Exchange Act Rules

Question: What fee rates apply to repurchases of securities and to proxy solicitations and statements in corporate control transactions?

Answer: The fee rates (as adjusted annually) under Exchange Act Section 13(e) and Section 14(g) apply to repurchases of securities and to proxy solicitations and statements in corporate control transactions, respectively. The fee rates set forth in Exchange Act Rule 0-11 do not apply. The Commission publishes orders and related press releases concerning current fee rates on the Commission's web site at www.sec.gov. [June 4, 2010]

Question: If Company A files proxy materials for the transfer of substantially all of its assets to its wholly-owned subsidiary, Company B, in exchange for shares of Company B stock, will Company A have to pay the filing fee contemplated by Rule 0-11 or Exchange Act Section 14(g)?

Answer: No, because this transaction is an internal recapitalization and is not deemed to be a “sale or other disposition” for filing fee purposes. [June 4, 2010]

Question: A foreign issuer qualifies as a foreign private issuer on the last business day of its most recently completed second fiscal quarter, which is the ”determination date” for foreign private issuer status under Exchange Act Rule 3b-4(c). Shortly thereafter, the foreign issuer reincorporates in Delaware. May it continue to use the foreign private issuer forms and rules until it retests its foreign private issuer status on the next determination date?

Answer: No. Under Exchange Act Rule 3b-4(e), a foreign issuer generally may use the foreign private issuer forms and rules until the first day of the fiscal year following the determination date on which it no longer qualifies as a former private issuer. That provision, however, does not apply to domestic issuers. A U.S.-domiciled company can never be a foreign issuer or foreign private issuer, no matter how few U.S. shareholders it may have or where its assets, business, officers or directors are located. Therefore, as a successor to the foreign issuer's reporting obligations, the Delaware corporation must immediately begin filing Exchange Act reports on domestic issuer forms. [Aug. 11, 2010]

Question: In applying the foreign private issuer definition in Securities Act Rule 405 and Exchange Act Rule 3b-4(c), how can an issuer that has multiple classes of voting stock with different voting rights determine whether more than 50 percent of its outstanding voting securities are directly or indirectly owned of record by residents in the United States?

Answer: An issuer may choose one of two methods. The issuer may look to whether more than 50 percent of the voting power of those classes on a combined basis is directly or indirectly owned of record by residents of the United States. Alternatively, an issuer may make the determination based on the number of voting securities. Issuers must apply a determination methodology on a consistent basis. [December 8, 2016]

Question: In applying the foreign private issuer definition in Securities Act Rule 405 and Exchange Act Rule 3b-4(c), what factors should be applied to determine the status of an individual as a “U.S. resident” for purposes of determining whether 50 percent of the company's outstanding voting securities are held of record by U.S. residents?

Answer: A person who has permanent resident status in the U.S. — a so-called Green Card holder — is presumed to be a U.S. resident. Other individuals without permanent resident status may also be residents of the U.S. for purposes of these provisions. In these circumstances, an issuer must decide what criteria it will use to determine residency and apply them consistently without changing them to achieve a desired result. Examples of factors an issuer may apply include tax residency, nationality, mailing address, physical presence, the location of a significant portion of their financial and legal relationships, or immigration status. [December 8, 2016]

Question: In determining whether a majority of the executive officers or directors are United States citizens or residents under the definition of foreign private issuer in Securities Act Rule 405 and Exchange Act Rule 3b-4(c), must the calculation be made separately for each group or are executive officers and directors to be treated as a single group when making the assessment?

Answer: The determination must be made separately for each group. In effect, there are four determinations: the citizenship status of executive officers, the residency status of executive officers, the citizenship status of directors, and the residency status of directors. [December 8, 2016]

Question: In determining whether the majority of the directors are United States citizens or residents under the definition of foreign private issuer in Securities Act Rule 405 and Exchange Act Rule 3b-4(c), how should the determination be made when the issuer has two boards of directors?

Answer: The issuer must make the determination with respect to the board that performs the functions most closely to those undertaken by a U.S.-style board of directors. If those functions are divided between both boards, the issuer may aggregate the members of both boards for purposes of calculating the majority. [December 8, 2016]

Question: In determining whether more than 50 percent of the assets of an issuer are located outside the United States under the definition of foreign private issuer in Securities Act Rule 405 and Exchange Act Rule 3b-4(c), can an issuer use the geographic segment information determined in the preparation of its financial statements?

Answer: Yes. Alternatively, an issuer may apply on a consistent basis any other reasonable methodology in assessing the location and amount of its assets for purposes of this determination. [December 8, 2016]

Question: For purposes of the definition of foreign private issuer in Securities Act Rule 405 and Exchange Act Rule 3b-4(c), how does an issuer determine whether its business is administered principally in the United States?

