Insider Trading After the 2022 Rule 10b5-1 Amendment

Abstract

We investigate the impact of the controversial 2022 amendment to Rule 10b5-1, which imposed a cooling-off period and restricted overlapping and single-trade plans on prearranged insider transactions. Our evidence is consistent with the amendment leading insiders to (i) execute stock sales under 10b5-1 plans with longer cooling-off periods; (ii) curtail opportunistic sales under 10b5-1 plans prior to stock price drops or earnings misses; (iii) limit the backdating of stock gifts; and (iv) decrease the granting of options around material information events. Further evidence suggests a reduction in opportunistic 10b5-1 trades rather than a migration toward non-10b5-1 sales. We find mixed evidence on the amendment’s effect on price efficiency. Finally, terminations of 10b5-1 plans are associated with positive subsequent stock returns, suggesting that insiders avoid selling when they expect favorable news. Overall, our findings indicate that the amendment substantially curtailed the opportunistic use of 10b5-1 plans, its primary objective.