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Rule 10b5-1 plan
Also called: 10b5-1, 10b5-1 plan, trading plan, pre-arranged trading plan
A written plan, set up in advance, that schedules an insider’s trades in company stock and shields trades made under it from insider-trading claims.
Explanation
Insiders often hold material non-public information, which makes any trade risky. Rule 10b5-1(c) offers an affirmative defense: if the insider adopted a written plan while not aware of such information, and the plan fixes the amounts, prices and dates (or a formula for them), trades made under it are protected.
The SEC tightened the rule in 2023. Directors and officers must now wait before the first trade: the later of 90 days after adoption or two business days after the financial results for the quarter of adoption are filed, capped at 120 days. Overlapping plans are not allowed, single-trade plans are limited to one per 12 months, and directors and officers must certify that they hold no material non-public information when they adopt one.
Companies now disclose each quarter which directors and officers adopted or ended plans (Regulation S-K Item 408), and Form 4 has a checkbox marking trades made under a plan.
Why it matters
Planned sales say little about what an insider thinks of the stock today; discretionary trades say more. Telling them apart is the first step in reading insider activity.
How Equity Dictionary measures it
The Insiders tab marks each Form 4 transaction made under a 10b5-1 plan, read from the Form 4 checkbox or its footnotes.
Related terms
- Form 4: The filing in which a company’s officers, directors and 10%-plus shareholders report their trades in its stock, due within two business days.
- Schedule 13D and 13G: The reports anyone who acquires more than 5% of a company’s voting stock must file: 13D for activists and would-be controllers, the shorter 13G for passive investors.
- Form 10-K and 10-Q: The annual (10-K) and quarterly (10-Q) reports US public companies file with the SEC, containing their financial statements and management’s discussion.
Plain-English summary for research; not legal or investment advice.