Answer: There is no single factor or group of factors that are determinative under this clause. The issuer must assess on a consolidated basis the location from which its officers, partners, or managers primarily direct, control and coordinate the issuer's activities. [December 8, 2016]

Question: For purposes of the definition of foreign private issuer in Securities Act Rule 405 and Exchange Act Rule 3b-4(c), would holding an annual or special meeting of shareholders or occasional meetings of the issuer's board of directors in the United States result in a determination that the issuer's business is administered principally in the United States?

Answer: No. Absent other factors indicating the location from which an issuer's officers, partners, or managers primarily direct, control and coordinate the issuer's activities on a consolidated basis, as described in Securities Act Rules CDI 203.22 / Exchange Act Rules CDI 110.07, there is no single factor or group of factors that is determinative of whether an issuer's business is principally administered in the United States. [December 8, 2016]

Question: On January 1, a person adopts a written plan for selling securities that satisfies all applicable affirmative defense conditions of Rule 10b5-1(c)(1). The first sale of securities under the plan will take place on April 15 in reliance on Rule 144. The person will need to file a Form 144. Does adoption of the Rule 10b5-1 plan change the due date for the Form 144?

Answer: No. The Form 144 must be transmitted for filing concurrently with either the placement of a sell order for a brokerage transaction, or the execution of such sale directly with a market maker, as provided in Rule 144(h). The adoption of the plan itself may not be the same as placement of a sell order. The notice on Form 144 is effective for a maximum of three months, so that sales over longer periods will involve multiple requirements of notice under Rule 144(h). [Apr. 25, 2025]

[Withdrawn Apr. 25, 2025]

Question: At a time when she is not aware of material nonpublic information and satisfies all applicable conditions of Rule 10b5-1(c)(1)(ii), a person establishes a trust. In establishing the trust, she specifies that the trust shall sell 1,000 shares of issuer stock each quarter. Apart from this specification, she does not have or share any control over the trust’s assets. Is a defense available under Rule 10b5-1(c)(1)(i)(B)(3) for the quarterly sales by the trust?

Answer: Yes. Rule 10b5-1(c)(1)(i)(B)(3) contemplates that a person, while not aware of material nonpublic information, may delegate to a third party under a contract, instruction or written trading plan, all subsequent influence over how, when or whether to effect purchases or sales. Reliance on this affirmative defense does not prevent the person from setting some of the terms of the purchases or sales at the creation of the contract, instruction or plan so that no one has subsequent discretion as to those terms.

For example, this defense would be available if, in creating the contract, instruction or plan, the person specifies one or two of the amount, price or date of transactions. Whether or not any terms are set at creation, for a Rule 10b5-1(c)(1)(i)(B)(3) defense to be available, the person is not permitted to exercise any subsequent influence over how, when, or whether a transaction occurs. The third party who has been granted discretion must not be aware of material nonpublic information when exercising that discretion. [Apr. 25, 2025]

Question: At a time when he is not aware of material nonpublic information and satisfies all applicable conditions of Rule 10b5-1(c)(1)(ii), a person will establish a blind trust to which he will contribute some, but not all, of the issuer securities that he owns. The person intends to delegate investment control over trust assets to the trustee so as to establish a defense under Rule 10b5-1(c)(1)(i)(B)(3) for trust transactions. Within the meaning of Rule 144(a)(2), the person and the trust will be a single person.

During any three-month period, sales of issuer securities by the trust will share the Rule 144(e) volume limitation with the person's sales of other issuer securities he owns. Does the manner of allocating the Rule 144(e) volume limitation between sales by the trust and the person's other sales of issuer securities affect whether the person is permitted to exercise any subsequent influence over how, when, or whether to effect purchases or sales under the trust within the meaning of Rule 10b5-1(c)(1)(i)(B)(3)?

Answer: Yes. If during the term of the trust the person can control what portion of the Rule 144(e) volume limitation is available for trust sales, the person would be permitted to exercise subsequent influence over trust sales within the meaning of Rule 10b5-1(c)(1)(i)(B)(3). As a result, the Rule 10b5-1(c)(1)(i)(B)(3) defense would be unavailable.

However, the person would not be permitted to exercise subsequent influence over trust sales if the instrument creating the trust specified either (1) the percentage of the volume limit to be allocated to sales by the trust and other sales by the person, or (2) that the trustee would determine that allocation for each applicable three-month period without consulting the person. [Apr. 25, 2025]

Question: At a time when he is not aware of material nonpublic information and satisfies all applicable conditions of Rule 10b5-1(c)(1)(ii), a person buys a put option, giving him the right at any time during the 12-month term of the option to sell 10,000 shares at a fixed exercise price. Two months later, he wishes to exercise the option. If he is aware of material nonpublic information at the time of exercise, can he rely on a Rule 10b5-1(c)(1) defense in exercising the option?

