A Rule 10b5-1 plan is a pre-arranged trading schedule that establishes an affirmative defense to insider trading liability. By adopting the plan when you are not in possession of material non-public information, and by having trades execute automatically according to the plan's parameters, you can sell company stock even during periods when you would otherwise be restricted by your possession of MNPI.
In my experience, the most important thing for an insider to understand about Rule 10b5-1 is what it actually does — and what it doesn't do. What it does: it creates an affirmative defense under the securities laws. If you are charged with insider trading and you have a properly adopted and followed 10b5-1 plan, you can assert that defense to show that your trades were pre-arranged according to a schedule set before you had any relevant MNPI. What it doesn't do: it is not a blanket license to trade on inside information. It protects you only to the extent you actually follow the plan's requirements — including adopting it when you had no MNPI, completing the required cooling-off period, and not modifying or canceling the plan suspiciously. Courts and the SEC look at 10b5-1 plans carefully, and the defense has been successfully challenged in cases where insiders adopted plans opportunistically, modified them to front-run bad news, or canceled them when trades became inconvenient. I typically advise executives to treat their 10b5-1 plan as a compliance instrument — something you set up thoughtfully, follow rigorously, and treat as binding — rather than a scheduling convenience you can adjust whenever circumstances change.
For purposes of 10b5-1, insiders are officers, directors, and 10%+ shareholders of public companies. But any person who possesses material non-public information when selling company securities — including employees below the officer level — can face insider trading liability. 10b5-1 plans are most commonly used by executives, directors, and major shareholders, but the underlying concern applies more broadly.
The formal definition of "insider" under Section 16 of the Securities Exchange Act covers officers, directors, and 10%-or-greater shareholders. These individuals have the most structured reporting obligations and are the primary audience for 10b5-1 plans. But insider trading liability under Rule 10b-5 is broader than the Section 16 definition — it applies to anyone who trades on the basis of material non-public information, regardless of title. A senior employee who is not an officer but who has access to earnings information, deal information, or other MNPI faces insider trading risk when selling company stock, even if they are not required to file Section 16 reports. In my experience, the executives who use 10b5-1 plans most heavily are: CEOs, CFOs, COOs, and other executive officers of publicly traded companies; members of boards of directors; and significant shareholders (founders, early investors, venture capital funds) who hold 10% or more of the outstanding shares. For founders of pre-IPO companies who are planning for an IPO, the 10b5-1 framework becomes relevant as part of IPO planning — understanding how post-IPO stock sales will need to be structured is a conversation I have with founders in the pre-IPO period, not for the first time after they go public.
A 10b5-1 plan must be a written contract, instruction, or plan that specifies the amount to be sold, the price, and the timing, or establishes a formula or algorithm for determining those parameters. It must be adopted at a time when the insider is not aware of MNPI. After the 2023 amendments, it also requires a certification from officers and directors that they are not aware of MNPI at the time of adoption.
The formal requirements for a valid 10b5-1 plan are more demanding than many insiders realize, particularly after the 2023 SEC amendments. The plan must be a written agreement — an oral plan does not qualify. The plan must specify, at the time of adoption: (1) the amount of securities to be purchased or sold; (2) the price at which they are to be traded (or a formula for determining price); and (3) the date(s) on which trades are to occur, or a formula or algorithm for determining timing. Alternatively, the plan can delegate all discretion over trading decisions to a broker or other agent who is not aware of MNPI when making the trading decisions — the broker-managed approach. The most important requirement is that the plan must be adopted at a time when the insider is not aware of material non-public information. After the 2023 amendments, officers and directors must also certify at the time of plan adoption that: (a) they are not aware of MNPI about the company or its securities; and (b) the plan is being adopted in good faith and not as part of a scheme to evade insider trading prohibitions. This certification requirement adds a formal documented record to the plan adoption process and creates direct liability exposure if the certification is false. In practice, 10b5-1 plans are typically adopted during open trading windows — the period after the company has released earnings and the window is open under the company's insider trading policy — to ensure that the insider is in the cleanest possible informational position at plan adoption.
The SEC's December 2022 rule amendments (effective February 2023) added mandatory cooling-off periods for officers and directors, a certification requirement at plan adoption, limitations on single-trade plans (one per 12-month period), a prohibition on overlapping plans, and enhanced disclosure requirements. The amendments were the most significant changes to the 10b5-1 framework since the rule was adopted in 2000.
The 2023 amendments reflected years of SEC concern and academic research showing that insiders were using 10b5-1 plans opportunistically — adopting plans just before good news, canceling them just before bad news, and using multiple overlapping plans to maintain flexibility. The key changes were as follows. First, mandatory cooling-off periods: before any trades can execute under a newly adopted plan, officers and directors must wait the later of 90 days after adoption or the first business day after filing the Form 10-Q or 10-K for the fiscal quarter in which the plan was adopted — with an overall 90-day minimum and an effective maximum cooling-off of approximately 120 days in most cases. Other insiders (non-officer, non-director employees) must wait 30 days. This extended cooling-off period is designed to break the connection between plan adoption and an imminent expected trading benefit. Second, MNPI certification: at plan adoption, officers and directors must certify that they are not aware of MNPI and that the plan is adopted in good faith. Third, single-trade plan limitation: insiders are limited to one single-trade plan per 12-month period. Fourth, overlapping plans are prohibited: an insider may not maintain two plans under which trades can execute simultaneously (with narrow exceptions). Fifth, enhanced disclosure: companies are now required to disclose 10b5-1 plan adoptions and terminations in SEC filings, increasing public scrutiny of insider trading patterns.
