Updated CDIs Include Interpretations of Exchange Act Rule 10b5-1
April 6, 2009
On March 25, 2009, the Division of Corporation Finance updated the Exchange Act Rule CDIs to include staff interpretations regarding Exchange Act Rule 10b5-1. Rule 10b5-1 interpretations were last addressed in the Fourth Supplement to the Manual of Publicly Available Interpretations from May 2001. The new CDIs generally repeat interpretations from the Fourth Supplement, without substantive change. However, there are some revised and new interpretations, including the following:
- The cancellation of one or more plan transactions would be an alteration or deviation from the plan, which would terminate that plan. Consequently, the Rule 10b5-1(c) defense would be available for transactions following the alteration only if the transactions were pursuant to a new plan that satisfies the requirements of Rule 10b5-1(c). In addition, the Staff noted that if a person established a new plan after terminating a prior plan, then all of the surrounding facts and circumstances need to be considered, including the period of time between the cancellation of the old plan and the creation of the new plan, to determine whether the person had established the new plan in “good faith and not as part of a plan or scheme to evade” Rule 10b5-1(c).
- A Rule 10b5-1(c) affirmative defense is not available where a person, while aware of material nonpublic information, establishes a Rule 10b5-1 written trading plan, even though the plan is structured so that plan transactions will not begin until after the material nonpublic information is made public.
- If a written trading plan has been in effect for several months and the broker that has been executing plan sales goes out of business at a time when the person is aware of material nonpublic information, the person may transfer plan transactions to a different broker without being deemed to have cancelled the original plan and adopted a new plan if the transfer to the new broker is timed so that there is no cancellation of any transaction scheduled in the original plan, and the new broker effects sales in accordance with the original plan’s terms in compliance with Rule 10b5-1(c).
http://www.sec.gov/divisions/corpfin/guidance/exchangeactrules-interps.htm
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