Answer: No. The exercise of the option is a separate investment decision from the purchase of the option. See Securities Act Release No. 7881 (Aug. 15, 2000) at fn. 115. For a defense to be available under Rule 10b5-1(c)(1), each of the amount, price and date of the transaction must be specified or determined by formula, or all subsequent discretion over purchases and sales must be delegated to a third party who must not be aware of material nonpublic information when exercising that discretion. The person must make this specification or delegation in good faith before becoming aware of material nonpublic information.

In this example, the person has retained discretion over the timing of the option exercise. Consequently, if he is aware of material nonpublic information at the time of exercise, no defense will be available under Rule 10b5-1(c)(1). The same analysis applies whether the option is a put or a call. [Apr. 25, 2025]

Question: At a time when he is not aware of material nonpublic information and satisfies all applicable conditions of Rule 10b5-1(c)(1)(ii), a person purchases a put option. At the same time, the person instructs his broker to exercise the option on its expiration date, June 30, 2025, if the option is in-the-money on that date. Is the exercise of the option covered by a Rule 10b5-1(c)(1)(i)(B)(1) defense despite the fact that the amount, price and date are not specified by the same method?

Answer: Yes. The terms of the option, which is a binding contract within the meaning of Rule 10b5-1(c)(1)(i)(A)(1), specify the amount of shares to be sold and the price at which they will be sold under the option. The instruction to the broker, which is an instruction to another person within the meaning of Rule 10b5-1(c)(1)(i)(A)(2), specifies the date of the transaction and imposes a limit on the price, within the meaning of Rule 10b5-1(c)(1)(iii)(B). Viewed together, the option and the instruction specify the amount of securities, the price and the date of the transaction for purposes of Rule 10b5-1(c)(1)(i)(B)(1). The same analysis applies whether the option is a put or a call. [Apr. 25, 2025]

Question: At a time when she is not aware of material nonpublic information and satisfies all applicable conditions of Rule 10b5-1(c)(1)(ii), a person writes a call option, giving the option purchaser the right at any time during the life of the option to buy 10,000 shares from her at a fixed exercise price. Two months later, the option writer receives an exercise notice, requiring her to sell the shares to the counterparty at the exercise price. Is the sale pursuant to the option exercise covered by an affirmative defense under Rule 10b5-1(c)(1)?

Answer: Yes. As long as the terms of the option contract do not permit the person to exercise any subsequent influence over how, when or whether she sells the shares covered by the option, and she does not in fact influence the timing of the option exercise, a defense would be available under Rule 10b5-1(c)(1)(i)(B)(3). [Apr. 25, 2025]

Question: At a time when she is not aware of material nonpublic information and satisfies all applicable conditions of Rule 10b5-1(c)(1)(ii), a person obtains a bank loan to invest in real estate, and pledges securities as collateral. She fails to pay the loan as due. The bank proceeds against the stock that was posted as collateral and sells it in the open market. Is the Rule 10b5-1(c)(1)(i)(B)(3) defense available to the person when the bank sells the stock?

Answer: No. The sale was not pursuant to a contract, instruction or plan that did not permit the person to exercise any subsequent discretion over how, when, or whether to effect purchases or sales. First, the person could have exercised discretion not to pay the loan, resulting in default and the transfer of the securities. Also, she may have had the discretion to substitute collateral or provide additional collateral or cash to prevent foreclosure and sale of the stock. [Apr. 25, 2025]

Question: At a time when he is not aware of material nonpublic information and satisfies all applicable conditions of Rule 10b5-1(c)(1)(ii), a person obtains a $1 million loan from a brokerage firm and places $2 million of stock in a margin account with the broker. The stock price falls and the broker issues a margin call. The person does not deposit additional securities in the margin account (although he could have), so the broker sells sufficient margined securities to satisfy the margin call. Is the Rule 10b5-1(c)(1)(i)(B)(3) defense available to the person for the broker's sales?

Answer: No. Where the person retains any discretion to substitute or provide additional collateral, or to repay the loan before the pledged securities may be sold, Rule 10b5-1(c)(1)(i)(B)(3) does not provide a defense. This is because the terms of the margin account contract would permit him to exercise subsequent influence over how, when, or whether to effect purchases or sales.

If the margin account contract did not permit the insider to exercise any subsequent influence over how, when, or whether to effect purchases or sales, and the broker did not in fact give the person the opportunity to substitute or provide additional collateral or cash, a defense would be available under Rule 10b5-1(c)(1)(i)(B)(3) if the broker is not aware of material nonpublic information in selling the margined securities. [Apr. 25, 2025]

Question: At a time when she is not aware of material nonpublic information and satisfies all applicable conditions of Rule 10b5-1(c)(1)(ii), a person establishes a written trading plan to sell 5,000 shares each month, on a date to be selected by her broker during the second or third week of each month, at or above $20 per share. The person does not communicate any information to the broker that could influence when sales would occur. Does Rule 10b5-1(c)(1)(i)(B)(3) provide a defense for sales under this plan?

