Insider trading defense

10b5-1 trading plan: setup, cooling-off, and Rule 144 interaction

A Rule 10b5-1 plan is the legal mechanism that lets officers, directors, and other insiders sell company stock on a pre-arranged schedule without exposing each trade to a later allegation that they were aware of material nonpublic information (MNPI) at the time. For active executives who hold restricted securities or control stock, a properly structured 10b5-1 plan is not optional — it is the standard of care for any regular selling program.

What a 10b5-1 plan actually does

Rule 10b5-1(c) of the Securities Exchange Act provides an affirmative defense against Section 10(b) insider trading liability. If a person enters into a written trading plan at a time when they are not aware of any MNPI — and the plan specifies the amount, price, and timing of trades in advance — each subsequent trade under the plan is protected even if MNPI later comes into the person's possession before execution.

The defense works because the trading decision was made before the person knew anything nonpublic. The plan must be genuinely pre-specified: it can define exact shares and dates, a price formula, or delegate execution to a broker under parameters that leave the broker no discretion tied to MNPI.

Who needs a 10b5-1 plan

Any person who regularly possesses MNPI and wants to sell company stock should have a plan. In practice, this means:

• Officers — CEO, CFO, COO, General Counsel, CAO, and anyone with policy-making authority
• Directors — all board members, including independent and non-management directors
• 10%+ shareholders — anyone who beneficially owns 10% or more of any class of voting equity
• Employees with regular MNPI access — finance, legal, IR, and product employees who participate in earnings preparation, deal work, or similar functions may benefit from a plan even if not named in proxy filings

Former affiliates within the 90-day look-back window under Rule 144 should also consider whether their recent access to MNPI creates exposure if they sell without a plan.

The 2022 SEC rule changes you must know

SEC Release No. 33-11138 (December 2022) substantially tightened the 10b5-1 affirmative defense.¹ Any plan adopted after February 27, 2023 is subject to these requirements:

Cooling-off periods

Officers and directors must wait before making the first trade under a new plan. The cooling-off period is the later of:

• 90 days after the plan is adopted, or
• Two business days after the Form 10-Q or Form 10-K for the fiscal quarter in which the plan was adopted is filed

This combined clock is capped at 120 days for officers and directors. For all other persons (non-officer, non-director insiders), the cooling-off period is 30 days.

Single-plan rule

A person may not maintain more than one active 10b5-1 plan at a time for trading in the same issuer's securities. Narrow exceptions exist:

• A second plan that would become effective only after the first is fully completed or terminated
• A single-trade plan (one transaction), limited to one per 12-month period

Plan modifications are plan terminations

Any material modification to an existing 10b5-1 plan — changing the amount, price, or timing of trades — is treated as a termination of the old plan and adoption of a new one. A new cooling-off period applies from the modification date. This is a significant operational constraint: once the plan is adopted, its parameters should be durable enough to survive through the full selling program.

Good faith certifications

Officers and directors must include a written certification at plan adoption confirming: (a) they are not aware of MNPI about the issuer or its securities, and (b) they are adopting the plan in good faith and not as part of a scheme to evade insider trading prohibitions.¹ This certification cannot be delegated — the person signing must actually be able to make it honestly.

How to structure the plan

A well-structured 10b5-1 plan adopted during an open trading window typically includes:

1. Adoption date and window confirmation — the plan is executed during a pre-approved window when the company's insider trading policy permits trading.
2. Trade specification — the specific number of shares per trade, the price (or formula), and the schedule of dates. Alternatively, a delegation to a broker with explicit written parameters and no MNPI-based discretion.
3. Volume limit compliance — for affiliates under Rule 144, each scheduled trade must fall within the quarterly volume cap (1% of shares outstanding or the 4-week average weekly volume, whichever is greater). The plan should either hard-code compliant quantities or include a compliance mechanism that references the then-current volume limit.
4. Termination conditions — legal counsel typically includes conditions that automatically terminate the plan on a change of control, securities law violation, or similar material event.
5. Written, signed document — oral understandings do not qualify. The plan must be a written instrument signed by the insider before the first trade is placed.

10b5-1 plan and Rule 144: the two-layer compliance stack

For restricted securities and control stock, every sale must pass through two separate compliance frameworks:

The 10b5-1 plan does not suspend or replace Rule 144. An affiliate who sells under a 10b5-1 plan must still satisfy the quarterly volume cap under Rule 144(e), file Form 144 when the threshold is met (more than 5,000 shares or $50,000 in proceeds in a rolling three-month period), and confirm the issuer's current public information requirement is satisfied. A plan that schedules more shares than the volume limit allows is not compliant with Rule 144 — the plan must be designed within the volume ceiling.

Use the volume limit calculator to confirm your quarterly ceiling before drafting the plan schedule, and read the Form 144 filing guide for the mechanics of the concurrent disclosure requirement.

When to involve a financial advisor

Securities counsel drafts the plan document and advises on the legal requirements. A financial advisor's role is separate but often equally important:

• Sale cadence modeling — how many shares per quarter achieves the target concentration reduction within volume limits, without creating adverse market optics or front-running perception?
• Tax year allocation — scheduling trades to manage exposure to the 20% LTCG rate and the 3.8% NIIT requires knowing total income, other capital gains, and the annual gain generated per tranche. The plan schedule should be designed with the tax outcome in mind, not just the legal parameters.
• Reinvestment policy — the plan governs the sale; the financial advisor governs what happens to the proceeds. Coordinating the timing of proceeds and reinvestment avoids sitting undeployed in cash or creating unintended concentration in replacement positions.
• Integration with total wealth — restricted or control stock is typically one concentrated position inside a larger wealth picture. The advisor holds that picture and makes sure the plan's timeline is consistent with retirement, estate planning, and liquidity goals.

Read the affiliate sale plan guide for the full multi-quarter planning framework and the concentrated stock tax strategies page for techniques — staged sales, DAFs, CRTs, exchange funds — that coordinate with the 10b5-1 schedule.