10b5-1 Plans After the SEC's 2023 Overhaul: What Mining Executives Need to Know Now

Most mining and energy executives know they cannot sell company stock whenever they want. Trading windows open and close. Blackout periods appear without warning. And when a deal is in the works, the window closes entirely.

A Rule 10b5-1 trading plan was designed to solve that problem. Set up the plan when you are not aware of material nonpublic information, specify the trades in advance, and let a broker execute them automatically. The plan provides an affirmative defense against insider trading claims even if a blackout period hits after the trades are scheduled.

That is the theory. The practice got more complicated in December 2022, when the SEC adopted significant amendments that took effect in 2023. If your plan predates those changes, it may need a hard look.

What is a 10b5-1 plan and why do mining executives use them?

Rule 10b5-1 creates a safe harbor from insider trading liability for trades made under a written plan that was adopted before the executive became aware of material nonpublic information. The plan must specify in advance the amount, price, and timing of trades, or delegate those decisions to a third party under a defined formula.

For mining and energy executives, the practical appeal is straightforward. You hold a large position in your employer's stock through RSUs, stock options, or open-market purchases. You want to diversify over time. But your industry produces a steady stream of material nonpublic information: drilling results, reserve estimates, production updates, deal discussions. Trading freely is difficult. A properly structured 10b5-1 plan may allow you to sell systematically without timing each trade to the trading window.

What did the SEC change about 10b5-1 plans in 2023?

The 2023 amendments addressed a pattern the SEC had observed for years: executives appeared to be adopting plans with short cooling-off periods, taking advantage of favorable market conditions shortly after plan adoption, then canceling and replacing plans when conditions changed. The changes targeted each piece of that pattern.

The four major amendments were: mandatory cooling-off periods before the first trade can execute, a prohibition on overlapping plans, limits on single-trade plans, and new certifications that directors and officers must make at plan adoption.

What is the new cooling-off period and how does it affect me?

The cooling-off period is the waiting time between when you adopt the plan and when the first trade can execute. Under the 2023 amendments, the required period depends on who you are.

For directors and officers, the cooling-off period is the later of 90 days after plan adoption or two business days following the filing of Form 10-Q or Form 10-K for the fiscal quarter in which the plan was adopted or modified, subject to a maximum of 120 days. For other employees, the cooling-off period is 30 days.

Before the amendments, some plans used cooling-off periods as short as a few days. The practical consequence for mining executives is that you need to think further ahead. If you want to start selling in July, you need to have the plan set up and adopted by late March or early April at the latest, and adopted during an open trading window when you have no material nonpublic information.

Can I have more than one 10b5-1 plan at a time?

Generally no, with limited exceptions. The 2023 amendments prohibit overlapping 10b5-1 plans. You cannot have two active plans running simultaneously for the same class of securities.

There is a narrow exception: you may have a second plan at a different broker if the first plan covers a different set of securities. And you may have one plan while a second plan is pending, as long as trades under the second plan do not begin until the first plan has ended.

The single-trade plan limit is separate. You may only use a single-trade plan that relies on the Rule 10b5-1 safe harbor once every twelve months. This was aimed at executives who were adopting plans to execute a single opportunistic sale, then treating the plan as a safe harbor.

Is my existing 10b5-1 plan still compliant after the SEC changes?

Plans adopted before the amendments were subject to transition rules, but those transitions have now passed. If your plan was not updated to conform to the new requirements, it may not provide the safe harbor protection you are counting on. This is worth checking with your company's general counsel or outside securities counsel.

The certification requirement is worth specific attention. Under the amended rule, when you adopt or modify a plan, you must certify that you are not aware of material nonpublic information and that you are adopting the plan in good faith and not as part of a scheme to evade insider trading prohibitions. This certification must be made in the written plan document itself.

When is the right time for a mining executive to set up or update a plan?

The mechanics favor a specific window. The plan must be adopted during an open trading window, when you have no material nonpublic information, and when you have no planned amendments to your existing plan.

For most mining and energy executives, that means planning around the post-earnings window. After results are released and the blackout lifts, there is typically a short window, often two to four weeks, when acting may be possible. That is often a good opportunity to set up or update a plan before the next information cycle closes.

If you have not reviewed your 10b5-1 plan since late 2022, it is worth putting on the agenda for your next open window.

Have you reviewed your 10b5-1 plan since the SEC amendments took effect, and do you know whether your cooling-off period meets the new standard?

These are general educational points about SEC rule mechanics and not legal advice for your specific situation. 10b5-1 plan compliance depends on your individual plan document, your company's policies, and your circumstances at the time of adoption. If you would like to discuss how this fits into your broader equity and diversification plan, schedule a complimentary call. Link to Calendar

Disclosure: This article is for informational and educational purposes only and does not constitute legal or investment advice. Rule 10b5-1 plan requirements depend on individual circumstances, company policies, and applicable securities laws. Mountain Legacy Family Wealth Partners does not provide legal advice. Consult your securities attorney before adopting, modifying, or relying on a 10b5-1 trading plan.

Disclaimer: The information given herein is taken from sources that IFP Advisors, LLC, dba Independent Financial Partners (IFP), IFP Securities LLC, dba Independent Financial Partners (IFP), and its advisors believe to be reliable, but it is not guaranteed by us as to accuracy or completeness. This is for informational purposes only and in no event should be construed as an offer to sell or solicitation of an offer to buy any securities or products. Please consult your tax and/or legal advisor before implementing any tax and/or legal related strategies mentioned in this publication as IFP does not provide tax and/or legal advice. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. This report may not be reproduced, distributed, or published by any person for any purpose without IFP's express prior written consent. Neither IFP Advisors LLC, IFP Securities LLC, dba Independent Financial Partners (IFP), nor their affiliates offer tax or legal advice. Any potential tax advantages or benefits will depend on your circumstances. Consult your tax professional and/or legal expert about your individual tax situation and visit IRS.gov to learn more.