Answer: Yes, assuming two additional facts are present: (1) the terms of the plan do not permit her to exercise any subsequent influence over the timing of sales under the plan; and (2) the broker is not aware of material nonpublic information when selling securities under the plan. [Apr. 25, 2025]

Question: At a time when she is not aware of material nonpublic information and satisfies all applicable conditions of Rule 10b5-1(c)(1)(ii), a person establishes a written trading plan to sell 10,000 shares each month, at or above $20 per share. To implement the sales, the plan provides that on the last day of each month the person will place a limit order with a broker, valid until the last day of the next month, to sell 10,000 shares at or above $20 per share. The person may be aware of material nonpublic information when she places the limit order. Do Rules 10b5-1(c)(1)(i)(A)(3) and (B)(1) provide a defense for sales under this plan if the limit order is non-discretionary (requiring the broker to execute a sale as soon as a buyer is available at or above $20 per share)?

Answer: Rules 10b5-1(c)(1)(i)(A)(3) and (B)(1) could provide a defense if the limit order is non-discretionary. The written trading plan would need to specify the amount, price and dates of the sales. As defined in Rule 10b5-1(c)(1)(iii)(C), in the case of a limit order, “date” means a day of the year on which the limit order is in force. For Rules 10b5-1(c)(1)(i)(A)(3) and (B)(1) to provide a defense, the terms of the plan must specify the dates on which the monthly non-discretionary limit orders will be in force. [Apr. 25, 2025]

Question: How does the analysis in Question 120.11 change if the written trading plan doesn't specify when the non-discretionary limit order will be in force?

Answer: If the written trading plan by its terms doesn't specify these dates, a defense would be available under Rule 10b5-1(c)(1)(i)(A)(2) and (B)(1) if: (1) the person is not aware of material nonpublic information at the time she instructs the broker and satisfies all other applicable conditions of Rule 10b5-1(c)(1)(ii); and (2) in placing a non-discretionary limit order, she specifies the dates on which that limit order will be in force. [Apr. 25, 2025]

Question: Do Rules 10b5-1(c)(1)(i)(A)(3) and (B)(1) provide a defense for sales under the written trading plan described in Question 120.11 when the limit order is discretionary (where the broker is granted discretion such that the broker is not required to execute a sale as soon as a buyer is available at or above $20 per share)?

Answer: If a limit order is discretionary, the discretion granted to the broker over the timing of a sale would require the conditions of Rule 10b5-1(c)(1)(i)(B)(3) to be satisfied for a defense to be available. Rule 10b5-1(c)(1)(i)(B)(1) would not be available. [Mar. 25, 2009]

Question: Assume that the written trading plan described in Question 120.11 also includes a provision requiring the number of securities to be sold during each month to be reduced, if necessary, to comply with the applicable volume limitation under Rule 144(e). What effect does this have on the availability of a Rule 10b5-1(c)(1) defense?

Answer: The analysis depends on the manner in which the adjustment is effected:

(a) First, the written plan could provide for adjustment of the amount of securities to be sold each month based on a written formula specified in the plan within the meaning of Rule 10b5-1(c)(1)(i)(B)(2). Where a written formula specifies one or more of the price, amount and dates of transactions that are all specified in a contract, instruction or written plan, the Rule 10b5-1(c)(1)(i)(B)(2) defense would apply.

(b) Alternatively, the written plan could provide for adjustment of the amount of securities to be sold each month based on a delegation of discretion to the broker. In this case, where one or more of the price, amount and dates of transactions under a contract, instruction or written plan are to be determined based on a delegation of discretion to another person, the availability of a defense depends upon satisfaction of the conditions of Rule 10b5-1(c)(1)(i)(B)(3). [Apr. 25, 2025]

Question: During a month when the written trading plan described in Question 120.11 is in effect, the person calls the broker to place an order to sell an additional 15,000 shares at the market where the market order is not provided for by the written trading plan in 120.11 and the person does not intend that the market order qualify for the affirmative defense of Rule 10b5-1(c)(1). How would the market order transaction affect the availability of the affirmative defense for the plan described in Question 120.11?

