Last week, Corp Fin did some spring cleaning in the Rule 10b5-1 area by adding two new CDIs, revising 20 CDIs, and withdrawing three CDIs so they better jibe with the amendments to Rule 10b5-1 in 2022.
Most of the changes are truly spring cleaning in nature – touch ups that don’t deal with much in the way of substance. But there are a handful that do provide some useful gloss and are more substantive in nature, particularly those related to limited orders, termination of plans, and 401(k) plans.
The two new CDIs are:
Question 120.32
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 120.33
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]
Authored by
Broc Romanek