The original 2000 insider-trading rule had no cooling-off period

The record

On 24 August 2000 the Securities and Exchange Commission published Selective Disclosure and Insider Trading, the adopting release for Regulation FD and two new rules, 10b5-1 and 10b5-2, effective 23 October 2000. Rule 10b5-1 as adopted set a general standard: a person trades on the basis of material nonpublic information if the person was aware of that information when the trade was made, replacing an inconsistent use standard some courts had applied. Against that general rule, the release describes several affirmative defenses. The one most relevant to founders and executives, adopted as paragraph (c)(1)(i), let a trader avoid liability by showing that, before becoming aware of the information, the person had entered a binding contract to trade, given instructions to another person to execute a trade, or adopted a written plan for trading securities, provided the trader did not exercise subsequent influence over the trade after becoming aware.

What the documents establish

The 2000 release itself, not a later restatement, is the source for what the original defense required: a binding contract, instruction, or written plan adopted while unaware, with no mandated waiting period before the first trade, and no required written certification. The current text at 17 CFR 240.10b5-1 shows what has since been added: a cooling-off period, the later of 90 days after plan adoption or two business days after certain financial-results disclosures for directors and officers, capped at 120 days, 30 days for other persons, and a certification that the adopter was unaware of material nonpublic information at adoption. Cornell's own historical note dates that amendment to 29 December 2022, 87 FR 80429. A description of the Rule 10b5-1 defense assuming a cooling-off period applies to every plan is describing the 2022 amendment, not the rule as it stood from 2000 to 2022.

The operating read

This is an editorial reading beyond the release. A founder or executive setting up a trading plan today operates under the amended rule, with its cooling-off periods and certification, not the 2000 original; the distinction matters mainly for reading older plans or disclosure that predates the amendment, where the absence of a cooling-off period was not itself a defect under the rule then in force. A plan adopted before late 2022 without one was not for that reason outside the original affirmative defense; a plan adopted after the amendment's compliance dates generally must include one to claim the defense.

What to check before you decide

Before relying on a 10b5-1 plan, or on a description of one, check which version of the rule is actually in play.

• Was the plan adopted before or after the amendment's compliance dates, and does it include the cooling-off period and certification the current rule requires?
• Does the plan meet the original 2000 conditions, entry while unaware and no subsequent influence, regardless of when it was adopted?
• If evaluating older disclosure referencing a 10b5-1 defense, does the analysis assume rule text that had not yet been adopted at the time?

This is an editorial checklist, not legal advice; securities counsel should confirm which version of the rule governs a specific plan.