Answer: The market order transaction would not affect the availability of the written trading plan defense for the limit order sales under the written trading plan described in Question 120.11. The market order does not effect an alteration or deviation of a plan transaction within the meaning of Rule 10b5-1(c)(1)(i)(C) because the 10,000 share limit order under the plan will continue to be executed when the price limit is met. The market order is not a corresponding or hedging transaction within the meaning of Rule 10b5-1(c)(1)(i)(C) because it does not reduce or eliminate the economic consequences of the limit order sales under the written trading plan. Further, the market order would not be an additional contract, instruction, or plan that would qualify for the affirmative defense under Rule 10b5-1(c)(1) for purchases or sales of the issuer's securities on the open market within the meaning of Rule 10b5-1(c)(1)(ii)(D). [Apr. 25, 2025]

Question: During a month when the written trading plan described in Question 120.11 is in effect, the person calls the broker to increase the non-discretionary limit order currently in force from 10,000 shares to 15,000 shares. How is this analyzed for purposes of Rule 10b5-1(c)(1)?

Answer: Rule 10b5-1(c)(1)(iv) provides in relevant part that “Any modification or change to the amount, price, or timing of the purchase or sale of the securities underlying a contract, instruction, or written plan as described in paragraph (c)(1)(i)(A) of this section is a termination of such contract, instruction, or written plan, and the adoption of a new contract, instruction, or written plan.” Consequently, sales pursuant to the altered limit order would not be pursuant to the existing plan.

A purchase or sale that complies with a modified contract, instruction, or written plan will be considered pursuant to a new contract, instruction, or written plan, and the person will need to comply with Rule 10b5-1(c)(1) with respect to that new contract, instruction, or written plan. [Apr. 25, 2025]

Question: After the written trading plan described in Question 120.11 has been in effect for several months, the person terminates the selling plan by calling the broker and canceling the limit order. Standing alone, does the act of terminating a plan while aware of material nonpublic information, and thereby not engaging in the planned securities transaction, result in liability under Section 10(b) and Rule 10b-5?

Answer: No. Section 10(b) and Rule 10b-5 apply to any fraudulent conduct “in connection with the purchase or sale of any security.” The “in connection with” requirement is satisfied when a fraud “coincides” with a securities transaction. See, e.g., SEC v. Zandford, 535 U.S. 813 (2002) and Merrill Lynch, Pierce, Fenner & Smith, Inc., v. Dabit, 547 U.S. 71 (2006). [Mar. 25, 2009]

Question: Does termination of a plan affect the availability of the Rule 10b5-1(c) defense for prior plan transactions? Does canceling one or more plan transactions affect the availability of the Rule 10b5-1(c) defense for prior plan transactions?

Answer: Termination of a plan, or the cancellation of one or more plan transactions, could affect the availability of the Rule 10b5-1(c) defense for prior plan transactions if it calls into question whether the plan was entered into in good faith and not as part of a plan or scheme to evade the insider trading rules and whether the person who entered into the plan has acted in good faith with respect to the plan within the meaning of Rule 10b5-1(c)(1)(ii)(A). The absence of good faith or presence of a scheme to evade would eliminate the Rule 10b5-1(c) defense for prior transactions under the plan. [Apr. 25, 2025]

[Withdrawn Apr. 25, 2025]

Question: Is the Rule 10b5-1(c) affirmative defense available where a person establishes a Rule 10b5-1 written trading plan while aware of material nonpublic information if the plan is structured so that plan transactions will not begin until after the material nonpublic information is made public?

Answer: No. [Mar. 25, 2009]

Question: A person purchases employer stock through her participation in the employer's 401(k) plan. The purchases are made pursuant to bi-weekly payroll deductions invested in the plan’s employer stock fund. The 401(k) plan also allows employees to transfer the assets in their accounts among funds within the plan (including the employer stock fund) through fund-switching transactions. Is a Rule 10b5-1(c)(1) defense available for payroll deduction purchases made under the 401(k) plan pursuant to the employer stock fund?

Answer: Assuming the employee’s enrollment in the 401(k) plan satisfies the conditions of Rule 10b5-1(c)(1)(i), Rule 10b5-1(c)(1)(ii)(A) and all conditions of Rule 10b5-1(c)(1)(ii)(B)-(C) applicable to the employee, a Rule 10b5-1(c)(1) defense would be available for payroll deduction purchases under the plan. See Securities Act Release No. 11138 (Dec. 14, 2022) at fn. 120. [Apr. 25, 2025]

Question: Under the 401(k) plan described in Question 120.21, is a Rule 10b5-1(c)(1) defense available for fund-switching transactions that result in purchases or sales of employer stock?

Answer: A fund-switching transaction in a 401(k) plan requires an analysis of the written or oral instruction for the transaction that is independent of the Question 120.21 analysis of the employee’s enrollment in the plan. Specifically, the instruction for the fund-switching transaction must satisfy the conditions of Rule 10b5-1(c)(1)(i), Rule 10b5-1(c)(1)(ii)(A) and all conditions of Rule 10b5-1(c)(1)(ii)(B)-(C) applicable to the person. See Securities Act Release No. 11138 at fn. 120. [Apr. 25, 2025]

Question: Could fund-switching transactions under the 401(k) plan described in Question 120.21 be considered “corresponding or hedging transactions” within the meaning of Rule 10b5-1(c)(1)(i)(C) with respect to payroll deduction purchases under the 401(k) plan?

