10b5-1 Plan Requirements: The 2026 Definitive Guide

A Rule 10b5-1 plan is a pre-established written trading arrangement that gives corporate insiders an affirmative defense against insider trading liability under Section 10(b) of the Securities Exchange Act of 1934. If the plan is properly structured, an insider can execute trades in company stock even during periods when they may hold material nonpublic information (MNPI), because the trading decision was locked in earlier, when they were clean.

The SEC adopted sweeping amendments to Rule 10b5-1 on December 14, 2022, effective February 27, 2023. Those amendments represent the most significant overhaul of the rule since it was first adopted in 2000, and as of 2026 they are the operative legal standard. This guide explains what the rule is, why it exists, and every condition a plan must satisfy to preserve the affirmative defense.

For step-by-step adoption mechanics, see 10b5-1 Plan Adoption Requirements: 2026 Practitioner Walkthrough. For what happens when you change or exit a plan, see 10b5-1 Plan Modification Rules and 10b5-1 Plan Termination Rules.

What Is a Rule 10b5-1 Plan?

A Rule 10b5-1 plan is a written contract, instruction, or trading program adopted before an insider becomes aware of MNPI, specifying in advance the amount, price, and timing of trades in the issuer's securities. Once the plan is in place and the applicable cooling-off period has expired, a broker executes the trades automatically according to those pre-set parameters. The insider cannot exercise any subsequent influence over how, when, or whether trades occur.

The rule sits inside 17 CFR § 240.10b5-1. It codifies the SEC's position that awareness of MNPI, not just its use, is sufficient to establish insider trading liability. The plan mechanism works because the trading decision predates the awareness, so the trade cannot logically be "on the basis of" information the insider did not yet have.

Who typically uses one?

• Directors and officers who hold significant equity and need to sell periodically for diversification or liquidity
• 10%-plus shareholders subject to Section 16
• Other employees with regular access to MNPI who want protection beyond the company's blackout windows
• Issuers executing share repurchase programs (though the 2022 amendments' cooling-off and overlapping-plan rules do not apply to issuer repurchase plans)

Why the Rule Exists: The Problem It Was Designed to Solve

The rule was created in 2000 to give insiders a structured, defensible way to trade company stock without triggering insider trading liability every time they needed liquidity. Before Rule 10b5-1, any trade by an insider who happened to hold MNPI at the time of execution was potentially actionable, even if the decision to trade was made months earlier for purely personal financial reasons.

The problem that drove the 2022 amendments was the opposite: insiders exploiting the rule's flexibility to trade opportunistically. As SEC Chair Gary Gensler stated at the time of adoption:

"Over the past two decades, we've heard from courts, commenters, and members of Congress that insiders have sought to benefit from the rule's liability protections while trading securities opportunistically on the basis of material nonpublic information. I believe today's amendments will help fill those potential gaps."

Academic research had documented the pattern. Studies found systematic abnormal returns around 10b5-1 plan trades, suggesting that some insiders were timing plan adoption to front-run known corporate events. The 2022 amendments responded by closing the gaps that made that timing possible.

The Core Requirements: What Every Valid 10b5-1 Plan Must Satisfy

To invoke the affirmative defense under Rule 10b5-1(c)(1), a plan must satisfy all of the following conditions at adoption and throughout its life.

1. Adopted Without Awareness of MNPI

The plan must be entered into at a time when the person is not aware of any material nonpublic information about the issuer or its securities. This is the foundational condition. If an insider has MNPI when they sign the plan, the affirmative defense is unavailable from the outset, regardless of how well the rest of the plan is structured.

This condition also applies to modifications. Any change to the plan's amount, price, or timing is treated as a termination of the old plan and adoption of a new one, which means the insider must again be free of MNPI at the moment of modification.

2. The Plan Must Specify Amount, Price, and Date (or a Formula)

The plan must either fix the amount, price, and date of each transaction, or provide a written formula, algorithm, or computer program that determines those parameters. The insider cannot retain any discretion over how, when, or whether trades execute after the plan is adopted.

A plan that gives the broker discretion over whether to execute as a single transaction, or that depends on future events not known at adoption in a way that could foreseeably produce multiple trades, will not qualify as a "single-trade plan" for purposes of the one-per-12-month limit.

3. Good Faith: At Adoption and Throughout

Good faith is required both at the moment of adoption and for the entire duration of the plan. The 2022 amendments extended what had previously been only an adoption-time requirement.

The SEC's adopting release gives a concrete example of what violates the ongoing good-faith standard: influencing the timing of an issuer's disclosures so that trades under the plan become more profitable. This is a direct governance risk for CFOs and IR teams. A CFO who delays an earnings announcement to allow a director's plan trades to execute at a more favorable price could taint that director's affirmative defense, even if the director had no direct role in the timing decision.

