait a “reasonable” time after disclosure before trading. What constitutes a reasonable time depends on the circumstances of the dissemination. In re Faberge, Inc., 45 SEC. 249, 255 (1973) ( citing Texas Gulf Sulphur, 401 F.2d at 854). Under the misappropriation doctrine, a recipient of inside information must make a “full disclosure” to the sources of the information that they plan to trade on or tip the information within a reasonable time before doing so. O'Hagan, 521 U.S. at 655, 659 n.9; see also SEC v. Rocklage, 470 F.3d 1, 11-12 (1st Cir. 2006). The proposed amendment also included an instruction that a director or officer seeking to rely on the affirmative defense should retain a copy of the certification for a period of ten years. The proposed amendments would not require a director, officer, or the issuer to file the certification with the Commission, and the proposed certification would not be an independent basis of liability for directors or officers under Section 10(b) and Rule 10b-5. Rather, the Commission intended the proposed certification to underscore the certifiers' awareness of their legal obligations under the Federal securities law related to trading in the issuer's securities. 127 127 See, e.g., O'Hagan, 521, U.S. at 651-52; Chiarella, 445 U.S. at 227; Steginsky v. Xcelera Inc., 741 F.3d 365, 370 n.5 (2d Cir. 2014). b. Comments on the Proposed Amendments Commenters were divided on the certification requirement. Several commenters generally supported the proposed certification requirement for directors and officers. 128 Some of these commenters agreed that the proposed certification could reinforce directors' or officers' awareness of their legal obligations under the Federal securities law. 129 Another commenter noted that the certification should increase investor confidence. 130 128 See, e.g., letters from CII, CO PERA, ICGN, NYSE, and O'Reilly. 129 See letters from CII and O'Reilly. 130 See letter from ICGN. A number of commenters, however, did not support the proposed certification requirement. 131 Many of these commenters contended that the certification was unnecessary because broker-dealers who execute Rule 10b5-1 plans usually require the director or officer to make similar representations. 132 Several commenters stated that any final rules should clearly provide that the certification does not establish an independent basis of liability for directors or officers under Section 10(b) and Rule 10b-5. 133 Another commenter expressed concern that the language included in the proposed certification indicating that the director or officer is “not aware of material nonpublic information about the issuer or its securities” at the time of adoption of a Rule 10b5-1 plan is inconsistent with Rule 10b-5 and insider trading jurisprudence. 134 This commenter asserted that, for trading activity to be unlawful under Exchange Act Section 10(b)(5), the person trading must not have been aware of material nonpublic information at the time that they made the purchase or sale. This commenter claimed that the affirmative defense should be available if either: (1) the person trading was not aware of any material nonpublic information about the issuer or the security when they entered into the Rule 10b5-1 trading arrangement; or (2) any such material nonpublic information is either public or no longer material at the time of the trade. 131 See, e.g., letters from ACCO, Cravath, Davis Polk, DLA, Kirkland, MD Bar, NAM, Quinn, SGC, Shearman, Sullivan, and Wilson Sonsini. 132 See, e.g., letters from ACCO, Cravath, DLA, Kirkland, Shearman, and Sullivan. 133 See, e.g., letters from Cravath, DLA, Kirkland, Shearman, and Sullivan. 134 See letter from MD Bar. Several commenters suggested alternatives to requiring a separate certification. A few commenters suggested that the proposed amendment should provide that the certification should instead be included in the documentation for the Rule 10b5-1 plan. 135 Another commenter recommended that the Commission rely on the representations that traders make to the broker executing the Rule 10b5-1 plan. 136 135 See, e.g., letters from Cravath and SIFMA 3. 136 See letter from ACCO. c. Final Amendment We are adopting Rule 10b5-1(c)(1)(ii)(C) largely as proposed, but with certain modifications. Under the final rule, if a director or “officer” (as defined in Rule 16a-1(f)) of the issuer of the securities adopts a Rule 10b5-1 plan, as a condition to the availability of the affirmative defense, such director or officer will be required to include a representation in the plan certifying that at the time of the adoption of a new or modified Rule 10b5-1 plan: (1) they are not aware of material nonpublic information about the issuer or its securities; and (2) they are adopting the contract, instruction, or plan in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b-5. 