Answer: Possibly, depending upon the facts and circumstances. Rule 10b5-1(c)(1)(i)(C) requires, as a condition to the exemption, that the purchase or sale be pursuant to the contract, instruction, or plan. The rule provides that a purchase or sale is not “pursuant to a contract, instruction, or plan” if, among other things, the person entered into or altered a corresponding or hedging transaction or position with respect to those securities.

As a general matter, a fund-switching transaction that effects a sale could be a corresponding or hedging transaction under Rule 10b5-1(c)(1)(i)(C) with respect to a payroll deduction purchase under the 401(k) plan. If, however, the instruction for the fund-switching transaction satisfies the conditions of Rule 10b5-1(c)(1)(i), Rule 10b5-1(c)(1)(ii)(A), and all conditions of Rule 10b5-1(c)(1)(B)-(C) applicable to the person, the fund-switching transaction would not disturb the Rule 10b5-1(c)(1) defense for a payroll deduction purchase under the 401(k) plan. [Apr. 25, 2025]

Question: Under applicable state law, an oral agreement would be considered a binding contract. Does the contract nevertheless need to be written to establish a defense under Rule 10b5-1(c)(1)?

Answer: No. The rule specifies when a writing is necessary to establish a defense. The rule does not require a binding contract (Rule 10b5-1(c)(1)(i)(A)(1)) or an instruction to another person (Rule 10b5-1(c)(1)(i)(A)(2)) to be written. In contrast, the rule requires a plan for trading securities (Rule 10b5-1(c)(1)(i)(A)(3)) and a formula, algorithm or computer program for determining amounts, prices and dates of transactions (Rule 10b5-1(c)(1)(i)(B)(2)) to be written. [Apr. 25, 2025]

Question: Is the institutional defense provided by Rule 10b5-1(c)(2) available to the issuer of the securities for a repurchase plan?

Answer: Yes, assuming the conditions of that rule are satisfied. [Mar. 25, 2009]

Question: When are companies required to begin providing the quarterly Item 408(a) disclosures and the annual Item 402(x) and Item 408(b) disclosures (Item 16J of Form 20-F disclosures for foreign private issuers) in periodic reports?

Answer: Release No. 33-11138 states that companies other than smaller reporting companies will be required to comply with the new disclosure and tagging requirements in Exchange Act periodic reports on Forms 10-Q, 10-K and 20-F “in the first filing that covers the first full fiscal period that begins on or after April 1, 2023.” Therefore, the following compliance dates apply:

• December 31 fiscal year-end company – Quarterly disclosures must first be provided in the Form 10-Q for the period ended June 30, 2023, and should continue to be provided in the Form 10-Q for the period ended September 30, 2023 and the Form 10-K for the fiscal year ended December 31, 2023.
• June 30 fiscal year-end company – Quarterly disclosures must first be provided in the Form 10-K for the fiscal year ended June 30, 2023.
• December 31 fiscal year-end company – Annual disclosures must first be provided in the Form 10-K or 20-F for the fiscal year ended December 31, 2024.
• June 30 fiscal year-end company – Annual disclosures must first be provided in the Form 10-K or 20-F for the fiscal year ended June 30, 2024.

Smaller reporting companies must comply with these new disclosure and tagging requirements in the first filing that covers the first full fiscal period that begins on or after October 1, 2023. Therefore, the following compliance dates apply:

• December 31 fiscal year-end company — Quarterly disclosures must first be provided in the Form 10-K for the fiscal year ended December 31, 2023.
• June 30 fiscal year-end company — Quarterly disclosures must first be provided in the Form 10-Q for the period ended December 31, 2023.
• December 31 fiscal year-end company — Annual disclosures must first be provided in the Form 10-K or 20-F for the fiscal year ended December 31, 2024.
• June 30 fiscal year-end company — Annual disclosures must first be provided in the Form 10-K or 20-F for the fiscal year ended June 30, 2025. [May 25, 2023]

Question: When are companies required to begin providing the disclosures in proxy or information statements?

