Cooling-Off Period
A cooling-off period is a mandatory waiting period between adopting or modifying a 10b5-1 trading plan and executing the first trade under that plan. The SEC requires 90-day cooling-off periods for officers and directors.
The Trader's Take
The Signal
Cooling-off periods prevent insiders from using 10b5-1 plans to trade on material non-public information. Understanding cooling-off periods helps identify when 10b5-1 trades are truly pre-planned versus potentially opportunistic.
The Noise
Cooling-off periods are regulatory requirements that don't create trading signals themselves.
Actionable Insights
- 1Check the adoption date of 10b5-1 plans to ensure cooling-off periods were observed.
- 2Plans adopted during low stock prices with proper cooling-off periods may be more meaningful.
- 3Frequent plan modifications that reset cooling-off periods can raise red flags.
- 4The 90-day cooling-off period helps ensure trades are truly pre-planned.
Regulatory Context & Context
Common Misconceptions
Cooling-off periods apply to plan adoption and modifications, not just initial adoption.
The 90-day period is for officers and directors—companies have a 30-day period.
Cooling-off periods reset when plans are modified, preventing abuse.
Frequently Asked Questions
How long is the cooling-off period?
The SEC requires a 90-day cooling-off period for officers and directors adopting or modifying 10b5-1 trading plans.
Why does the SEC require cooling-off periods?
Cooling-off periods prevent insiders from adopting 10b5-1 plans when they possess material non-public information, ensuring trades are truly pre-planned.