10b5-1 plan

Trades that follow a 10b5-1 plan give you an affirmative defense to insider trading claims under SEC Rule 10b5-1. The defense can apply even if you learn material nonpublic information after adopting the plan. The plan must set the trades in advance. It can fix each trade’s amount, price and date, or give a formula for them. It can also leave the decisions to someone else, with no later influence from you. Good faith is required, both when you adopt the plan and while it runs.

Since February 27, 2023, a new plan must wait out a cooling-off period before its first trade. Directors and officers wait 90 to 120 days, depending on when the company files that quarter’s 10-Q or 10-K. Other people wait 30 days, and the rule sets none for the company itself. Changing a plan’s amount, price or timing counts as ending it and adopting a new one, so a new cooling-off period starts. Public companies report each quarter which directors and officers adopted or ended a plan.

You generally cannot run overlapping plans, and you can use one single-trade plan in any 12 months. A sell-to-cover plan is exempt from both limits. It may sell only the shares needed for tax withholding when an award vests, and you cannot control when it sells.

A 10b5-1 plan does not change how your sales are taxed. Each sale is taxed like any other sale of stock, on the price minus your cost basis. Shares sold to cover RSU tax show little gain or loss, because their basis is their value on delivery.