Rule 10b5-1 Interpretations Posted

SEC Interpretations of 10b5-1 Defenses Updated

By John M. Baker, Esq.

June 10, 2001 – Rule 10b5-1(c) generally provides that a purchase or sale is not “on the basis of” material nonpublic information if, before becoming aware of the information, the person had entered into a binding contract to purchase or sell the security, instructed another person to purchase or sell the security for the instructing person’s account, or adopted a written plan for trading securities.

The SEC’s Division of Corporation Finance on Friday posted a May 30, 2001, supplement to its Manual of Publicly Available Telephone Interpretations, setting forth several new interpretations of these defenses.

The new interpretations are quite specific. For example, holders of put and call options generally will be unable, under the interpretations, to rely upon Rule 10b5-1(c) if aware of material nonpublic information at the time of exercise of the option. However, the interpretations allow an insider to purchase a put or call option (at a time when unaware of material nonpublic information) and instruct his or her broker to exercise the option on its expiration date if the option is in-the-money on that date.

The interpretations are available online at

Copyright 2001, John M. Baker, Esq., Stradley, Ronon, Stevens & Young, LLP, 1220 19th Street, N.W., Suite 700, Washington, DC 20036 – (202) 822-9611- Fax (202) 822-0140 This article was originally posted to the FundLaw List, To subscribe to FundLaw, send a blank e-mail to

Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.