The affirmative defense is also not automatic even when all procedural boxes are checked. Courts and the SEC have emphasized the defense is fact-specific and can be challenged if circumstances suggest the plan was not genuinely adopted or maintained in good faith.

4. Mandatory Cooling-Off Periods

No trades may occur under the plan until the applicable cooling-off period has elapsed. The period varies by who is adopting the plan:

The cooling-off period restarts from zero whenever a plan is modified. A modification is any change to the amount, price, or timing of trades. Even substituting the broker executing the plan can constitute a modification under 17 CFR § 240.10b5-1, though the rule provides that a broker substitution alone does not automatically restart the clock if the change is purely administrative and the plan's trading parameters are unchanged. Compliance teams should treat any plan change as presumptively triggering a new cooling-off period and seek counsel before proceeding.

For a detailed walkthrough of how the cooling-off period is calculated, including the interaction with fiscal quarter-end filing dates, see 10b5-1 Plan Cooling-Off Period: 2026 Practitioner Walkthrough.

5. Written Certifications for Directors and Officers

Directors and officers must include a written representation in any new or modified plan certifying two things as of the date of adoption:

1. They are not aware of any MNPI about the issuer or its securities.
2. They are adopting the plan in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b-5.

This certification requirement applies only to directors and officers, not to other insiders or issuers. It is a condition to the affirmative defense, not merely a best practice. A plan adopted by a director or officer that omits the certification cannot qualify for the defense, regardless of the plan's other terms.

Best practice: have legal counsel or the compliance officer review and countersign the certification at adoption, and retain a timestamped copy with the plan document. This creates a contemporaneous record that supports the good-faith defense if the plan is later scrutinized.

6. No Overlapping Plans

Persons other than issuers are generally prohibited from maintaining more than one Rule 10b5-1 plan for open-market purchases or sales of the same issuer's securities at the same time. A series of contracts with different broker-dealers executing trades under a single coordinated strategy is treated as one plan, not multiple plans.

There are three exemptions to the overlapping-plan prohibition:

• Issuer-direct transactions: Plans covering transactions directly with the issuer (ESOPs, dividend reinvestment plans) that are not executed on the open market.
• Sell-to-cover plans: Plans authorizing a broker to sell only enough shares to cover tax withholding on vesting compensatory awards (such as RSU settlements), provided the award holder cannot control the timing of those sales. These plans are also exempt from the single-trade plan limit.
• Sequential two-plan arrangements: A person may maintain two separate plans if trading under the later plan cannot begin until all trades under the earlier plan are completed or expire. If the first plan is terminated early rather than completed, the first trade under the second plan must not occur until after the full applicable cooling-off period runs from the termination date.

The sequential two-plan exception is operationally narrow. If the first plan is terminated before completion, the second plan effectively goes into a new cooling-off period. Compliance teams should document the termination date and recalculate the cooling-off period for the second plan before authorizing any trades under it.

7. One Single-Trade Plan Per 12-Month Period

In any 12-month period, a person other than an issuer may rely on the affirmative defense for only one "single-trade plan." A single-trade plan is one designed to effect the purchase or sale of the total amount of securities subject to the plan in a single transaction.

A plan does not qualify as a single-trade plan if it gives the broker discretion over whether to execute as one transaction, or if it depends on future data in a way that makes multiple trades reasonably foreseeable at adoption. Sell-to-cover plans are exempt from this limit.

What the Plan Does Not Cover: Parallel Obligations That Still Apply

A valid 10b5-1 plan does not exempt insiders from any other securities law obligation. The following requirements continue to apply to every transaction executed under a plan:

• Rule 144 volume limitations: Affiliates selling restricted or control securities must still comply with Rule 144's volume caps, holding period, and manner-of-sale conditions. See Rule 144 Volume Limitations: A 2026 Practitioner Walkthrough.
• Section 16 short-swing profit rules: Directors, officers, and 10%-plus shareholders must still report transactions on Form 4 within two business days and remain subject to Section 16(b) disgorgement for short-swing profits. See Form 4 Filing Requirements: 2026 Practitioner Walkthrough.
• Company blackout policies: A 10b5-1 plan does not override the company's own insider trading policy. Some companies permit plan trades during blackout periods; others do not. The plan must be consistent with the company's policy, and the company typically acknowledges the plan in writing.

Disclosure Requirements: What Goes Where

The 2022 amendments created a layered disclosure architecture that compliance teams must track across multiple forms and filings.

Forms 4 and 5

Section 16 reporting persons must check a box on Form 4 (or Form 5) indicating that a reported transaction was intended to satisfy the Rule 10b5-1(c) affirmative defense, and must disclose the date the plan was adopted. This requirement applied to reports filed on or after April 1, 2023.

