The problem these plans solve
Insiders often know things the public does not, which makes it risky for them to trade their own company’s stock at all. Rule 10b5-1 gives them a defense. If an insider sets up a written plan to buy or sell while they have no material non-public information, later trades under that plan are protected, even if the insider learns something important in the meantime.
How a plan works
The plan fixes in advance how many shares to trade and when, or a formula or price levels that decide it. A broker carries out the trades. Once the plan is running, the insider cannot change the timing or amounts on a whim.
The 2023 changes
The SEC tightened the rule in amendments adopted in December 2022, which took effect in 2023:
- Cooling-off period. Directors and officers must wait before the first trade: the later of 90 days after adopting the plan or two business days after the company reports results for the quarter in which the plan was adopted, up to 120 days. Other people using a plan wait 30 days.
- Certification. Directors and officers must certify when they adopt a plan that they do not have material non-public information and are acting in good faith.
- Overlapping and single-trade plans. In general, a person cannot run overlapping plans and can use only one single-trade plan in any 12-month period.
- Disclosure. Companies must report in their quarterly and annual filings when directors and officers adopt or end plans. Form 4 now has a checkbox for trades made under a plan.
Reading a plan sale
A sale under a 10b5-1 plan was decided months earlier, so it usually says less about the insider’s current view than a sale made on the spot. On WallStPal, these trades carry a “10b5-1” label. We read it from the Form 4 checkbox or, on older forms, from the footnotes.
A plan is still not a guarantee of innocence. Someone can adopt a plan at a convenient moment, and plans can be ended early. The label is context, not a verdict.
Examples
Jeff Bezos and Amazon, 2024. Amazon’s annual report, filed in February 2024, disclosed that Bezos had adopted a trading plan to sell up to 50 million Amazon shares by the end of January 2025. Over the next few weeks his Form 4 filings showed sales worth about $8.5 billion, each marked as made under the plan. The size made headlines, but the plan had been disclosed in advance, and the sales followed its schedule. For someone reading the Form 4s, the plan box answered the obvious question of whether he was reacting to news.
Elon Musk and Tesla, late 2021. In November 2021 Musk began selling Tesla shares after asking his Twitter followers whether he should. Some of the first sales were reported as made under a 10b5-1 plan adopted that September, while later sales were not. Two people reading the same week of filings could reach different conclusions depending on whether they checked which sales were scheduled.
Explain it like I’m 13
Say you are on the school team and you know the coach is about to announce something big. You are not allowed to trade your team trading cards based on that secret.
A 10b5-1 plan is like writing down, long before you know any secret, “I will trade two cards on the first day of every month.” You give the note to a teacher, who does the trades for you. When a trade happens later, nobody can say you used a secret, because the decision was made in advance.
That is why a sale under a plan usually tells you less than a surprise sale.
WallStPal explains public filings. Nothing here is investment advice. Editorial policy · Corrections