how affirmative defense works under rule 10b5 1 c 
in general an affirmative defense occurs in a legal sense when someone takes precautionary action before an event for instance say you had a broken sidewalk slab in front of your house and you re afraid someone might get hurt if they trip on the slab and then sue you until getting it repaired you place some orange hazard cones on the site to warn others that there is a hazard that constitutes an affirmative defense meaning you took steps to warn others ahead of someone hurting themselves in the securities industry an affirmative defense is used to apply to securities transactions that could otherwise be interpreted as insider trading or a potentially shady transaction involving mnpi a 10b5 1 trading plan set up by a company or insider executive spells out the time period covered by the plan the amount of securities involved and any price involved in the transaction as well as the executive involved for instance a 10b5 1 plan might be entered into by a senior executive in which they intend to sell x amount of shares by a certain date and at a certain price having their 10b5 1 plan in place not only eliminates the perception of any sort of insider trading but also discloses in public the actual details of the executive s trading plan all this is intended to keep markets transparent and insider trading visible to everyday investors the 10b5 1 plan is the orange safety cone in the securities markets several adjustments to the use of the affirmative defense doctrine by insiders became effective on feb 27 2023 insider trading under these rules means there is a plan to sell securities by officers directors and others with access to mnpi 52023 changes to trading plan rulesthe following are changes put in place in early february 2023 to clarify rules and procedures related to insider trading activities for directors and section 16 officers wishing to trade their company s stock there is now a mandatory cooling off period section 16 is a rule within the securities exchange act of 1934 that spells out the regulatory filing responsibilities that directors officers and principal stockholders are legally required to adhere to the new required cooling off period covers the later of 90 days before trading under a 10b5 1 plan can be activated or two business days after disclosure in a periodic report of the issuer s financial results for the quarter in which the plan was adopted the idea of the cooling off period is to prevent the appearance of insider trading by having an executive lay out a plan for transactions well in advance of any actual transaction in this case 90 days before the 10b5 1 plan can be put in action for people other than an issuer director or section 16 officer a 30 day cooling off period is required between the plan s adoption and the start of trading under it 6previously there was no mandatory cooling off period although most issuers and firms observed some form of a quiet period most frequently using a 30 day time frame this rule applies to people with an existing 10b5 1 plan it prohibits them from establishing an additional 10b5 1 plan covering the same time period defined under 10b5 1 c 1 this regulation is intended to prevent the hedging of an existing 10b5 1 plan with overlapping dates which may give the 10b5 1 holder an unfair advantage over the general investing public 6this new regulation offers the availability of the affirmative defense for all individuals other than issuers to be applied to a single trade plan during any 12 month period in which the plan calls for the purchase or sale of securities in a single transaction the exception to this rule is that no other 10b5 1 plan calling for a single transaction has been enacted in the last 12 months or would otherwise satisfy rule 10b5 1 c as with the overlapping plan exception the sec excluded from this prohibition qualified sell to cover transactions typically made for tax purposes 6this rule requires directors and section 16 officers to declare in their 10b5 1 plan that they don t have mnpi and that they are entering the 10b5 1 plan in good faith and not as part of a plan or scheme to evade the prohibitions of rule 10b 5 while previously there was no regulation covering certification of a lack of mnpi most banks and institutions would regularly require such an attestation as part of a 10b 5 plan 6all 10b5 1 plans must contain a certification that the plan owner is acting in good faith during the tenure of the plan this regulation is specifically aimed at the owners of plans insiders and the possibility that they might attempt to influence others to make pronouncements or take other actions that would be favorable to the 10b5 1 plan owner violation of the good faith rule removes the affirmative defense option and exposes the plan owner to punishment for insider trading violations 6