💡 Plain English Explanation

Trading restriction clauses in financial NDAs establish specific periods during which the receiving party cannot trade in securities of the disclosing party or related entities. These provisions go beyond general MNPI acknowledgments to create concrete, contractual trading prohibitions with defined timeframes and scope.

Blackout periods are specific windows when all trading is prohibited, regardless of whether the individual trader possesses MNPI. These periods typically align with earnings announcements, M&A discussions, or other significant corporate events. Unlike MNPI-based restrictions that depend on the nature of information received, blackout periods create absolute prohibitions.

Trading restriction clauses typically address:

⚠ Why This Clause Matters

Beyond Legal Requirements: While securities laws prohibit trading on MNPI, contractual trading restrictions can be broader and easier to enforce. A party that trades during a blackout period breaches the contract regardless of whether securities laws were violated, creating a cleaner path to remedies.

For Public Companies: Clear trading restrictions protect against claims that the company selectively disclosed information without adequate safeguards. They also prevent awkward situations where counterparties trade during sensitive negotiations, potentially affecting stock price or signaling deal activity.

For Investment Firms: Well-defined restrictions provide certainty about compliance obligations. Without clear parameters, firms may over-restrict trading out of caution, missing legitimate opportunities. Conversely, ambiguous restrictions create litigation risk if trading occurs and is later challenged.

For M&A Transactions: Trading restrictions prevent the receiving party from accumulating a position in target securities during due diligence, which could complicate the transaction, trigger Hart-Scott-Rodino requirements, or create conflicts of interest.

📄 Clause Versions

Balanced Version: Establishes clear trading restrictions with reasonable duration and scope. Includes standard carve-outs for pre-existing positions and passive investments. Suitable for most M&A and strategic transaction discussions. 
TRADING RESTRICTIONS

1. Restricted Period. During the Restricted Period (as defined below), the Receiving Party agrees not to, and shall cause its controlled affiliates and Representatives who have received Confidential Information not to, directly or indirectly:

(a) Purchase, sell, or otherwise transfer any Restricted Securities;

(b) Enter into any agreement, arrangement, or understanding (whether written or oral) with respect to the purchase or sale of any Restricted Securities;

(c) Enter into any swap, hedge, collar, or other derivative transaction relating to Restricted Securities; or

(d) Grant any proxy, power of attorney, or other authorization with respect to any Restricted Securities.

2. Definitions.

(a) "Restricted Period" means the period commencing on the date the Receiving Party first receives Confidential Information and ending on the earlier of: (i) the date on which the parties publicly announce a definitive agreement regarding the Purpose, (ii) the date on which either party provides written notice that discussions have terminated, plus sixty (60) days, or (iii) twelve (12) months from the date of this Agreement.

(b) "Restricted Securities" means the common stock of the Disclosing Party and any securities convertible into, exchangeable for, or representing the right to acquire such common stock.

3. Exceptions. The foregoing restrictions shall not apply to:

(a) Securities owned by the Receiving Party prior to the date of this Agreement, provided such ownership was disclosed to the Disclosing Party in writing;

(b) Transactions pursuant to a pre-existing written trading plan that complies with Rule 10b5-1 under the Securities Exchange Act, provided such plan was adopted prior to receipt of Confidential Information and is not modified thereafter;

(c) Holdings in index funds, exchange-traded funds, or similar broadly diversified investment vehicles where the Receiving Party does not control the composition or trading decisions.

4. Certification. Upon request by the Disclosing Party, the Receiving Party shall certify in writing its compliance with this Section.
Disclosing Party Favor: Comprehensive restrictions covering broad categories of securities, extended time periods, and affiliate entities. Includes blackout notification provisions and minimal exceptions. Use when maximum protection against trading activity is required. 
TRADING RESTRICTIONS AND BLACKOUT PERIODS

1. Absolute Trading Prohibition. From the Effective Date until the Restriction Termination Date, the Receiving Party shall not, and shall ensure that none of its affiliates, subsidiaries, partners, members, directors, officers, employees, agents, or advisors (collectively, "Restricted Persons") shall, directly or indirectly:

(a) Purchase, sell, pledge, hypothecate, gift, or otherwise transfer or dispose of any Covered Securities;

(b) Acquire or dispose of any economic interest in Covered Securities through any swap, option, forward, future, collar, or other derivative instrument;

(c) Enter into any voting agreement, proxy, or similar arrangement with respect to Covered Securities;

(d) Engage in any short sale or establish any "put equivalent position" (as defined in Rule 16a-1 under the Securities Exchange Act) with respect to Covered Securities;

(e) Cause, facilitate, or encourage any other person to engage in any of the foregoing activities.

