Rule 10b5-1 Plan
Definition
A pre-established trading plan that allows insiders to sell company stock on a predetermined schedule, even during blackout periods or when in possession of material non-public information. The plan must be set up when the insider is not aware of any material non-public information and typically has a cooling-off period before trades begin.
Real-World Example
An executive sets up a 10b5-1 plan in March (outside any blackout) to sell 1,000 shares on the 15th of each month for the next 12 months. Even when the insider knows earnings results or acquisition talks are happening, the pre-scheduled sales proceed automatically.
Common Mistake
Thinking 10b5-1 plans are only for executives. Any insider who regularly has access to material non-public information can benefit from a 10b5-1 plan. Engineers, product managers, and finance team members may all have insider knowledge that restricts their ability to trade.
Why It Matters
10b5-1 plans provide a legal safe harbor for selling stock when you might otherwise be restricted. For employees at public companies, setting up a plan is the best way to systematically reduce concentration risk without worrying about blackout windows.
Related Terms
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