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If you follow insider trading data, you've likely seen footnotes mentioning "Rule 10b5-1 trading plan" on Form 4 filings. These pre-arranged trading plans are ubiquitous among corporate executives, yet widely misunderstood by investors.
This guide explains what 10b5-1 plans are, why executives use them, how the SEC has tightened the rules, and most importantly - what they mean for your investment analysis.
Rule 10b5-1, adopted by the SEC in 2000, provides an "affirmative defense" against insider trading accusations. It allows corporate insiders to set up predetermined plans to buy or sell company stock according to a fixed formula or schedule.
When an insider creates a 10b5-1 plan, they specify in advance:
Once the plan is adopted, trades execute automatically according to these parameters - regardless of what information the insider later learns about the company.
The key benefit for insiders: as long as the plan was created when they didn't possess material non-public information (MNPI), the subsequent trades are presumed to be legal - even if the insider later learns something material.
Without 10b5-1: Insider must prove they didn't possess MNPI at time of each trade
With 10b5-1: Insider only needs to prove they didn't possess MNPI when creating the plan
The primary motivation is liability protection. High-profile executives are frequent targets for insider trading allegations. A properly structured 10b5-1 plan creates a paper trail proving the trade was planned before any MNPI was available.
Executives often have concentrated positions in their company stock. 10b5-1 plans allow gradual diversification without raising concerns about each individual sale.
Many executives rely on stock sales for:
10b5-1 plans provide predictable cash flows regardless of blackout periods.
Sophisticated wealth planning often requires predetermined transactions:
Once active, the plan operates on autopilot:
Insiders can:
Frequent modifications or terminations can undermine the defense and attract SEC scrutiny.
In December 2022, the SEC adopted significant amendments to Rule 10b5-1, effective February 2023. These changes address longstanding concerns about plan abuse.
1. Mandatory Cooling-Off Periods
Before 2023, trades could begin immediately after plan adoption. Now:
This prevents insiders from creating plans to trade on recently-acquired MNPI.
2. Good Faith Certification
Officers and directors must certify in writing that:
3. One Plan Limit
Insiders can only have one active 10b5-1 plan for open market transactions at a time. This prevents "plan shopping" where insiders maintain multiple plans and terminate unfavorable ones.
4. No Single-Trade Plans
Plans designed for a single trade are no longer protected. This eliminates "plans" that were clearly created for one specific transaction.
5. Enhanced Disclosure
Companies must disclose:
The 2023 changes make 10b5-1 plans more legitimate and less prone to abuse. However, they don't fundamentally change how investors should interpret plan-based transactions:
When you see a Form 4 showing insider sales, the critical question is: Was this a discretionary decision or a predetermined plan?
Check the Footnotes
Form 4 footnotes typically disclose 10b5-1 status:
"The sales reported on this Form 4 were effected pursuant to a Rule 10b5-1 trading plan adopted by the Reporting Person on [date]."
"This transaction was executed pursuant to a pre-arranged trading plan adopted on March 15, 2025."
Look for Patterns
10b5-1 sales often show:
Sales Under 10b5-1 Plans: Generally Ignore
When an executive sells under a 10b5-1 plan:
Exception: Large-scale plan terminations by multiple insiders before bad news can indicate problems.
Purchases Under 10b5-1 Plans: Rare but Noteworthy
10b5-1 purchase plans are uncommon because:
If you see 10b5-1 purchase plans, it may indicate executives wanted to systematically build positions - a quietly bullish signal.
Given that 10b5-1 sales are noise, focus your analysis on:
Discretionary Purchases (Code P, no 10b5-1)
Sales Outside 10b5-1 Plans
Pattern Changes
Cluster Activity
Form 4 shows: CFO sold 5,000 shares at $45 Footnote says: "Pursuant to 10b5-1 plan adopted January 2025" Previous months: Same CFO sold 5,000 shares each month
Analysis: Routine diversification under predetermined plan. No signal value. The CFO set this up a year ago for tax/liquidity planning.
Form 4 shows: CEO sold 500,000 shares at $78 Footnote says: "Pursuant to 10b5-1 plan adopted September 2025" Context: Stock up 50% in past 6 months
Analysis: Likely planned profit-taking after strong run. The plan was adopted 4+ months ago at lower prices. Low signal value - the CEO isn't making a current market call.
Form 4 #1 shows: CEO terminated 10b5-1 selling plan Form 4 #2 shows: CEO purchased 100,000 shares at $32 (no plan) Context: Stock down 40% from highs
Analysis: Strong bullish signal. CEO stopped planned selling AND bought discretionary shares. This is an active decision based on current sentiment.
Form 4s show: CEO, CFO, and COO all terminated 10b5-1 plans within 30 days Context: No public explanation
Analysis: Yellow flag. While not necessarily bearish, simultaneous terminations by multiple executives warrants investigation. They may expect something that makes selling inadvisable.
Before the 2023 reforms, research identified concerning patterns:
Strategic Plan Timing: Some executives adopted plans right before good news, timed terminations before bad news, or modified plans frequently.
Multiple Overlapping Plans: Executives maintained several plans and selectively terminated unfavorable ones.
Short-Duration Plans: "Plans" created for single transactions, providing legal cover without genuine forward planning.
The new rules address these issues:
Even with reforms, some concerns persist:
When analyzing insider activity:
For each Form 4: 1. Check transaction code - P (Purchase) → Analyze further - S (Sale) → Check footnotes 2. If Sale, check for 10b5-1 disclosure - 10b5-1 mentioned → Generally ignore - No 10b5-1 → Analyze context 3. Look for pattern breaks - Plan termination → Investigate - New discretionary activity → Significant
Sometimes. The SEC now requires companies to disclose plan adoptions by officers and directors in quarterly reports. Form 4 footnotes often include adoption dates. However, not all plans are disclosed in detail.
No, they provide an "affirmative defense." The SEC can still pursue cases if it believes the plan was created while the insider possessed MNPI, or if the plan was part of a manipulative scheme. The plan creates a presumption of legality, not absolute protection.
Personal preference and circumstances. Some executives prefer the legal protection and predictability. Others have sufficient diversification and don't need regular sales. Some may not want the commitment of a predetermined plan.
In aggregate, yes. While individual 10b5-1 sales are noise, dramatic changes in plan behavior across multiple executives can be meaningful. Watch for: simultaneous terminations, significant increases in planned selling, or unusual modifications.
They lose the affirmative defense for that transaction. If they deviate from the plan terms (wrong dates, amounts, or prices), the trade is evaluated like any other - based on whether they possessed MNPI at the time.
Not the plans themselves. The actual plan documents are private agreements between the insider and their broker. However, the existence of plans must be disclosed on Form 4 footnotes and (since 2023) in company quarterly reports.
InsiderTradeFlow automatically identifies 10b5-1 transactions and filters them from our signal analysis. Our Executive Conviction Score excludes predetermined plan sales to focus on the discretionary decisions that actually reflect insider sentiment.