10b5-1 plan
Also: 10b5-1, 10b5-1 plan, Rule 10b5-1 plan, trading plan
A prewritten trading plan that lets corporate insiders buy or sell company stock on an automated schedule, providing an affirmative defense against insider-trading claims under SEC Rule 10b5-1.
A 10b5-1 plan is a written contract between an insider and a broker that specifies the price, amount, and timing of future trades in company stock. Because the plan is adopted while the insider has no material nonpublic information, trades executed under the plan receive an affirmative defense against Rule 10b-5 insider-trading liability. The SEC’s 2022 amendments added a minimum 90-day cooling-off period for officers and directors (120 days for the first plan after a new 10b5-1 cycle), single-plan limits, and good-faith certifications.
Example: a CFO adopts a 10b5-1 plan in May with a 90-day cooling-off period. The plan calls for selling 6,000 shares on the 15th of each month from August through December at a $180 minimum price. The plan executes automatically whether or not the CFO is in blackout, provided the price condition is met.
Common mistake: amending a 10b5-1 plan mid-cycle. Any modification to price, timing, or quantity restarts the cooling-off period and often voids the affirmative defense on prior trades.
10b5-1 plans matter for senior executives, post-IPO employees with large concentrations, and anyone diversifying across multiple blackout windows.