137 137 The rule will not require these personal certifications where a director or officer terminates an existing Rule 10b5-1 plan and does not adopt a new/modified trading arrangement for which the affirmative defense is sought. However, new Item 408 of Regulation S-K will require registrants to disclose whether any director or officer has terminated a Rule 10b5-1 plan or non-Rule 10b5-1 trading arrangement. See infra Section II.B.1. An issuer's insider trading policies and procedures may otherwise govern such plan terminations. See infra at Section II.B.2. Finally, whether an inference can be drawn that an individual unlawfully traded on the basis of inside information may be informed by the manner in which they trade ( see, e.g., SEC v. Warde, 151 F.3d, 42, 47 (2d Cir.1998), including where termination of a Rule 10b5-1 trading arrangement is soon followed by non-Rule 10b5-1 trades in the same security or issuer. Since its adoption, Rule 10b5-1(c)(1) has required, as a condition of the affirmative defense, that a person “demonstrate[]” that they adopted their trading plan before becoming aware of material nonpublic information. The rule has also provided that the affirmative defense only applies when the trading arrangement was entered into in good faith. As discussed above, we are concerned that, notwithstanding these requirements, corporate insiders may be using Rule 10b5-1 plans in ways that are not consistent with the affirmative defense and that harm investors and undermine the integrity of the securities markets. 138 138 See supra Section II.A. The certification condition is intended to reinforce directors' and officers' cognizance of their obligation not to trade or enter into a trading plan while aware of material nonpublic information about the issuer or its securities, that it is their responsibility to determine whether they are aware of material non-public information when adopting Rule 10b5-1 plans, and that the affirmative defense under Rule 10b5-1 requires them to act in good faith and not to adopt such plans as part of a plan or scheme to evade the insider trading laws. As noted in the Proposing Release, we recognize that this certification involves important considerations, especially because directors and officers are often aware of material nonpublic information. Subject to their confidentiality obligations, directors and officers can consult with experts to determine whether they can make this representation truthfully. Legal counsel can assist directors and officers in understanding the meaning of the terms “material” and “nonpublic information.” 139 However, the issue of whether a director or officer has material nonpublic information is an inherently fact-specific analysis. Thus, a director or officer's completion of the proposed certification would reflect their personal determination that they do not have material nonpublic information at the time of adoption of a Rule 10b5-1 plan. 139 See supra note 126. As suggested by some commenters, 140 however, we have modified the final amendment to require that the certification be included in the Rule 10b5-1 plan as representations, rather than prepared as a separate document to be presented to the issuer. Consistent with the intent behind the proposal, this approach will reinforce directors' and officers' cognizance of their obligations discussed above, but will eliminate any additional burden that separate documentation may create. 140 See, e.g., letters from Cravath and SIFMA 3. We are not persuaded, however, that any representations that corporate insiders may already make to broker-dealers obviate the need for a certification. While we note that broker-dealers may require similar representations from directors and officers before executing a Rule 10b5-1 plan, given that there is no requirement that they do so, such practices may not be universal, and the requirement may differ among the various broker-dealers that do require such representations. This rule therefore will better ensure that corporate insiders provide these representations. Further, because issuers must provide disclosure regarding the material terms (other than price) of their directors' and officers' Rule 10b5-1 plans under new Item 408(a) of Regulation S-K as described below, any representation made as part of such plans will also likely be requested by and made available to the issuer to facilitate its compliance with the disclosure requirement. To the extent that directors and officers provide issuers with these representations, they would likely have a greater effect on investor confidence that the officer or director in fact was not aware of material nonpublic information when making the representation due to the issuer's close relationship to its officers and directors. In addition, we are not adopting the proposed instruction that a director or officer seeking to rely on the affirmative defense should retain a copy of the certification for a period of ten years. The burden of establishing that the requirements of the affirmative defense have been met will fall on the corporate insider who wishes to rely on it. As a result, we find that the proposed instruction is unnecessary as directors and officers already have reason to keep accurate records, including the representations, to establish that they have satisfied the conditions of the affirmative defense. Finally, we disagree with the commenter who argued that requiring directors or officers to certify that they lack material nonpublic information at the time of adopting a Rule 10b5-1 plan would be inconsistent with insider trading jurisprudence. 