A separate and frequently overlooked change: bona fide gifts of securities that were previously reportable on Form 5 must now be reported on Form 4. This accelerates the disclosure timeline significantly for executives who make charitable or family gifts of company stock. For a full comparison of what goes on each form, see Form 4 vs Form 5 SEC Reporting: The 2026 Comparison Guide.

Quarterly Disclosure in 10-Q, 10-K, and 20-F

Issuers must disclose, on a quarterly basis in their Forms 10-Q, 10-K, and 20-F, the adoption, modification, or termination of any Rule 10b5-1 plan (or other trading arrangement) by any director or officer during the covered quarter, including the material terms of the plan (other than pricing terms). This disclosure obligation is driven by Item 408 of Regulation S-K.

Issuers other than smaller reporting companies were required to comply beginning with the first full fiscal period starting on or after April 1, 2023. Smaller reporting companies received a six-month deferral, with compliance required for the first full fiscal period starting on or after October 1, 2023.

Proxy Statement Disclosures

Issuers must also disclose in proxy or information statements:

• Whether the company has adopted insider trading policies and procedures governing purchases, sales, and other dispositions of company securities by directors and officers.
• Policies and practices on the timing of option grants in relation to the release of MNPI, under Item 402(x) of Regulation S-K.

Option Grant Timing Table

A new tabular disclosure is required for any option awards (or instruments with option-like features) granted to named executive officers within a window beginning four business days before the filing of a periodic report or a Form 8-K disclosing MNPI, and ending one business day after the triggering event. This requirement targets the practice of "spring-loading" option grants ahead of positive news disclosures. All of these disclosures must be tagged in Inline XBRL.

The Affirmative Defense Is Not a Safe Harbor

Key takeaway: Meeting every procedural requirement does not guarantee the affirmative defense will hold. The defense is fact-specific and can be challenged if the totality of circumstances suggests the plan was adopted or maintained in bad faith.

Early termination of a plan is a particular risk area. Terminating a plan before completion can retroactively call into question whether the plan was originally adopted in good faith, especially if the termination coincides with a period when the insider held MNPI or if the terminated trades would have been unprofitable. The SEC and courts look at the full pattern of conduct, not just the paperwork.

For the full analysis of termination risk, see 10b5-1 Plan Termination Rules: A 2026 Practitioner Walkthrough.

Summary: The 10b5-1 Plan Requirements at a Glance

FAQ

Do 10b5-1 plans need to be filed with the SEC? The plans themselves are not filed with the SEC. What is filed is the disclosure of their existence: the Form 4 checkbox and adoption date, the quarterly issuer disclosure in 10-Q/10-K/20-F under Item 408, and the proxy statement disclosures. The underlying plan document stays between the insider, the broker, and typically the company's legal counsel.

What is the 3-5-7 rule in trading? There is no official SEC rule called the "3-5-7 rule." The phrase sometimes appears in informal discussions of trading plan best practices, referring loosely to minimum plan durations or cooling-off periods. The actual legal requirements are the specific cooling-off periods in Rule 10b5-1: 90 days to 120 days for directors and officers, and 30 days for other non-issuer persons.

Does modifying a 10b5-1 plan restart the cooling-off period? Yes. Any modification to the amount, price, or timing of trades constitutes a termination of the existing plan and adoption of a new one. The full cooling-off period applies again from the modification date. For a detailed breakdown of what counts as a modification, see 10b5-1 Plan Modification Rules: A 2026 Practitioner Walkthrough.

Can a director have two 10b5-1 plans at the same time? Generally no. The overlapping-plan prohibition bars non-issuers from maintaining more than one open-market plan simultaneously. The only exception for a second concurrent plan is the sequential two-plan arrangement, where the second plan cannot begin trading until the first is fully completed or expired. If the first plan is terminated early, the second plan's first trade must wait for a new cooling-off period.

Do sell-to-cover RSU plans count as 10b5-1 plans subject to these requirements? Sell-to-cover plans are exempt from both the overlapping-plan prohibition and the single-trade plan limit, provided the award holder cannot control the timing of the sales. They are still subject to the foundational requirements: adopted without MNPI, in good faith, with no post-adoption discretion by the award holder.

What happens if the affirmative defense is lost? Loss of the affirmative defense means the trade is treated as a potential insider trade under Section 10(b) and Rule 10b-5. The SEC's Division of Enforcement can bring a civil action; the Department of Justice can bring criminal charges. The insider may also face disgorgement of profits, civil penalties, and reputational damage. The defense's loss for one trade does not automatically taint prior trades under the same plan, but early termination or modification can raise retroactive questions about the plan's original good faith.