Answer: For transition purposes only, companies other than smaller reporting companies must first provide this information in proxy statements for the first annual meeting for the election of directors (or information statements for consent solicitations in lieu thereof) after completion of the first full fiscal year beginning on or after April 1, 2023. Smaller reporting companies must first provide this information in proxy statements for the first annual meeting for the election of directors (or information statements for consent solicitations in lieu thereof) after completion of the first full fiscal year beginning on or after October 1, 2023. [May 25, 2023]

Question: The Rule 10b5-1(c) affirmative defense generally is not available if a person has multiple Rule 10b5-1 contracts, instructions, or plans in place. However, Rule 10b5-1(c)(1)(ii)(D)(2) permits a person (other than the issuer) to maintain two separate Rule 10b5-1 plans at the same time so long as trading pursuant to the later-commencing plan is not authorized to begin until after all trades under the earlier-commencing plan are completed or have expired without execution. If an individual terminates the earlier-commencing plan (i.e., the earlier-commencing plan does not end by its terms and without any action by the individual), when can trading begin under the later-commencing plan?

Answer: Pursuant to Rule 10b5-1(c)(1)(ii)(D)(2), if an individual terminates the earlier-commencing plan, the later-commencing plan will be subject to an “effective cooling-off period.” The effective cooling-off period will begin on the termination date of the earlier-commencing plan and will last for the time period specified in Rule 10b5-1(c)(1)(ii)(B). On the other hand, if the earlier-commencing plan ends by its terms without action by the individual, the cooling-off period for the later-commencing plan is not reset and trading may begin as soon as the plan’s original cooling-off period is satisfied. Depending on when the later-commencing plan was adopted, this could be as soon as immediately after the earlier-commencing plan ends. See Footnote 180 of Release No. 33-11138. [May 25, 2023]

Question: Under Rule 10b5-1(c)(1)(ii)(B)(1), the required cooling-off period for directors and officers subject to Exchange Act Section 16 reporting is the later of 90 days after the adoption of the contract, instruction, or plan or “[t]wo business days following the disclosure of the issuer’s financial results in a Form 10-Q or Form 10-K for the completed fiscal quarter in which the plan was adopted.” Does the filing date count as the first business day for the purposes of the Rule 10b5-1(c)(1)(ii)(B)(1) required cooling-off period?

Answer: No. For purposes of the cooling-off period specified in Rule 10b5-1(c)(1)(ii)(B)(1), the date of disclosure of the issuer’s financial results is the filing date of the relevant Form 10-Q or Form 10-K, and the first business day would be the next business day that follows the filing date. To determine the filing date of the relevant form, refer to Rule 13(a)(2) of Regulation S-T. For example, if the relevant form is filed on a Monday, trading may commence under the contract, instruction, or plan on Thursday (assuming no intervening Federal holidays). In addition, whether a form is filed before or after trading opens on a given day has no bearing on the calculation. [August 25, 2023]

Question: Under a 401(k) plan, an issuer advances cash to the plan administrator who purchases stock in the open market to make matching grants of the issuer’s common stock to plan participants. If a participant relies on Rule 10b5-1 to participate in the 401(k) plan, would the Rule 10b5-1 affirmative defense be available to the participant for a concurrent plan for purchases or sales on the open market?

Answer: Yes. Even though participants elect how much to contribute to their individual 401(k) accounts, an open-market transaction conducted at the direction of the plan administrator, and not at the direction of the plan participant, to match a contribution by the participant with employer stock would not be an overlapping plan for purposes of Rule 10b5-1(c)(1)(ii)(D) that would disqualify a plan participant’s reliance on Rule 10b5-1 for a concurrent open market trading plan. [August 25, 2023]

Question: Does the Rule 10b5-1(c) check box on Form 4 for securities transactions made pursuant to a Rule 10b5-1 trading plan apply to trading plans that were adopted prior to the effective date of the amendments to Rule 10b5-1?

Answer: No. The Rule 10b5-1 check box on Form 4 applies to transactions that are made pursuant to a contract, instruction, or written plan for the purchase or sale of equity securities of the issuer that is intended to satisfy the affirmative defense conditions of amended Rule 10b5-1(c). See Release No. 33-11138 (Dec. 14, 2022). [August 25, 2023]

Question: A company sponsors a 401(k) plan that permits both employer and employee contributions to be invested through a self-directed “brokerage window.” How are purchases and sales of issuer securities through the 401(k) plan pursuant to such a self-directed “brokerage window” treated for purposes of Rule 10b5-1(c)(1)?