141 Specifically, the commenter argued that the certification should instead allow a trader to certify that any material nonpublic information the trader holds at the time the plan is entered into will be either public or no longer material at the time of the trade. 142 We concur with this commenter that, in general, liability under Rule 10b-5 and Section 10(b) requires a showing that a covered individual was aware of material nonpublic information at the time that a trade was executed. Rule 10b5-1, however, is intended to provide an affirmative defense against liability under circumstances where it is relatively unlikely that a trader will be able to trade on material nonpublic information. As noted earlier, this defense is designed to cover situations where a person can demonstrate that a trade was not based on material nonpublic information. Requiring a representation that a director or officer was not aware of material nonpublic information when adopting a Rule 10b5-1 plan as a condition of the affirmative defense better ensures that the defense is available only in those circumstances. Moreover, by its nature, an affirmative defense does not affect the substance of the underlying prohibition. Individuals who cannot satisfy this condition because they are aware of material nonpublic information at the time that they enter into a Rule 10b5-1 plan may still be able to trade without liability if they lack material nonpublic information at the time that their trade is actually executed. In such circumstances, however, they would not be able to benefit from the affirmative defense provided by Rule 10b5-1(c)(1). We also disagree with the commenter's suggestion that the representation condition we are adopting is a substantive change in what knowledge an individual may possess when adopting a plan that satisfies the conditions of Rule 10b5-1(c)(1). 143 The representation condition rather adds a requirement about how that knowledge is documented for purposes of the affirmative defense. 141 See letter from MD Bar. 142 The Commission is not adopting this alternative because of the difficulties a trader would face in assessing at the time of certification whether the information will become nonpublic or no longer material at the time of their future trading. For example, a trader may not be able to make a determination about whether and when other persons will disclose nonpublic information on behalf of an issuer by a certain time in the future. See 2000 Adopting Release, supra note 8 above (noting that public companies frequently “designat[e] a limited number of persons who are authorized to make disclosures” that can be considered as made “on behalf of an issuer” to comply with the securities laws); see also 17 CFR 243.100, 101(c). The certification condition that the Commission is adopting permits traders to make the relatively more straightforward determination whether they are aware of material nonpublic information at a given point in time. 143 The 2000 adopting release made clear that a person could adopt a plan “while the person was not aware of any inside information.” 2000 Adopting Release at 51737 (emphasis added); accord Selective Disclosure and Insider Trading, Release No. 33-7787 (Dec. 20, 1999) [64 FR 72590 (Dec. 28, 1999)] at 72601 (“If the insider provides the instructions without awareness of any material nonpublic information, the Rule would permit him or her to complete the previously instructed sales plan even if he or she later became aware of inside information.”) (emphasis added). Finally, the Commission also proposed a technical change to incorporate the Preliminary Note to Rule 10b5-1 into Rule 10b5-1(b). 144 The Preliminary Note to Rule 10b5-1 states that the rule defines when a purchase or sale constitutes trading “on the basis of” material nonpublic information in insider trading cases brought under Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, that the law of insider trading is otherwise defined by judicial opinions construing Rule 10b-5, and that Rule 10b5-1 does not modify the scope of insider trading law in any other respect. 145 We are adopting this change as proposed. 144 See Proposing Release at 8689. 