How Rule 10b5-1 Trading Plans Work

Every time a corporate executive sells stock, a Form 4 lands on EDGAR within two business days. Headline-hungry financial sites pick it up and blast it out as an alert. But raw sell volume tells you almost nothing without one crucial piece of context: was this sale scheduled months in advance under a rule 10b5-1 trading plan, or did the executive just decide to sell?

The answer changes the entire interpretation. A large sale under a pre-arranged plan adopted 120 days ago is largely routine portfolio management. A large sale with no plan—especially clustered with other insiders selling at the same company—is a different thing entirely. The 10b5-1 checkbox on Form 4 is the single most important filter for separating these two categories, and most retail investors never look at it.

This post explains how the plans work, what the SEC’s December 2022 rule overhaul actually changed, what the latest academic research says about whether the reforms are working, and how to read the checkbox and accompanying footnote on any Form 4.

Why Most Insider-Sale Alerts Miss the Point

The financial press and many data services treat all Form 4 sales the same way: dollar amount, share count, name, ticker. That framing is understandable but misleading. Corporate insiders—the C-suite executives, board directors, and major shareholders required to file Form 4—almost always hold the majority of their net worth in company stock. They have real reasons to sell that have nothing to do with their view of the company’s prospects: diversification, taxes, tuition payments, buying a house, estate planning.

Academic research has borne this out for decades. Studies consistently find that insider purchases predict positive future returns, while insider sales carry no statistically significant predictive power in aggregate. The reason is asymmetric: there is basically one reason to buy your own company’s stock with personal cash (you think it’s going up), but there are dozens of reasons to sell that have nothing to do with what you know about the business.

The pre-planned nature of a sale makes this asymmetry even sharper. When a sale is executed under a 10b5-1 plan, the executive made the decision to sell weeks or months before the trade happened. Treating that as evidence of current bearishness is a category error. The plan is the filter that turns a potentially noisy signal into something closer to noise by design.

What a 10b5-1 Plan Actually Is

A Rule 10b5-1 plan is a written agreement between an insider and their broker that specifies, in advance, exactly how shares will be sold: the number of shares, the price (or a formula for determining the price), and the timing. Once the plan is adopted, the broker executes the trades autonomously, without any further input from the executive.

The legal significance is the affirmative defense the plan provides. The problem insiders face without such plans is stark: they are almost always in possession of some degree of non-public information about the company. That does not mean they hold material nonpublic information (MNPI), but proving the distinction can be difficult. A 10b5-1 plan solves this by separating the decision to sell from the execution of the sale by months. If the insider held no MNPI when they adopted the plan, the trades that execute later are shielded even if the insider later comes to possess MNPI.

The plan must be established during an open trading window—typically the period following an earnings release, before the company enters a pre-earnings blackout. The three required elements are straightforward:

The safe harbor is not absolute. The SEC has charged executives whose plans were adopted while they already possessed MNPI, and in 2023 the DOJ brought its first-ever criminal charges targeting trades conducted under a purported 10b5-1 plan (United States v. Peizer), establishing that prosecutors can still prove a plan was adopted in bad faith.

The Old Loophole: How Insiders Gamed the Plans

Under the rules that governed these plans from their 2000 creation through early 2023, there was no mandatory waiting period between adopting a plan and the first trade executing. An insider could set up a plan on a Monday and have shares selling by Thursday.

A 2022 Wall Street Journal analysis of roughly 75,000 prearranged stock sales found that about 20% occurred within 60 trading days of the plan’s adoption. Insiders who sold within those 60 days collectively reaped an estimated $500 million more in profitsthan they would have earned by waiting three months—covering trades from 2016 through 2021. The timing advantage was not random: early-trade plans preceded stock price downturns more often than later-timed plans, suggesting insiders knew something unfavorable was coming.

Academic research confirmed the pattern in granular detail. A study published in the Journal of Financial Economics found that under the pre-2023 regime, trades made under plans with a cooling-off period of less than 30 days were associated with a subsequent industry-adjusted return of negative 2.5%. Insiders using 10b5-1 plans beat the market by 6% over six months, versus 1.9% for insiders not using such plans—a counterintuitive result that reflected how strategically the plans were being adopted.

The 2022 SEC Overhaul: What Changed

After receiving over 160 comment letters on a January 2022 proposal, the SEC adopted final amendments to Rule 10b5-1 on December 14, 2022. The new rules took effect February 27, 2023, and apply to all plans adopted or modified on or after that date.

