10b5-1 Plan

A 10b5-1 plan is a written trading plan adopted under SEC Rule 10b5-1 that lets an insider buy or sell company stock on a preset schedule. The insider adopts the plan at a moment when they are not aware of material nonpublic information, and specifies amounts, prices, and dates or a formula. The trades then execute mechanically even if the insider later learns something material. The plan is the safe harbor: an affirmative defense to insider trading charges.

The 2022 SEC amendments tightened the machinery for officers and directors. They added a cooling-off period of at least 90 days between adopting a plan and the first trade, one overlapping single-trade plan at a time, and disclosure of adoptions and terminations in the 10-K and 10-Q. Form 4 still reports every trade, with checkboxes identifying the plan.

The machinery runs in four moves. The insider adopts a written plan at a quiet moment, before any material information is in their hands, specifying the number of shares, price limits, and dates or a formula that determines them. The plan then executes mechanically through the broker: the insider can later learn anything material, and the scheduled trades still proceed, because the decision was made in a clean window. Form 4 reports each trade within two business days, and the checkboxes state that it ran under a plan.

The 2022 amendments added the clock. For officers and directors, the earliest trade is the later of 90 days after adoption or two business days after the 10-K or 10-Q covering the quarter of adoption is filed, capped at 120 days. One single-trade plan can be active at a time, plans must be adopted in good faith, and insiders cannot hedge the covered positions. The cooling-off window closes the loophole where a plan was adopted with the bad news already scheduled.

The reader's side is the disclosure. Sales under plans are identified on Form 4 and in the proxy and periodic reports, and the plans' terms are described in the exhibits. A scheduled sale at a preset size is the noise of corporate life; the signal is an open-market, unplanned trade.

10b5-1 plans are why most insider selling means nothing, and knowing that is worth real money in research time. The filings are public, and a scheduled sale identified as a plan trade is corporate housekeeping: diversification, tuition, a house. Treating every sale as a signal produces a portfolio driven by other people's calendars.

I watched a colleague named Brent (yes, that Brent) sell a position because the CEO's Form 4 showed a large sale and the chart looked tired. The sale was a scheduled plan trade adopted six months earlier, the CEO still held most of the position, and the stock was up 30% within a year. The plan checkbox was the whole story, and it was on the filing.

The highest-leverage thing most Americans can do is read the plan checkboxes on Form 4 before reacting to any insider sale, and treat unplanned open-market buying as the real signal. The filings are free on EDGAR, and the enforcement context is in the insider trading entry. Price the stock itself with the price-to-earnings ratio calculator rather than other people's calendars.