145 See 2000 Adopting Release supra note 8 at 51727. The Commission adopted an “awareness” standard in 2000 that provides that a purchase or sale of a security of an issuer is on the basis of material nonpublic information about that security or issuer “if the person making the purchase or sale was aware of the material nonpublic information when the person made the purchase or sale.” 17 CFR 240.10b5-1(b) (2000). The Commission explained at that time that one view was that a trader may be liable for trading while in “knowing possession of information,” while a contrary view was that a trader is not liable unless it is shown that the trader “used” the information for trading. Selective Disclosure and Insider Trading, 65 FR 51716-01, 51726-27 (Aug. 24, 2000). The Commission ultimately adopted the “awareness” standard that balanced considerations of both views while being “closer” to the “knowing possession” standard than to the “use” standard. Id. One commenter suggested that the Commission lacked authority “in the year 2000” to adopt Rule 10b5-1(b)'s awareness standard. See letter from Pacific Legal Foundation. However, none of the modifications the Commission is adopting in this Release would alter the “awareness” standard that the Commission adopted in 2000. See supra at p.8 n. 9. In any event, by prohibiting any manipulative or deceptive device or contrivance “in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or the protection of investors” (Exchange Act Section 10(b)), Congress thereby authorized the Commission to “prescribe legislative rules” like Rule 10b5-1, and courts must accord Rule 10b5-1 “controlling weight.” O'Hagan, 521 U.S. at 673 (quoting Chevron, 467 U.S. at 844). Since its adoption in 2000, courts have appropriately deferred to the Commission's “awareness” standard, holding that the Commission's determination is “entitled to deference.” Royer, 549 F.3d at 899 (applying Chevron ); see also United States v. Rajaratnam, 719 F.3d 139, 157-61 (2d Cir. 2013), cert. denied, 134 S. Ct. 2820 (2014). Furthermore, Congress has expressly authorized the Commission to seek and district courts to impose civil monetary penalties where a person has violated the securities laws by purchasing or selling a security “while in possession of” material nonpublic information. Exchange Act Section 21A(a)(1) [15 U.S.C. 78u-1(a)(1)]; see also Exchange Act Section 20(d) (liability for trading “while in possession of” material nonpublic information) [15 U.S.C. 78t(d)]. The existing law of insider trading provides an established legal framework that makes directors and officers liable if they fraudulently purchase or sell securities on the basis of material nonpublic information in breach of a duty of trust or confidence. Rule 10b5-1 provides that a purchase or sale of a security of an issuer is on the basis of material nonpublic information for purposes of Section 10(b) and Rule 10b-5 if the person making the purchase or sale was aware of the material nonpublic information when the person made the purchase or sale. Rule 10b5-1 expressly “does not modify the scope of insider trading law in any other respect.” We think it is sufficiently clear that the certification would not create an independent basis of liability for insider trading and do not believe it is necessary to amend the rule in this regard, as suggested by several commenters. 146 146 See, e.g., letters from Cravath, DLA, Kirkland, Shearman, and Sullivan. 3. Restricting Multiple Overlapping Rule 10b5-1 Trading Arrangements and Single-Trade Arrangements a. Proposed Amendments Currently, a person is not entitled to the Rule 10b5-1(c)(1) affirmative defense for a trade if they enter into or alter a “corresponding or hedging transaction or position” with respect to the planned transactions. 147 In proposing this requirement, the Commission explained that it was designed to prevent persons from devising schemes to exploit material nonpublic information by setting up pre-existing hedged trading programs, and then canceling execution of the unfavorable side of the hedge, while permitting execution of the favorable transaction. 148 147 See Rule 10b5-1(c)(1). 148 See Selective Disclosure and Insider Trading, Release No. 33-7787 (Dec. 20, 1999) [64 FR 72590 (Dec. 28, 1999)]. In the Proposing Release, the Commission recognized that multiple overlapping plans can be used for these hedging purposes and in other ways that might allow material nonpublic information to “factor into the trading decision” of an insider who had complied with the other provisions of Rule 10b5-1. In particular, currently, a person can adopt and employ multiple overlapping Rule 10b5-1 trading arrangements and exploit material nonpublic information by setting up trades timed to occur around dates on which they expect that the issuer will likely release material nonpublic information (such as earnings releases) and then selectively cancel trades or terminate plans on the basis of material nonpublic information before