The SEC appears poised to change the rules governing Rule 10b5-1 securities trading plans. The move follows draft recommendations released by the SEC’s Investor Advisory Committee (IAC) on Aug. 25, 2021, as well as comments by SEC Chair Gary Gensler encouraging a change in the regulations. The move exemplifies an increased focus by the SEC on preventing insider trading by corporate executives.

Rule 10b5-1

Rule 10b5-1 was introduced in 2000 as a type of prophylactic measure to allow insiders of publicly traded companies to sell stocks they own without running afoul of restrictions on insider trading. Insiders are often in possession of material nonpublic information about the companies with which they are affiliated. While trading stock in those companies is permissible when it is not based on inside information, any trading by an insider naturally raises the suspicion that inside information played a role. That puts many corporate executives in a difficult position, if their compensation package contains a significant amount of equity-based pay, which they may desire to liquidate.