Four changes matter most to investors reading Form 4s:

There is also a consequential rule on plan modifications: any change to the amount, price, or timing of transactions covered by a plan constitutes a plan termination under the new rules, restarting the cooling-off clock from the beginning. This closes the “modification” gambit where insiders would tweak plan parameters just before bad news and then claim the original plan’s protection.

On the disclosure side, Greenberg Traurig summarizes that issuers are now required to disclose insider trading policies in their annual proxy or information statement (first applicable for filings on or after July 1, 2023), and must make quarterly disclosures about director and officer use of 10b5-1 plans. The Form 4 itself was updated: beginning April 1, 2023, filers must check a box indicating whether a transaction was made pursuant to a plan, and must disclose the plan’s adoption date in the Explanation of Responses footnote.

Does the Reform Work? What the Research Shows

The early empirical evidence suggests yes—the amendments are functioning as intended.

A July 2025 study posted to SSRN (Columbia Business School Research Paper No. 5362431) examined insider trading behavior before and after the amendment using transaction-level Form 4 data. The findings are striking:

A separate study covering over two decades of Form 4 data (2000–2024), posted to SSRN, found that prior to the 2022 amendments, both preplanned and non-preplanned trades showed contrarian behavior and predictive power for future stock prices. After the reforms, the predictive content of preplanned trades declined substantially. Investors can no longer extract the same informational signal from routine plan-driven insider sales that they once could.

The practical implication for investors is direct: post-amendment, the 10b5-1 checkbox on Form 4 has become a more reliable “this sale is noise” indicator than it was before. Plan-based sales under the new rules really do appear to be informationally neutral.

How to Read the 10b5-1 Checkbox on Form 4

Since April 1, 2023, every Form 4 transaction row includes a checkbox asking whether the transaction was made pursuant to a Rule 10b5-1(c) plan. It appears in Table I (non-derivative transactions) and Table II (derivative transactions). A checked box means yes—the sale was pre-scheduled under a qualifying plan. An empty box means the transaction was discretionary.

The adoption date lives in the footnotes. Under the updated disclosure requirements, filers must include the plan’s adoption date in the Explanation of Responses section (the footnotes at the bottom of the filing). Best practice, as described by securities counsel at Perkins Coie, is to also confirm that the plan was established in compliance with Rule 10b5-1(c).

Here is the three-step process for evaluating any Form 4 sale:

What It Means in Practice: Signals Worth Keeping vs. Ignoring

You don’t need a formal rubric to apply this knowledge to real filings, but it helps to think in concrete categories. The table below covers the most common Form 4 patterns a retail investor will encounter:

The distinction between plans and discretionary trades also applies to the legal framework around insider trading. Code P purchases with no 10b5-1 plan are the strongest signal precisely because they represent a real-time decision by someone with genuine information advantages. The Section 16(b) short-swing profit rule also adds weight to open-market purchases: an insider who buys in the open market is locked in for six months before they can sell at a profit, which is a meaningful commitment of capital.

The SV150 Reality Check: How Silicon Valley Companies Actually Use These Plans

Knowing the rules is one thing; knowing how companies actually implement them in practice is another. In December 2025, Wilson Sonsini published a survey of 75 SV150 companies (the 150 largest Silicon Valley public companies), giving a granular picture of how company 10b5-1 guidelines are written in the post-amendment world.

A few details from the survey are particularly useful for interpreting actual filings. Only 44% of these companies impose a minimum plan term, a maximum term, or both (minimum terms range from three to twelve months). And only 32% prohibit insiders from trading company securities outside their active plan. That means at most firms, an insider with an active plan can still execute discretionary open-market purchases alongside their scheduled plan sales.

The practical takeaway: company-specific 10b5-1 guidelines vary substantially. At a company where guidelines impose longer cooling-off periods and require approval to terminate, a plan-based sale carries even less informational content than the SEC minimums would imply. At a company following only the minimums, the 90-day cooling-off is real protection but not a strong guarantee against opportunistic timing.

You can find a company’s insider trading policy in its annual proxy statement (Form DEF 14A on EDGAR), which issuers have been required to disclose since July 2023. It’s a five-minute read that tells you whether the company goes beyond the SEC floor or simply meets it.