Answer: Because the counterparty to the self-directed “brokerage window” transaction will be an open market participant, the instruction for any self-directed “brokerage window” transaction will need to satisfy all conditions of Rule 10b5-1(c)(1), including those applicable to purchases and sales of the issuer’s securities on the open market. [Apr. 25, 2025]

Question: Rule 10b5-1(c)(1)(ii)(D) provides that an individual claiming the Rule 10b5-1(c) affirmative defense to insider trading may not have multiple Rule 10b5-1 plans that provide for purchases or sales of issuer securities on the open market. Rule 10b5-1(c)(1)(ii)(D)(3) provides an exception for an eligible sell-to-cover transaction. An eligible sell-to-cover transaction is a contract, instruction, or plan that authorizes an agent to sell only such securities as are necessary to satisfy tax withholding obligations arising exclusively from the vesting of a compensatory award, such as restricted stock or stock appreciation rights, where the insider does not otherwise exercise control over the timing of such sales. Does “necessary to satisfy tax withholding obligations” refer to the minimum tax withholding obligation imposed under the applicable tax rules, or to tax withholding payments calculated to satisfy the employee or director’s expected effective tax obligation with respect to the vesting transaction?

Answer: For purposes of Rule 10b5-1(c)(1)(ii)(D)(3), “necessary to satisfy tax withholding obligations” refers to tax withholding payments that are calculated in good faith to satisfy the employee or director’s expected effective tax obligation solely with respect to the vesting transaction, consistent with applicable tax law and accounting rules. [Apr. 25, 2025]

Question: Does Rule 12a-5 provide an exemption from registration for “poison pill” rights under stockholder rights plans?

Answer: No. “Poison pill” rights issuable under stockholder rights plans are not the type of rights contemplated by Rule 12a-5, which provides a temporary exemption from registration for substituted or additional securities to allow when-issued trading. [September 30, 2008]

Question: The form amendments adding check boxes to the cover page of Form 10-K, Form 20-F, and Form 40-F indicating whether the form includes the correction of an error in previously issued financial statements and a related recovery analysis are effective January 27, 2023. However, the listing standards are not required to be effective until November 28, 2023 and issuers subject to such listing standards will not be required to adopt a recovery policy for 60 days following the date on which the applicable listing standards become effective. Will issuers be required to mark the check boxes in 2023 before an issuer is required to adopt a recovery policy and comply with the applicable listing standards?

Answer: In the adopting release, the Commission indicated that it does not expect compliance with the disclosure requirements until issuers are required to have a recovery policy under the applicable exchange listing standard. While the check boxes and other disclosure requirements will be in the rules and forms in 2023, we do not expect issuers to provide such disclosure until they are required to have a recovery policy under the applicable listing standard. [January 27, 2023]

Question: Which persons will be considered named executive officers for purposes of determining the parties for whom individualized disclosure pursuant to Item 6.F of Form 20-F must be provided?

Answer: Item 6.F of Form 20-F provides for individualized disclosure for an issuer’s named executive officers. Foreign private issuers that file on domestic forms and provide executive compensation disclosure under Item 402 of Regulation S-K should provide individualized disclosure for their named executive officers to the extent required by Form 20-F. For foreign private issuers that use Form 20-F, individualized disclosure is required about members of their administrative, supervisory, or management bodies for whom the issuer otherwise provides individualized compensation disclosure in the filing. [January 27, 2023]

Question: Which persons will be considered named executive officers for purposes of determining the parties for whom individualized disclosure pursuant to Item B.(19) of Form 40-F must be provided?

Answer: Item B.(19) of Form 40-F provides for individualized disclosure for an issuer’s named executive officers. Such individualized disclosure is required about executive officers for whom the issuer otherwise provides individualized compensation disclosure in the filing. [January 27, 2023]

Question: Because the clawback rule applies broadly to incentive-based compensation, would the rules affect compensation that is in any sort of plan, other than tax-qualified retirement plans, including long term disability, life insurance, SERPs, or any other compensation that is based on the incentive-based compensation?

Answer: The rule is intended to apply broadly. For plans that take into account incentive-based compensation, an issuer would be expected to claw back the amount contributed to the notional account based on erroneously awarded incentive-based compensation and any earnings accrued to date on that notional amount. [January 27, 2023]

220.02 A company sought to establish a stock repurchase plan that would comply with Rules 10b5-1(c)(1) and 10b-18. Most shares would be repurchased through open market transactions, but the company intended to negotiate repurchase of at least one large block of stock through a privately negotiated transaction. The company proposed that the plan provide for an automatic reduction in the aggregate number of shares authorized for repurchase under the plan equal to the number of shares, if any, that the company discloses in Form 10-Q, Part II, Item 2 that it has repurchased in privately negotiated transactions. The broker executing plan repurchases would review company filings to determine the amount of any such repurchases that had been disclosed. Because this would give the issuer the potential to effectively modify the plan by doing the block trades while aware of material nonpublic information, the Division staff took the view that the Rule 10b5-1(c)(1) affirmative defense would not be available. Question 120.14, which provides that delegation of discretion to a broker to reduce the number of shares to be sold under a trading plan to comply with the Rule 144(e) volume limitations, was distinguished because the reductions in Question 120.14 reflect limitations imposed by law rather than an exercise of discretion by the seller. [Apr. 25, 2025]