Rule 10b5-1 Trading Plans: What Insiders Are Actually Allowed to Do

Sarah sits on the board of a mid-cap software company. She holds 200,000 shares, bought years ago when the stock was under $10. It’s now trading around $40. She wants to sell 5,000 shares a month for six months, roughly $200,000 in proceeds each month, to fund her daughter’s tuition and pay down a mortgage. But she’s a director. The moment she clicks “sell,” the market reads it as a signal. And if she happens to sell the week before a bad earnings report, the SEC has a very specific question for her.

Rule 10b5-1 is the answer to that question. It lets Sarah (and thousands of other insiders) lock in a selling schedule before she knows what the next quarter will look like, so the trade executes on autopilot. No one has to think about it. No one has to decide on a Tuesday at 2:47 p.m. whether to sell. The plan does it.

Key points

• A 10b5-1 plan lets an insider pre-schedule stock sales so the trades execute without real-time judgment, creating a safe harbor against insider-trading allegations.
• Officers and directors face a 90-day cooling-off period before the first trade can fire; other insiders get 30 days.
• The 2022 SEC amendments banned single-trade plans for officers and directors and restricted overlapping plans, closing loopholes that let insiders time sales around material news.
• A plan must specify the amount, price (or formula), and timing of trades at the moment of adoption. You cannot leave it open-ended.
• The safe harbor is a defense, not a guarantee. If the plan was adopted in bad faith, it does not protect you.

What the rule actually does, mechanically

Here’s the core idea in one sentence: if you set up a selling schedule while you don’t know material non-public information, and the schedule then executes later, you can point to the plan and say, “I wasn’t deciding to sell on that day. The plan was.”

That’s the safe harbor. It doesn’t make the trade legal in a vacuum. It gives you a rebuttable presumption that you weren’t trading on inside information. The burden shifts to the SEC to prove you adopted the plan in bad faith, i.e., you already knew something and structured the plan to exploit it.

For Sarah, the mechanics are straightforward. On January 15, 2026, she (or her broker, acting on her written instruction) files a 10b5-1 plan with her company’s legal team. The plan says: sell 5,000 shares at market price on the third Tuesday of each month, starting April 15, for six consecutive months. Total: 30,000 shares. At her current $40 price, that’s $1,200,000 in gross proceeds over six months. After the plan runs, she holds 170,000 shares.

The broker executes those trades. Sarah doesn’t look at her phone on the third Tuesday. She doesn’t check the news. The order fires, the shares sell, the cash settles. Done.

Why the 90-day gap exists

You might wonder why Sarah can’t set the plan on January 15 and start selling on January 16. The answer is the cooling-off period, and it’s the single most important structural feature of the rule.

For officers and directors, the cooling-off period is the later of 90 days after the plan is adopted or modified, or two business days after the company’s next periodic report (a 10-Q or 10-K) is filed. For other covered persons, like a 10% shareholder who isn’t an officer, it’s 30 days.

Sarah is a director. She adopts the plan on January 15. Ninety days later is April 15. But she also has to check: when does the company file its next 10-Q? If that filing lands on April 20, the two-business-day buffer pushes her first eligible trade to April 22. The plan can’t fire until both conditions are met.

This gap exists for one reason. The SEC wants a meaningful window between “I decided to sell” and “I actually sell” so that the decision was made without knowledge of whatever the next earnings report, product launch, or regulatory action will reveal. Thirty days for a non-officer is shorter because the information asymmetry is assumed to be smaller. Ninety days for a director reflects the fact that she sits in the room where the decisions get made.

What the plan must say at the moment of adoption

This is where a lot of people get the rule wrong. A 10b5-1 plan is not a vague intention. It’s a contract with specific parameters locked in at adoption.

The plan must state:

• How many shares (or what percentage of holdings) will be sold.
• At what price, or by what formula. “Market price” is acceptable. “A price 5% below the closing price on the trade date” is acceptable. “Whatever price I think is fair on the day” is not.
• When the trades execute. A specific date, a recurring schedule (like “third Tuesday of each month”), or a trigger tied to a public event (like “the day after the 10-Q is filed”).

Sarah’s plan checks all three boxes. 5,000 shares. Market price. Third Tuesday of each month. Six installments. Locked in on January 15.

You cannot adopt a plan that says “I’ll sell up to 50,000 shares at some point in the next year when the price looks right.” That’s not a plan. That’s a wish. The SEC will not treat it as a safe harbor.

What you cannot do under a 10b5-1 plan

The 2022 amendments, which took effect in 2023, tightened the rules significantly. A few things that used to be grey are now black:

No single-trade plans for officers and directors. Before 2022, a director could technically adopt a plan that called for one trade, say, 100,000 shares on a specific date, and that was technically a “plan.” Now it isn’t. If you’re an officer or director, the plan must provide for more than one trade. Sarah’s six-installment schedule is fine. A one-shot sale of 30,000 shares on a single date is not, for her.

No overlapping plans. You can only have one active 10b5-1 plan at a time. There’s a narrow exception: you can modify an existing plan to reduce the number of shares to be sold, but you can’t layer a second plan on top. This killed the old practice of having a “base” plan and a “top-up” plan that together let you sell more than either one alone would have allowed.

No modification to increase the sale. If Sarah’s plan says 5,000 shares per month, she can’t call her broker in March and say, “Actually, make it 8,000.” That modification resets the cooling-off period. She’d be back to waiting 90 days from the modification date.

Affiant requirement. The insider must certify, in writing, that at the time of adoption they are not aware of material non-public information. That’s a legal attestation. It’s not a checkbox. It’s a statement under penalty of perjury, effectively.