the information is publicly disclosed. In this same vein, the Commission noted its concern that a person could circumvent the proposed cooling-off period by setting up multiple overlapping Rule 10b5-1 trading arrangements, and deciding later which trades to execute and which to cancel after they become aware of material nonpublic information, but before its release. To address these concerns, the Commission proposed to amend Rule 10b5-1(c)(1) to provide as a condition of the affirmative defense that the person who has entered the plan has no outstanding (and does not subsequently enter into another) Rule 10b5-1 plan for open market purchases or sales of the same class of securities. The Commission also requested comment on whether it was appropriate to exclude multiple trading arrangements for open market purchases or sales of the same class of securities, and specifically asked commenters to weigh in on whether allowing a concurrent trading arrangement for each class of securities would “create incentives for corporate insiders to own different classes of stock.” 149 149 Proposing Release, supra note 23, at 8692 (request for comment number 13). This proposed limitation was designed to eliminate the ability of traders to use multiple plans to strategically execute trades based on material nonpublic information and still claim the protection of the affirmative defense for such trades. The proposed amendment would not apply to transactions where a person acquires (or sells) securities through participation in employee stock ownership plans (“ESOPs”) or dividend reinvestment plans (“DRIPs”), which are not executed by the person on the open market. Participation in these programs is sometimes effected through Rule 10b5-1 plans, and because these transactions are directly with the issuer, the Commission concluded they were less likely to give rise to insider trading concerns. 150 Thus, the Commission proposed this exception to preserve the benefits of flexibility for plan participants with respect to such plans. 150 However, the Supreme Court has explained that lower courts “should consider the extent to which an ERISa-based obligation either to refrain on the basis of inside information from making a planned trade or to disclose inside information to the public could conflict with the complex insider trading and corporate disclosure requirements imposed by the federal securities laws or with the objectives of those laws.” Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409, 429 (2014). Officers and directors also need to follow Regulation Blackout Trading Restrictions, see 17 CFR 245.100 through 245.104. In addition to restricting the use of multiple overlapping trading arrangements, the Commission proposed to amend Rule 10b5-1(c)(1)(ii) to limit the availability of the affirmative defense for a trading arrangement designed to cover a single trade, by providing that the affirmative defense would only be available for one single-trade plan during any 12-month period. Under the proposed amendment, the affirmative defense would not be available for a single-trade plan if the trader had purchased or sold securities pursuant to another single-trade plan within the preceding 12-month period. In proposing this amendment, the Commission noted that some recent research indicated that single-trade plans are consistently loss-avoiding and their adoption often precedes stock price declines. 151 At the same time, the Commission recognized the use of single-trade plans to address one-time liquidity needs. The proposed limitation on single-trade plans was intended to balance accommodating the use of single-trade plans for one-time liquidity needs against the potential for abuse of such plans. 151 See Gaming the System, supra note 20; see also infra Section V.B. b. Comments on the Proposed Amendments Several commenters generally supported both the proposed restriction on multiple overlapping trading arrangements, and the limitation on single-trade plans. 152 One commenter expressed support for the prohibition on multiple overlapping trading arrangements, but did not address single-trade plans. 153 A few commenters supported the proposed prohibition on multiple overlapping trading arrangements but asked the Commission to limit the prohibition to directors and officers, noting that individuals have many legitimate reasons to have overlapping plans, such as gifts and estate-planning transactions, and that directors and officers are the group most likely to have material nonpublic information. 154 152 See, e.g., letters from AFL-CIO, Better Markets, CO PERA, MD Bar, NYCC, NASAA, and Public Citizen. 153 See letter from Kirkland. 154 See, e.g., letters from SIFMA 3 and Sullivan. With respect to single-trade plans specifically, commenters had mixed responses. One commenter expressed support for the limitation on single-trade plans, 155 while another commenter recommended that the Commission eliminate the availability of the Rule 10b5-1 affirmative defense for all single-trade plans. 