Rule 10b-5 is a regulation created under the Securities and Exchange Act of 1934 that

targets securities fraud. Rule 10b-5 is formally known as the Employment of Manipulative
and Deceptive Practices
“Rule 10b-5: Employment of Manipulative and Deceptive Practices":
It shall be unlawful for any person, directly or indirectly, by the use of any means or
instrumentality of interstate commerce, or of the mails or of any facility of any national
securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact
necessary in order to make the statements made, in the light of the circumstances under
which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as
a fraud or deceit upon any person,
in connection with the purchase or sale of any security."

The SEC adopted Rule 10b5-1 in August 2000 to provide more clarity on the meaning of
“manipulative or deceptive device[s] or contrivance[s]” prohibited by Exchange Act Section
10(b) and Rule 10b-5 with respect to trading on the basis of material nonpublic information.
Rule 10b5-1 addressed this issue by providing that a purchase or sale of an issuer’s security
is on the basis of material nonpublic information about that security or issuer for purposes of
Section 10(b) if the person making the purchase or sale was aware of material nonpublic
information when the person made the purchase or sale.
In addition, Rule 10b5-1(c) established an affirmative defense to Rule 10b-5. liability for
insider trading in circumstances where it is apparent that the trading was not made on the
basis of material nonpublic information because the trade was pursuant to a binding
contract, an instruction to another person to execute the trade for the instructing person’s
account, or a
written plan (collectively or individually a “trading arrangement”) adopted when the trader
was
not aware of material nonpublic information.

Concerns regarding present 10b5-1(c) provisions-

1. courts, commentators and members of Congress have expressed concern that the
affirmative defence under Rule 10b5-1(c)(1)(i) has allowed traders to take advantage of
the liability protections provided by the rule to opportunistically trade securities on the
basis of material non public information.
2. some academic studies of Rule 10b5-1 trading arrangements have shown that corporate
insiders trading pursuant to Rule 10b5-1 consistently outperform trading of executives
and directors not conducted under a Rule 10b5-1 trading arrangement
3. Practices that have raised concern include corporate insiders using multiple overlapping
plans to selectively cancel individual trades on the basis of material non public
information, or commencing trades soon after the adoption of a new plan or the
modification of an existing plan
4. concerns have been raised about issuers abusing Rule 10b5-1(c)(1) plans to conduct
share repurchases to boost the price of the issuer’s stock before sales by corporate
insiders

Current provisions Proposed SEBI PIT Reg, 2015

amendments
Mandatory cooling- No waiting period a minimum 120-day not entail
off period imposed between cooling-off period commencement of
the date the after the date of trading on behalf of
trading arrangement adoption of any Rule the insider* earlier
is adopted and the 10b5-1(c)(1) than six
date of the first trading arrangement months from the
transaction to be (including adoption public disclosure of
executed of a modified trading the plan
arrangement
including cancelling not entail trading for
one or more trades) the period between
by a director or the twentieth trading
officer* day prior to the last
day of any financial
period for which
results are required
to be announced by
the issuer of
the securities and
the second trading
day after the
disclosure of such
financial results
Certify not aware of The person must a certification not entail trading in
MNPI demonstrate requirement securities for market
that, before imposed as a abuse.
becoming aware of condition to the
material non public affirmative defense
information, they
had entered into a require a director or
binding officer to certify at
contract to purchase the time of the
or sell the security adoption
of the trading
affirmative defense arrangement:
of a trading • That they are not
arrangement is only aware of material
available if the nonpublic
trading arrangement information about
was the issuer or its
entered into “in good securities; and
faith and not as part • That they are
of a plan or scheme adopting the
to evade the contract, instruction,
prohibitions” of the or plan operated in
rule good faith and not
as part of a
plan or scheme to
evade the
prohibitions of
Exchange Act
Section 10(b) and
Exchange
Act Rule 10b-5.
Disclosures there are no require:
mandatory (1) quarterly
disclosure disclosure of the use
requirements of Rule
concerning the use 10b5-1 and other
of Rule trading
10b5-1 trading arrangements by a
arrangements or registrant, and its
other trading directors and
arrangements by officers for the
companies or trading of the
insiders issuer’s securities;
and
(2) annual
disclosure of a
registrant’s insider
trading
policies and
procedures
Multiple Overlapping a person will not be eliminate the entail trading for a
10b5-1 trading plans entitled to the affirmative defense period of not less
affirmative defense for any trades by a than twelve months;
for a trade if they trader who has
enter into or alter a established multiple not to have the
“corresponding or overlapping trading ability to initiate
hedging transaction arrangements for more than one plan
or position” with open market covering the same
respect to the purchases or sales time period
planned transactions of the same class of
securities
currently, a person
can adopt and
employ multiple
overlapping Rule
10b5-1(c)(1) trading
arrangements and
exploit inside
information by
setting up trades i.e.
deciding
later which trades to
execute and which
to cancel, timed to
occur around dates
on which they
expect the issuer will
likely release
material nonpublic
information.
Single trade plan No limit to number of limit the availability set out either the
trading plans of the affirmative value of trades to be
defense effected or the
for a trading number of securities
 arrangement to be
designed to cover a traded along with
single trade, so that the nature of the
the affirmative trade and the
defense would intervals at, or dates
only be available for on which such
one single-trade trades shall be
plan during any 12- effected
month period.

the affirmative
defense would not
be available for a
single-trade plan if
the trader
had, within a 12-
month period,
purchased or sold
securities pursuant
to another single-
trade plan
Insider trading requires a registrant Disclose insider
practices and to disclose whether trading policies and
procedures it has procedures
adopted a code of governing the
ethics that applies to purchase, sale, and
its principal other dispositions of
executive officer, the registrant’s
chief financial securities by
officer, and directors, officers,
other appropriate and employees or
executives and, if it the registrant itself
has not adopted that are reasonably
such a code, to state designed to
why it has not done promote compliance
so with insider trading
laws, rules, and
regulations, and any
listing
standards applicable
to the registrant. If
the registrant has
not adopted such
insider trading
policies and
procedures, explain
why it has not done
so

* Exchange Act Rule 16a-1(f) [17 CFR 240.16a-1(f)] provides that the term “officer”
“shall mean an issuer’s president, principal financial officer, or principal accounting
officer (or, if there is no such accounting officer, the controller), any vice-president of
the issuer in charge of a principal business unit, division or function (such as sales,
administration or finance), any other officer who performs a policy-making function,
or any other person who performs similar policy-making functions for the issuer.
Officers of the issuer’s parent(s) or subsidiaries shall be deemed officers of the
issuer if they perform such policy-making functions for the issuer.”

persons who may be perpetually in possession of unpublished price sensitive information and
enabling them to trade in securities in a compliant manner. This provision would enable the
formulation of a trading plan by an insider to enable him to plan for trades to be executed in future