How the trade actually settles

Once the plan fires and the broker executes the sell order, the trade goes through the standard settlement pipeline. As of May 28, 2024, equities in the U.S. settle on a T+1 cycle, meaning the buyer pays and the seller delivers shares the next business day. The SEC’s press release on shortening the settlement cycle to T+1 explains the regulatory rationale: shorter settlement reduces counterparty risk and the chance that a trade fails because one side can’t deliver.

For Sarah, this means if her plan triggers a sell on Tuesday, April 15, the shares are debited from her account and the buyer’s account is credited by Wednesday, April 16. The cash is in her brokerage account by the end of Wednesday. She doesn’t need to do anything. The broker handles the delivery-versus-payment.

This is the same settlement infrastructure that any retail investor uses when they buy a share of stock through a brokerage. The FINRA investor education page on stocks walks through the basic mechanics of how a stock trade goes from order to settlement, and the same pipeline applies whether you’re a retail buyer or a director executing a pre-scheduled sale.

The T+1 change matters for insiders in a subtle way. Under the old T+2 regime, there was a 48-hour window where the trade was “done” but the shares hadn’t moved. In that window, the insider technically still held the shares. Under T+1, that window is 24 hours. It’s a small difference, but it narrows the time during which an insider could theoretically claim they “still held” the position while the economic benefit had already transferred.

Comparing the plan types side by side

All figures reflect the 2022 amendments to Rule 10b5-1 under the Securities Exchange Act of 1934. The “narrow modification exception” refers to the ability to reduce, but not increase, the number of shares in an existing plan without resetting the cooling-off clock.

What this does not tell you

This article explains the mechanics of the safe harbor. It does not tell you whether a particular insider’s plan was adopted in good faith. That’s a factual question the SEC or a court would resolve, and the evidence is often sealed.

It does not cover the state-law implications. Some states have their own fiduciary-duty statutes that can impose obligations beyond the federal safe harbor. If you’re a director in Delaware, for example, the duty of loyalty analysis runs in parallel to the 10b5-1 analysis, and a plan that is technically compliant with the SEC rule could still raise a state-law question.

It does not address the market-impact question. When a director sells 5,000 shares on a scheduled Tuesday, the market may not care. When a CEO sells 200,000 shares, the stock often dips 1-3% on the news, even if the sale was perfectly legal and pre-scheduled. The rule protects you from a legal claim. It does not protect you from the price moving against you because the market read your sale as a signal.

It also does not cover the interaction with Section 16 short-swing profit rules, which require officers, directors, and 10%+ shareholders to return any profit made on a buy-sell or sell-buy within six months. A 10b5-1 plan does not exempt you from Section 16. If your plan sells 5,000 shares in April and you buy 3,000 shares in September, the profit on those 3,000 shares is subject to the short-swing rule regardless of the plan.

FAQ

Can I use a 10b5-1 plan to buy stock, not just sell it?

Yes. The rule applies to both purchases and sales. If you’re an insider who wants to buy more shares of your own company on a schedule, you can set up a 10b5-1 plan for purchases. The same cooling-off periods, single-trade restrictions, and affiant requirements apply. In practice, most plans are selling plans, but the rule is symmetrical.

Does the plan have to go through my company’s legal department?

Not legally, but practically, yes. The plan is a legal document that creates the safe harbor. If it’s poorly drafted, the safe harbor is weaker. Most companies require that any 10b5-1 plan be reviewed by in-house counsel or outside securities counsel before the insider’s broker executes under it. The company also discloses the existence of the plan in its periodic filings, typically in the proxy statement or 10-K.

What happens if the plan triggers a trade on a day the market is halted?

The broker typically rolls the execution to the next trading day. The plan’s schedule is a guideline for when the trade should happen, not a hard deadline that voids the safe harbor if the market is closed. But this is a practical question that depends on the specific language of the plan and the broker’s operational procedures. There is no single SEC rule that dictates the roll-forward mechanics.

Can I cancel a 10b5-1 plan once it’s in effect?

You can terminate a plan, but the termination itself is a disclosure event. The company will file a Form 4 with the SEC reporting the termination, and the market will see it. You cannot cancel a plan and then re-adopt a new one the next day to reset the cooling-off period. That would be treated as a modification, not a fresh adoption, and the cooling-off clock restarts.

Does a 10b5-1 plan protect me if I leak information to a friend who then trades?

No. The safe harbor protects you from an insider-trading claim on your trades. It does not create a shield for a third party who trades on information you shared. If you tell your spouse, “We’re about to announce a product delay,” and your spouse sells their shares the next morning, that’s a separate insider-trading issue. The 10b5-1 plan on your account is irrelevant to their trade. Tipping is a distinct violation under Rule 10b-5, and the safe harbor does not extend to it.

What to look at next

If you want to see how 10b5-1 plans show up in real filings, pull a recent proxy statement (DEF 14A) for any public company and search for “10b5-1.” The disclosure section will tell you whether the CEO, CFO, or any director adopted, modified, or terminated a plan in the last fiscal year, and on what date. The SEC’s EDGAR database makes these filings free to search.

If you’re trying to understand how the broader settlement and clearing infrastructure works, the CME Group’s contract specifications page is a useful reference for how futures contracts define their own settlement and delivery terms, which operate on a different timeline than the T+1 equity cycle but follow the same principle: the rules are fixed in advance, and the trade executes against them.

Read the actual text of Rule 10b5-1 in the SEC’s e-CFR. It’s short. Four pages, maybe five. Reading the rule itself, rather than a summary of the rule, will save you from the most common misunderstandings about what the safe harbor does and does not cover.

This article is general information, not financial advice. See our disclaimer.

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