After the 2023 amendments, officers and directors must wait the later of 90 days after plan adoption or the first business day after the Form 10-Q or 10-K filing for the quarter in which the plan was adopted. Non-officer insiders must wait 30 days. Trades cannot execute during the cooling-off period regardless of what the plan specifies.
The cooling-off period is the most practically significant change from the 2023 amendments, and I spend a lot of time with executives making sure they understand the timing implications before they set up a plan. Here is how the cooling-off period works in practice for officers and directors — the most common category. You adopt the plan during an open trading window, with the required certification. From that adoption date, you must wait: (1) 90 days, or (2) until the first business day after the company files the Form 10-Q or 10-K for the fiscal quarter in which you adopted the plan — whichever is later. In most cases, this means the effective cooling-off period is between 90 and 120 days, depending on when in the fiscal quarter the plan is adopted and when the quarterly filing occurs. Trades specified in the plan cannot execute during this cooling-off window. For planning purposes, this means: if you adopt a plan in February, the earliest your first trade can execute is late May, and only if the Q1 10-Q has been filed. This timeline has significant implications for executives who want liquidity by a specific date — they need to work backward from their target trading date and adopt the plan several months in advance. For non-officer employees who are nonetheless subject to company blackout policies, the 30-day cooling-off applies, but company-specific policies may be more restrictive.
The most common mistakes that void or undermine 10b5-1 protection are: adopting a plan while aware of MNPI, modifying the plan to front-run anticipated news, canceling trades or the plan to avoid losses before bad news, maintaining multiple overlapping plans, and adopting multiple single-trade plans in a 12-month period.
In my experience, the 10b5-1 plan mistakes that attract SEC scrutiny follow recognizable patterns. The first and most serious is adopting the plan while actually aware of MNPI — a certification violation that undermines the entire affirmative defense and exposes the insider to insider trading liability. The second is modifying the plan after adoption. While not all modifications void the plan, modifications that look like they were made to take advantage of anticipated news — accelerating trades before good earnings, slowing them before bad — destroy the good faith premise of the plan. The 2023 amendments require that any modification restart the cooling-off period, which creates a powerful deterrent to modification. The third is suspicious cancellation: canceling a plan when the insider anticipates bad news, then re-entering the market after the news is public, is a pattern the SEC has prosecuted. The fourth is operating multiple overlapping plans — now prohibited under the 2023 amendments. The fifth is adopting a second single-trade plan within the same 12-month period — also prohibited. The sixth is a technical one that is frequently missed: failing to have the plan adopted and confirmed in writing, with all required certifications, before any trades execute. I advise every executive client to treat their 10b5-1 plan as they would any other legal compliance document — set it up carefully, don't modify it without legal review, and document every step of the process.
You can cancel or modify a 10b5-1 plan, but doing so has significant consequences. Any modification requires restarting the full cooling-off period, meaning you cannot trade under the modified plan until the cooling-off runs again. Suspicious cancellations — particularly those timed around anticipated company news — can undermine the affirmative defense even for trades executed before the cancellation.
The question of plan modification and cancellation is one I get frequently from executive clients, and the post-2023 answer is significantly more restrictive than the pre-2023 rule. Under the current rules, any modification to a 10b5-1 plan — changes to the number of shares, pricing parameters, or timing — is treated as a termination of the existing plan and adoption of a new one. The full cooling-off period applies to the modified (new) plan, just as it applied to the original. This means a modification that you make in February won't produce any trades until May or June at the earliest. For executives who want to adjust their trading plan in response to changed circumstances — a liquidity event, an estate planning need, a change in financial circumstances — this restart requirement can mean months of delay before the modified plan becomes effective. The ability to cancel the plan entirely remains, but the SEC and courts scrutinize the timing of cancellations carefully. A pattern of canceling plans before bad news and reinstating them after the news is public is a recognized insider trading red flag. The 2023 enhanced disclosure requirements — which require companies to disclose plan adoptions, modifications, and terminations in SEC filings — make this pattern more visible and more likely to attract scrutiny. I typically advise executives: treat your 10b5-1 plan as close to immutable as possible. If circumstances genuinely change and modification is necessary, document the reason clearly, involve legal counsel, and restart the cooling-off period with that documentation in place.
In my experience, the executives who get into trouble with 10b5-1 plans are not the ones who deliberately misuse them — they're the ones who treat them casually. They adopt plans without fully understanding the certification requirement, modify them when circumstances change without restarting the cooling-off, or cancel them when a trade looks inconvenient. The plan is only as protective as the rigor with which it is maintained. Set it up right, leave it alone, and let it work.
Gurpreet S. Bal is a Partner at Foley and Lardner LLP in Silicon Valley, where he advises startups, founders, and investors on SAFE financings, venture capital rounds, mergers and acquisitions, acquihires, and IPOs. He has represented clients in hundreds of transactions with aggregate deal value exceeding $60 billion across AI, semiconductors, fintech, and emerging technology. Prior to his career as a corporate lawyer and transaction advisor, he served with the U.S. Department of Justice and as an international and cross-border tax advisor at a Big 4 accounting firm.