SEC Offers Guidance on Insider Trading Rules for 401(k) Brokerage Windows

The Securities and Exchange Commission recently clarified that when a 401(k) plan participant subject to insider trading rules sells company stock through a self-directed brokerage window, the transaction must meet all requirements of Rule 10b5-1(c)(1), which provides an affirmative defense against insider trading liability, including the requirements governing open market trades.

A self-directed brokerage window in a 401(k) plan allows participants to independently buy and sell, through a brokerage platform, a broader range of investments beyond the plan’s standard offerings. 

For participants subject to insider trading laws, restrictions on trading company stock apply equally to shares held in their 401(k) accounts—whether the stock is part of the plan’s core investment lineup or purchased separately through the brokerage window.

Since transactions made through these brokerage windows involve open-market counterparties, participants—including corporate insiders—must ensure their trades meet all conditions of the rule. This includes, among other requirements, committing to a binding contract, instruction or written plan when not in possession of material nonpublic information.

“Even though the transactions are made through a retirement plan, they are treated the same as open market trades when it comes to insider trading rules,” the SEC stated in its April 25 update.