What is a Rule 10b5-1 plan?
A Rule 10b5-1 plan is a written trading plan, adopted while you are not aware of material non-public information (MNPI), that specifies in advance the amount, price, and dates of future trades — or a formula for determining them. Once it's in place, a broker executes the trades automatically. Because you gave up discretion at a time when you had no inside information, the plan provides an "affirmative defense" if the SEC ever questions a trade.
Why executives use them
If a large share of your wealth sits in one company's stock, you face three pressures at once: concentration risk, the tax cost of selling, and trading restrictions during blackout windows. A 10b5-1 plan addresses the third and helps with the first. It lets you diversify steadily and unemotionally — selling on a pre-set cadence rather than trying to guess the right moment — and, where the company's own insider trading policy permits, it can allow sales to continue through a blackout period, because the decisions were made in advance. Company policy governs here and varies widely — confirm yours before assuming a plan buys you window-free selling.
How a plan actually works
You adopt the plan when you're clear of MNPI (typically during an open trading window). You define what will be sold and when — for example, a fixed number of shares each quarter, or shares above a set price. From that point you hand control to the broker; you can't cherry-pick which trades happen. That loss of discretion is the point: it's what makes the defense credible.
What the defense does not cover
A 10b5-1 plan is an affirmative defense, not immunity. That distinction carries more weight than it sounds like it does. The defense is available only if every condition is satisfied — adopted free of material non-public information, cooling-off period observed, no overlapping plan, good faith maintained throughout. Miss one and there is no partial credit. The protection is simply not there.
It is worth being equally clear about what a plan does not address at all:
- It does not reduce concentration risk while the plan runs. If the schedule takes three years, you hold a concentrated position for three years. The plan governs the pace of selling, not the exposure in the meantime.
- It does not improve the price you receive. Selling on a fixed cadence is a discipline, not an execution strategy. Some sales will land above where you would have chosen, some below.
- It does not shelter the gain from tax. The tax consequences of each sale are the same as they would be outside a plan.
- It does not prevent scrutiny. It gives you a defensible record if scrutiny arrives. Form 4 carries a checkbox identifying trades made under a plan, and companies disclose plan adoptions and terminations quarterly, so a 10b5-1 plan is a public act from the start.
The value of a plan, for most of the executives we work with, is behavioral rather than legal. The window closes, the stock looks cheap, another vest is coming — and the position sits where it is for another year. A plan takes the decision out of the moment. That is usually the more valuable of the two benefits.
The 2023 rules you need to know
The SEC tightened Rule 10b5-1 in December 2022, effective in 2023. The key conditions:
Cooling-off periods
Directors and Section 16 officers must wait until the later of two dates: 90 days after the plan is adopted or modified, or two business days after the company discloses its financial results for the fiscal quarter in which the plan was adopted. That period is capped at 120 days. The practical effect is that the market normally sees the next quarterly report before the insider's first trade.
Insiders who are not directors or Section 16 officers wait 30 days. Companies trading in their own shares have no minimum waiting period.
What counts as a modification
A change to the price, the share amount, or the timing of trades — including a change to a pricing formula — is treated as terminating the existing plan and adopting a new one. A new cooling-off period attaches. This is the condition most often discovered late, usually by someone who assumed a small adjustment was administrative.
One plan at a time, with narrow exceptions
Insiders other than the issuer generally may not maintain overlapping plans for open-market trades in the same class of securities. Two exceptions matter in practice: a later-commencing plan is permitted where trading under it does not begin until the earlier plan has ended, and sell-to-cover arrangements that exist only to satisfy tax withholding on vesting awards fall outside the restriction.
One single-trade plan a year
A plan designed to execute as a single block trade may rely on the defense only once in any twelve-month period. Structuring a series of one-off sales as a series of single-trade plans does not work.
Certification and continuing good faith
Directors and officers certify at adoption that they are not aware of material non-public information and that the plan is adopted in good faith, not as part of a scheme to evade the rule. The certification sits in the plan document rather than in a filing, but it is a written representation with the weight that implies. Separately, the insider must act in good faith with respect to the plan on an ongoing basis — conduct after adoption is squarely in scope, including attempts to influence the timing of corporate disclosures around scheduled trades.
Disclosure
Companies disclose the adoption, modification, and termination of insider trading arrangements each quarter under Item 408 of Regulation S-K, describe their insider trading policies annually, and Form 4 identifies trades executed under a plan.
Coordinating the plan with your financial plan
A 10b5-1 plan is a compliance tool, not a strategy on its own. The strategy is deciding how much to sell and when, based on your diversification target, your tax budget across years, your cash-flow needs, and your estate goals. We help executives size and schedule the plan so it advances the broader plan — and we coordinate it with your securities counsel, who drafts the plan itself.
Which shares should go first
Before a plan is drafted, the questions worth resolving are financial rather than legal. The sequence of what gets sold changes the outcome more than the cadence does.
- Vested restricted stock units. RSUs have already produced ordinary income at vest, so selling at or near vest usually adds little further tax cost. For most executives these are the natural first shares out, and they pair with the under-withholding problem that RSUs create in the same year.
- Non-qualified stock options. The spread at exercise is ordinary income regardless of whether the shares are then held or sold. Holding after exercise adds market risk without changing the ordinary-income treatment already triggered.
- Incentive stock options. These carry alternative minimum tax exposure at exercise and a holding-period test that converts a disqualifying disposition back to ordinary income. ISOs rarely belong in the first tranche of a diversification schedule without a separate analysis.
- Long-held, low-basis shares. The largest embedded gains, and often the best candidates for charitable giving rather than sale.
Two further questions shape the schedule. How do the sales land across tax years? A plan that runs across a calendar-year boundary gives more room to manage bracket, surtax, and capital-gain-rate thresholds than one concentrating sales in a single year. And is charitable giving part of the picture? Low-basis shares are frequently the most efficient asset to give. Shares committed to a donor-advised fund or other charitable vehicle should be carved out before the sale schedule is set, not after — once a share is inside a running plan, removing it is a modification.
One more that gets skipped: a diversification plan with no reinvestment plan behind it tends to end with proceeds sitting in cash for a year. Decide where the money goes before the first trade, not after.
Common mistakes insiders make
- Modifying or canceling the plan to chase the stock — which can void the defense.
- Setting arbitrary sell dates disconnected from tax or diversification goals.
- Ignoring the tax bill from concurrent option exercises or RSU vesting.
- Treating the plan as "set and forget" without an annual review of the underlying goals.
Important: Skyview Financial Group does not provide legal advice. Rule 10b5-1 plans must be drafted and reviewed by qualified securities counsel. We coordinate the financial and tax strategy alongside your attorney.
Related: our equity compensation planning service and our guide to diversifying a concentrated stock position.
Disclosure: Skyview Financial Group, LLC is an SEC-registered investment adviser (CRD #310581). This content is educational only and is not individualized tax, legal, or investment advice. Figures and rules cited are current as of September 2026 and subject to change; please consult your CPA and, where applicable, legal counsel. Examples are illustrative and do not reflect any specific client.