Company trading policies limit the number of days that insiders can trade their stock. As a result of these restrictions, company executives may have difficulty managing their personal holdings, which can represent a source of concentration risk within their wider investment plan. With a 10b5-1 plan, insiders can create a structured trading strategy enabling them to trade their stock even during blackout periods coinciding with significant corporate events, announcements, and quarterly earnings reports. This is permissible as long as the plan is established in good faith when the insider does not possess material nonpublic information. The plan defines the price, quantity of shares, and specific dates for transactions and prohibits any future influence over execution by the executive. If executed properly, a 10b5-1 plan could provide an affirmative defense against insider-trading allegations.

What is Rule 10b5-1

Rule 10b5-1, established by the Securities and Exchange Commission, prohibits the purchase or sale of a security on the basis of Material Nonpublic Information, (MPNI).  It is a clarification of Rule 10b-5, created under the Securities and Exchange Act of 1934, which is the primary vehicle for investigation of securities fraud. Although the rule creates more liability by prohibiting trades made while someone is merely “aware” of MNPI (rather than “using” such information), the rule also provides the affirmative defense of a 10b5‐1 plan, which is available to any person or entity.

What is a 10b5-1 Plan

A 10b5-1 plan is a written agreement between a corporate insider and a broker that establishes predetermined trading instructions for company stock. 10b5-1 plans are established during an open trading window before the insider holds any MNPI, and the company stock trades are triggered once the plan is in place and the “cooling off” period (a period where there are no purchases or sales) has expired.

The plan delineates trading details for company stock, including the quantity of shares to be sold or purchased, the timing of these transactions, and the specified prices at which the shares will be bought or sold.

Benefits of 10b5-1 Plans

The most important benefit of these plans is that a properly structured plan provides an affirmative defense for companies and provides a way for executives to sell their shares during blackout periods.

Other benefits include:

  • Potentially less negative publicity associated with insider sales; and
  • Decreased burden on counsel or trading compliance officers who otherwise would have to make subjective determinations about the availability or possession of MNPI each time an insider seeks to buy or sell shares.
  • Plans allow the participants to maintain their long-term financial plan and can potentially provide steady cash flow.
  • Employees can diversify their interest in company stock.

Best Practices

The following strategies may help maximize the flexibility and effectiveness of a 10b5-1 plan:

  • Establishment of plan: Establish Rule 10b5-1 plans only during open trading windows in a show of good faith.
  • Cooling period: Establish a waiting period between when the plan is adopted and when securities trading begins. It’s recommended o make this waiting period at least 30 days.
  • Term and form of plan: Use a pre-approved form or template of a plan. Review the plan once a year to make sure that it’s still relevant to your financial objectives.
  • Parameters for trading: Use simple and clear trading instructions.
  • Avoid excessive terminations and modifications of a plan: In the event of any modification, termination, or suspension, issuers should impose a waiting period before trades can be reinstated under a plan.
  • Avoid multiple plans with trades overlapping: Rule 10b5-1 plans should not overlap, as it can raise suspicions about avoiding regulatory bodies. One plan should be flexible enough and have enough room for diverse trading strategies so that multiple plans will not be necessary.
  • Limit trades outside of plans: After a plan is established, outside trades should be kept at a minimum. While an insider is allowed to trade outside of the plan, the affirmative defense of Rule 10b will not apply to outside trades.
  • Establishing a plan concurrent with an IPO is particularly important for companies with constantly evolving non-public information, such as certain life science companies involved in drug trials. In situations like this, executives might have limited windows for selling stock absent of a 10b5-1 plan.

Who Can Establish a 10b5-1 Plan

10b5-1 plans serve as a tool utilized by insiders who receive equity compensation, a group comprising company officers, directors, and individuals holding over 10% of the company’s shares. Upon confirmation of insider status by the company, individuals can work with a broker to establish a tailored 10b5-1 plan to suit their requirements.

Companies may extend 10b5-1 plans to employees who are not typically classified as insiders. These employees may possess MNPI, rendering them subject to trading blackout periods. To foster transparency and shield them from potential allegations of insider trading, companies may offer these employees the opportunity to adopt a 10b5-1 plan.


Data in this presentation is being provided for informational purposes only. Opinions and estimates constitute our judgment and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The information contained in this report has been gathered from sources we believe to be reliable, but we do not guarantee the accuracy or completeness of such information, and we assume no liability for damages resulting from or arising out of the use of such information. Callan Capital does not provide individual tax or legal advice, nor does it provide financing services. Clients should review planned financial transactions and wealth transfer strategies with their own tax and legal advisors. For more information, please refer to our most recent Form ADV Part 2A which may be found at