What is a Rule 10b5-1 trading plan? Definition, how it works and examples
How a pre-set selling plan protects an insider after a listing — the cooling-off periods the SEC added in 2023, and why it matters to anyone holding pre-IPO equity.
The short answer
A 10b5-1 plan is a written instruction, set up while you hold no inside information, that tells a broker to buy or sell a company’s shares later on fixed terms — so when the trades happen, you can show they were decided in advance and were not based on what you knew at the time. It only matters once there is a public market for the shares.
What is a Rule 10b5-1 trading plan, and how does it work?
Rule 10b5-1 sits under the SEC’s general anti-fraud rule, Rule 10b-5. It says that trading “on the basis of” material nonpublic information is trading while aware of it — and then gives an affirmative defence: if the trade was made under a contract, instruction or written plan adopted before you became aware, and you met the rule’s conditions, the trade was not “on the basis of” that information.
What is the purpose of a 10b5-1 plan, and who needs one?
The purpose is to let people who almost always hold inside information still trade on a schedule. A chief financial officer knows the quarter’s numbers weeks before the market. Without a plan she trades only in the windows her company’s policy opens, and a sale before bad news invites a lawsuit. With a plan adopted months earlier, the defence is on paper. Directors and officers The longest cooling-off period, a certification in the plan, and quarterly disclosure of their plans by the company. Employees with routine access Finance, legal and people on unannounced products.
The conditions the SEC added in 2023
The SEC adopted the amendments on 14 December 2022, after years of criticism that insiders were adopting plans the day before trading and cancelling them when the news turned. They took effect on 27 February 2023. Plans adopted before that date keep the old defence unless they are modified, the release says.
What is a single-trade 10b5-1 plan?
A single-trade plan sells (or buys) the whole amount it covers in one transaction — one block of shares on one date or at one price. The SEC saw these as the easiest to abuse: adopt a plan, wait out a short delay, sell everything before the news. So a person other than the issuer can rely on the defence for only one single-trade plan in any 12-month period. What counts is the design: a plan built to sell everything at once is single-trade even if the broker fills it in pieces. If you expect to sell more than once a year, build one multi-tranche plan rather than a series of one-off ones.
Why a 10b5-1 plan matters once a private company lists
Before the IPO there is no public market and no 10b5-1 question. On listing day the picture changes: employees, founders and early investors suddenly hold shares with a price, a lock-up that stops them selling for a period, and an insider trading policy that limits when they may trade after it. The difference between pre-IPO and IPO is, for a holder, mostly this change of rules. Because a director’s or officer’s plan cannot trade for at least 90 days after adoption, a plan adopted early in the lock-up can be ready to start close to the day it ends.
A worked example: one officer, one employee, the same day
Two people at a company that listed earlier in 2026, with a calendar fiscal year, adopt plans on Tuesday 10 November 2026. One is the chief financial officer. The other is a senior engineer who is not an officer. Each plan sells 40,000 shares in four tranches of 10,000, one a month, subject to a minimum price. If the CFO decides in January to raise the minimum price, that is a modification: the old plan is treated as terminated, a new one is adopted on the day of the change, and the 90-to-120-day clock starts again. The engineer’s plan would restart its 30 days in the same way.
Where plans fail the defence
Adopting while aware The plan protects only if you held no material nonpublic information on the day you adopted it. Adopting it the week before earnings defeats the point. Tweaking the terms Any change to amount, price or timing is a new plan with a new cooling-off period. Small adjustments add up to months of lost trading. Running two plans A second open-market plan that overlaps the first can cost the defence for both, unless it is set to start only after the first ends.
The terms this page uses
Material nonpublic information Information about a company that the market does not have and that a reasonable investor would consider important — unreleased results, a pending deal, a failed trial. Affirmative defence A defence the trader must raise and prove. A 10b5-1 plan does not stop an investigation; it gives you a documented answer to one. Cooling-off period The wait between adopting a plan and its first trade: 90 to 120 days for directors and officers, 30 days for others. Section 16 officer An officer as defined in SEC Rule 16a-1(f) — broadly the executives who run the company.
What people ask about 10b5-1 plans
What is a 10b5-1 plan in simple terms? It is a pre-set instruction to buy or sell a company’s shares later, adopted while you hold no inside information. Because the trades were fixed in advance, they can be defended as not based on anything you learned afterwards. Does a 10b5-1 plan make insider trading legal? No. It is an affirmative defence to a claim that you traded on inside information, and it works only if every condition is met, including good faith throughout. A plan adopted while aware of material information gives no protection.
What is a 10b5-1 plan in simple terms?
It is a pre-set instruction to buy or sell a company’s shares later, adopted while you hold no inside information. Because the trades were fixed in advance, they can be defended as not based on anything you learned afterwards.
Does a 10b5-1 plan make insider trading legal?
No. It is an affirmative defence to a claim that you traded on inside information, and it works only if every condition is met, including good faith throughout. A plan adopted while aware of material information gives no protection.
Can I have a 10b5-1 plan before my company goes public?
The rule governs trading in a public market, so a plan only operates after the listing. Some companies allow employees to adopt plans around the IPO so that sales can start after the lock-up; whether yours does is set by its insider trading policy.
How long must I wait after setting up a plan?
Directors and officers wait the later of 90 days or two business days after the next 10-Q or 10-K, up to 120 days. Everyone else except the company waits 30 days.
Can I cancel a 10b5-1 plan?
Yes, but a termination is disclosed for directors and officers, and cancelling to trade on better information can destroy the good-faith condition. Any change to amount, price or timing counts as cancelling and adopting a new plan.
Does an investor in a pre-IPO SPV need a 10b5-1 plan?
Usually not: an investor in a vehicle is rarely an insider of the company. What helps such an investor is reading insiders’ plan disclosures after the listing, which show whether their sales were scheduled in advance.
Where every rule on this page comes from
Every rule was checked against the text of the regulation and the SEC’s adopting release; the last verification was 1 October 2026. This page describes US federal securities rules; a company’s own policy and any lock-up agreement can be stricter.