Safe Harbor
A legal provision protecting a party from liability when they have acted in good faith and met specified conditions.
What is Safe Harbor?
A safe harbor is a legal provision that shields a party from liability, penalty, or regulatory action when they have acted in good faith and satisfied specified conditions. Safe harbors are common in securities law, tax, and antitrust regulation. They provide certainty for parties who follow prescribed procedures, encouraging compliance without fear of retroactive enforcement. A key example is the SEC's Rule 10b5-1, which protects corporate insiders from insider trading claims when trading under pre-established plans.
Example
A CFO who wishes to sell $2 million of company stock while not in possession of material non-public information sets up a Rule 10b5-1 trading plan in January. Trades execute automatically throughout the year under the plan, and the CFO benefits from a safe harbor against insider trading claims.
Source: SEC — Rule 10b5-1 Trading Plans