What Is a 10b5-1 Trading Plan?

The insider sets the dates, prices, or formulas in advance, usually with a broker. Once adopted, the trades happen whether or not the insider later learns something. Because the decision was made earlier, the SEC treats the later trades as not being "on the basis of" inside information.

SEC amendments that took effect in 2023 tightened the rules: officers and directors must wait a cooling-off period (generally 90 days, or two business days after the next quarterly report, up to 120 days) before the first trade under a new plan; other insiders wait 30 days. Overlapping plans are restricted, and Form 4 now carries a checkbox that flags plan trades.

A plan trade executes on a calendar, not on a view. A CFO selling 5,000 shares on the 15th of every month is not reacting to anything. InsiderWatch drops Form 4 lines marked as 10b5-1 plan trades before they reach the alert stage, for buys and sells alike.

To count as a 10b5-1 plan, the arrangement has to be a binding contract, instruction or written plan that either specifies the amount, price and date of each trade, or gives a formula for them, or hands the decisions to a broker who does not know inside information. The insider must not hold material non-public information when adopting it, must adopt it in good faith and not as part of a scheme to evade the rules, and must not influence the trades afterwards. Since 2023, directors and officers also certify on the plan itself that they are unaware of inside information and are acting in good faith.

• →Cooling-off period: for officers and directors, no trade until the later of 90 days after adoption or two business days after the next quarterly or annual report is filed, capped at 120 days. For other insiders, 30 days. Companies adopting buyback plans are exempt.
• →Overlapping plans: an insider may not run two plans covering the same period, with narrow exceptions for a sell-to-cover arrangement tied to tax withholding.
• →Single-trade plans: a plan designed to execute one trade is limited to one per twelve months.
• →Modifying a plan counts as terminating it and adopting a new one, so a new cooling-off period starts.
• →Disclosure: companies report in their quarterly and annual filings when an officer or director adopts, modifies or terminates a plan, with its material terms. Form 4 carries a checkbox for trades made under a plan, along with the plan's adoption date.

The rule was adopted in 2000 to give insiders a way to sell stock they are paid in without being second-guessed about timing. Most plans do exactly that: a schedule of sales spread over a year or two. The abuse the 2023 rules aimed at was the opposite pattern, a plan adopted right before bad news and terminated right before good news, or a string of short-lived plans. The cooling-off period and the one-plan-at-a-time limit make that harder.

Plans can also schedule purchases. A director who wants to build a position under a dividend-reinvestment or fixed-dollar plan can do it inside a 10b5-1 arrangement. Those buys show on Form 4 with the checkbox ticked and are treated by most readers, and by InsiderWatch, as routine.

Three places. The checkbox near the top of the Form 4, present on filings since 2023, with the plan's adoption date. A footnote saying the sale was "effected pursuant to a Rule 10b5-1 trading plan adopted on" a given date. And the pattern itself: the same insider selling a similar number of shares on the same day each month or quarter, often at a limit price that rounds to a whole number. Trades that fit any of these are excluded from InsiderWatch alerts before triage.