Rule 10b5-1 trading plans have faced increased scrutiny since the onset of the COVID-19 pandemic and the corresponding public focus on stock sales by executives of public life sciences companies. On June 7, 2021, SEC Chairman Gary Gensler continued that scrutiny when he delivered prepared remarks to the Wall Street Journal’s CFO Network Summit concerning Rule 10b5-1 trading plans and his view that “these plans have led to real cracks in our insider trading regime.” Chairman Gensler outlined four potential reforms that the SEC staff is considering to address those “cracks”:

1. Mandatory 4–6 month “cooling-off” periods. While 10b5-1 plans frequently include cooling-off periods between the plan’s implementation and the first trade under the plan, many plans do not include periods that are as long as four months or more. Gensler cited data showing that 14% of sales happen within 30 days of plan adoption, and approximately 40% within the first two months. Absent longer waiting periods, Gensler expressed his “worry that some bad actors could perceive this as a loophole to participate in insider trading.”
2. Limitations on canceling plans. Gensler called it “upside-down” for insiders to be able to “cancel a plan when they do have material nonpublic information,” because such information “might influence an insider’s decision to cancel an order to sell.” He therefore has asked the SEC staff to consider “limitations on when and how plans can be canceled.”
3. Limitations on number of plans. In connection with an unrestricted ability to cancel plans, Gensler observed that insiders could choose to enter into multiple plans and later inappropriately “pick amongst favorable plans as they please.” While insiders who do this already risk losing Rule 10b5-1’s affirmative defense, the SEC is considering mandatory limitations on the number of 10b5-1 plans.
4. Disclosure requirements. Gensler said that “more disclosure regarding the adoption, modification, and terms of Rule 10b5-1 plans by individuals and companies could enhance confidence in our markets.”

Gensler’s comments are the latest in a string of recent public statements on Rule 10b5-1 plans — first in the fall of 2020 from outgoing SEC Chairman Jay Clayton, who raised these same issues with Congress, and then in February 2021, when Senator Elizabeth Warren (D-MA) and others wrote to the SEC about addressing “abusive practices” surrounding 10b5-1 plans. With the ongoing scrutiny of Rule 10b5-1 trading plans, public companies and insiders should be aware of these potential reforms when adopting new plans.