2. Covered Securities. "Covered Securities" means:

(a) All equity securities of the Disclosing Party and any of its subsidiaries or affiliates;
(b) All debt securities of the Disclosing Party that are convertible into or exchangeable for equity securities;
(c) All options, warrants, and other rights to acquire any of the foregoing;
(d) All securities of any entity that the Receiving Party knows or has reason to believe may be acquired by or merged with the Disclosing Party; and
(e) Any index, exchange-traded fund, or other instrument where the Disclosing Party's securities represent more than 5% of such instrument's value.

3. Restriction Termination Date. The "Restriction Termination Date" shall be the latest of:

(a) Twenty-four (24) months following the Effective Date;
(b) Twelve (12) months following the public disclosure of all Confidential Information received by the Receiving Party;
(c) Six (6) months following the public announcement of the termination of discussions between the parties; or
(d) The date on which the Disclosing Party provides written notice that the restrictions are terminated.

4. Blackout Periods. In addition to the foregoing, the Disclosing Party may designate specific Blackout Periods by written notice to the Receiving Party. During any Blackout Period, all trading in Covered Securities by Restricted Persons is absolutely prohibited without exception. The Disclosing Party shall endeavor to provide at least 48 hours' notice before imposing a Blackout Period, but such notice is not a condition to the effectiveness of the Blackout Period.

5. No Exceptions. The Receiving Party acknowledges that the trading restrictions in this Section are absolute and waives any defense based on the nature or source of its trading decision, the absence of material non-public information, or the existence of pre-existing plans or positions.

6. Disgorgement. Any profits realized by any Restricted Person from trading in Covered Securities during the Restricted Period or any Blackout Period shall be disgorged to the Disclosing Party upon demand.
Receiving Party Favor: Narrow trading restrictions limited to specific securities and short time periods. Preserves ability to trade through information barriers and includes robust exceptions for ordinary course activities. Suitable for investment firms that need to maintain trading operations. 
TRADING RESTRICTIONS

1. Limited Trading Restrictions. Subject to the exceptions set forth below, during the Trading Restriction Period, the specific individuals who actually receive Confidential Information (the "Restricted Individuals") shall not purchase or sell common stock of the Disclosing Party.

2. Trading Restriction Period. The "Trading Restriction Period" shall commence upon a Restricted Individual's receipt of Confidential Information and shall terminate upon the earliest of:

(a) Thirty (30) days following the date such Restricted Individual returns or destroys all Confidential Information in their possession;
(b) Public disclosure of the Confidential Information;
(c) Ninety (90) days following the date such Confidential Information was received;
(d) Written notice from the Disclosing Party that the restriction has terminated.

3. Scope of Restrictions. The trading restrictions in this Section apply only to:

(a) Common stock of the Disclosing Party (not including securities of affiliates, subsidiaries, or potential transaction counterparties);
(b) Trades directed by Restricted Individuals (not including trades by other personnel of the Receiving Party); and
(c) Discretionary trades (not including trades pursuant to pre-existing plans or instructions).

4. Exceptions. The trading restrictions shall not apply to:

(a) Any securities owned by the Receiving Party or its affiliates as of the Effective Date;
(b) Transactions pursuant to any 10b5-1 plan or similar pre-existing trading program, regardless of when adopted;
(c) Transactions by any investment fund, account, or vehicle managed by the Receiving Party where trading decisions are made by personnel who have not received Confidential Information;
(d) Holdings in any index fund, ETF, mutual fund, or diversified investment vehicle;
(e) Transactions executed in connection with market-making, arbitrage, or hedging activities;
(f) Acceptance of tender offers or participation in mergers, conversions, or corporate actions available to shareholders generally.

5. Information Barriers. The Receiving Party represents that it maintains information barriers consistent with industry standards. Trading by personnel on the "public side" of such barriers shall not constitute a breach of this Agreement, even if "private side" personnel have received Confidential Information.

6. No Standstill. Nothing in this Agreement shall restrict the Receiving Party's right to acquire securities of the Disclosing Party through open market purchases or otherwise, subject only to applicable securities laws and the limited restrictions set forth in this Section.

💬 Key Considerations