156 On the other hand, some commenters noted that single-trade plans often have legitimate uses. 157 For example, one commenter maintained that, if adopted, the Commission should provide exceptions for derivative transactions, gifts, estate-planning transactions, and employee benefit plan transactions. 158 Other commenters indicated that the proposed restriction could be evaded by splitting one trade that would be authorized under such a plan into two trades. 159 155 See letter from NYSE. 156 See letter from Sen. Warren et al. 157 See, e.g., letters from Monday.com Ltd (“Monday.com”), BioNJ, SCG, SIFMA 3, Davis Polk, Fenwick, Jones Day, Shearman, and Wilson Sonsini 158 See letter from Sullivan. 159 See letter from Cravath and Davis Polk. In addition, several commenters expressed concern that the proposed restrictions on multiple overlapping and single-trade Rule 10b5-1 plans would negatively impact certain employee compensation plan transactions that are structured as Rule 10b5-1 plans, such as sales of securities used to generate funds to cover the withholding taxes associated with equity vesting and elections under 401(k) plans or employee stock purchase plans that may be structured as Rule 10b5-1 plans (“sell-to-cover transactions”). 160 Some of these commenters asserted that these transactions do not implicate the concerns that the proposed amendment is intended to address because a corporate insider has limited discretion as to the timing or the number of shares sold to cover the tax liability. 161 Other commenters generally stated that under the proposed limitations, insiders could not maintain both a traditional Rule 10b5-1 plan and a plan designed to execute sell-to-cover transactions. 162 160 See, e.g., letters from Fenwick, HP, Monday.com, SCG, Sullivan, and Wilson Sonsini. 161 See, e.g., letters from BioNJ, Monday.com, and Simpson Thatcher. 162 See, e.g., Sullivan and Wilson Sonsini. With respect to the aspect of the proposed definition of “multiple concurrent trading arrangements” under which an insider could establish a separate arrangement for each “class of securities,” several commenters generally supported the limitation on multiple overlapping plans as proposed. 163 One commenter, however, argued that the proposed definition would encourage insiders to establish parallel trading arrangements for common stock, preferred stock, and options. 164 Because the values of these instruments are all highly correlated, the commenter stated, the proposed rule would still allow insiders to opportunistically use material nonpublic information by establishing such parallel arrangements and then cancelling one or more of them. 163 See letters from Better Markets, CII, and CO PERA. 164 See letter from NASAA. Many commenters did not support the proposed restriction on multiple overlapping Rule 10b5-1 plans. 165 Some commenters asserted that this limitation was unnecessary, because, given that the affirmative defense already does not permit adoption of hedged plans in which a person takes offsetting financial positions, there is no additional abusive conduct to address. 166 165 See, e.g., letters from ABA, ACCO, BioNJ, Chamber of Commerce 2, Chevron, Coalition Letter, Cravath, Davis Polk, DLA, Dow, FedEx, Fenwick, HP, HRPA, HudsonWest, Jones Day, K&L Gates, Kirkland, Manulife, Monday.com, NAM, NVCA, NYC Bar, Paul Weiss, PNC, Quest, Quinn, SCG, Shearman, Simpson, and Wilson Sonsini. 166 See, e.g., letters from Davis Polk and Shearman. As with single-trade plans, a number of commenters indicated that there are legitimate, common uses of multiple, overlapping Rule 10b5-1 plans. 167 Some commenters noted, for example, that issuers often use multiple concurrent Rule 10b5-1 plans with different brokers to execute share repurchase transactions. 168 Other commenters indicated that directors and officers often employ multiple Rule 10b5-1 plans because they hold shares in different accounts with multiple financial institutions. 169 They noted, for example, that a corporate insider may hold shares received upon the exercise of stock options in an account with the financial institution that is the administrator of the issuer's incentive equity plan, and hold shares acquired through open market transactions or other means in a separate account with a different financial institution. 167 See, e.g., letters from Chamber of Commerce 2, Cravath, Davis Polk, Dow, FedEx, HP, Jones Day, Manulife, Monday.com, NVCA, NYC Bar, Quest, Shearman, Sullivan, and Wilson Sonsini. 168 See, e.g., letters from Cravath, Davis Polk, Dow, FedEx, Quest, Shearman, and Sullivan. 169 See, e.g., letters from Quest, and Wilson Sonsini. A number of commenters expressed concern that the wordi [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2022-27675. Public record. Not legal advice.