10b5-1 Trading Plans for Executives: The 2023 Rules, Cooling-Off Periods and How to Diversify

On December 14, 2022, the SEC adopted the first major rewrite of Rule 10b5-1 since the rule was created in 2000, and the changes took effect on February 27, 2023. For an executive whose company stock is 50% or more of their net worth, the practical effect is simple: the plan you use to sell now needs a waiting period of up to 120 days, a written certification, and public disclosure every quarter. Get the design right and the plan becomes the backbone of a multi-year diversification. Get it wrong and the affirmative defense that protects every trade can fall away. If you are still working out how much of your wealth is really in one stock, start with tax-adjusted net worth, then come back.

What is a 10b5-1 plan?

A 10b5-1 plan is a written contract, instruction or plan, set up while you have no material nonpublic information (MNPI), that tells a broker to buy or sell a company’s stock on terms fixed in advance. Trades made under it keep an affirmative defense to insider-trading liability even if you learn something material after the plan is in place.

The problem it solves is structural. Senior executives are almost never free of MNPI: a quarter is closing, a deal is in diligence, a product is slipping. Company insider trading policies respond by restricting insiders to short open trading windows, typically a few weeks after each earnings release, and many close the window early or impose special blackouts. For someone with a concentrated position, that can leave only a handful of weeks a year to sell, and even then any sale can be questioned later.

Rule 10b5-1(c) lets you step outside that problem by deciding in advance. The plan must do one of three things:

• Specify the amount, price and date of each trade (for example, sell 5,000 shares on the 15th of each month at a limit of $120 or better);
• Include a written formula or algorithm that determines them (for example, sell 2% of holdings each month if the price is above the 20-day average); or
• Give the broker discretion without letting you influence how, when or whether trades happen afterwards.

The defense is conditional, not automatic. You must adopt the plan before becoming aware of MNPI, you must not deviate from it or enter into a corresponding or hedging transaction in the covered securities, and, since 2023, you must act in good faith with respect to the plan for as long as it runs. A plan is a shield for trades you genuinely pre-committed to, not a wrapper for trades you would have made anyway on inside knowledge.

What changed with the SEC’s 10b5-1 amendments?

The amendments, in SEC Release 33-11138, added mandatory waiting periods, limited how many plans you can run, required officers to certify their plans, and made plan activity public. Before 2023 the rule had none of these; many companies imposed some of them through policy, but the rule itself did not.

The SEC’s stated concern was that plans were being adopted, changed and cancelled opportunistically: an insider could set up a plan days before a known event, run several overlapping plans and cancel the ones that turned out badly, or use a “single-trade” plan as a thin cover for one well-timed sale. Each new condition targets one of those behaviors.

The changes that matter most for an executive’s diversification plan:

• Cooling-off periods for directors, officers and other insiders (next section).
• Modifications are new plans. Changing the amount, price or timing of trades, including the formula that sets them, is treated as terminating the old plan and adopting a new one, with a new cooling-off period. Swapping one broker for another without changing the instructions is not.
• A good-faith condition that runs for the life of the plan, not just at adoption.
• Director and officer certification inside the plan itself.
• Limits on overlapping and single-trade plans for everyone except the company.
• New disclosure: a Form 4 and Form 5 checkbox for plan trades, quarterly company disclosure of director and officer plans under Item 408 of Regulation S-K, and annual disclosure of the company’s insider trading policy.

Bona fide gifts of stock by Section 16 insiders also moved from the annual Form 5 to Form 4, due within two business days. That matters if your diversification plan includes gifting appreciated shares to a donor-advised fund alongside plan sales. See our guide to donating your lowest-basis shares.

How long is the 10b5-1 cooling-off period?

For directors and officers, the cooling-off period is the later of 90 days after adoption or two business days after the company files its 10-Q or 10-K for the fiscal quarter in which the plan was adopted, but never more than 120 days. For other insiders, including employees who are not officers, it is 30 days. The company itself has no cooling-off period for its own buyback plans.

“Officer” here means a Section 16 officer: roughly the CEO, CFO, principal accounting officer, and vice presidents in charge of a business unit or function, plus anyone else performing policy-making functions. Your company’s general counsel keeps the list. A senior director-level engineer with large RSU grants is usually not on it and gets the 30-day rule, although the company’s own policy may be stricter.

Because the second prong is tied to the quarterly filing, when in the quarter you sign the plan decides which prong binds. Chart 2 shows a hypothetical calendar-year company that files its first-quarter 10-Q on May 6.

• Adopt early in the quarter (Officer A, January 4) and the 10-Q prong would push the wait past 120 days, so the 120-day cap binds.
• Adopt mid-quarter (Officer B, February 1) and the wait ends two business days after the 10-Q: 98 days in this example.
• Adopt late in the quarter (Director C, March 16) and the 10-Q is filed before 90 days pass, so the 90-day floor binds.

In practice most companies only let insiders adopt plans during an open window, which usually runs for a few weeks after an earnings release. That puts most adoptions in the first half of a quarter, where the wait is closer to 100–120 days than 90. Build that into your planning: if you need liquidity for a tax payment in April, the plan has to be signed the previous autumn.

What else do the amended rules restrict?

Beyond the waiting period, the rule now limits overlapping plans, caps single-trade plans at one per 12 months, requires good faith throughout, and makes directors and officers certify the plan. Each of these shapes how you structure a multi-year selling program.

Overlapping plans. Insiders other than the company generally cannot rely on the defense if they hold more than one plan for open-market purchases or sales of the same class of securities at the same time. The three exceptions are narrow and useful:

1. Several brokers, one plan. Separate contracts with different brokers can be treated as a single plan if, taken together, they meet all the conditions. This helps if your RSUs sit at the company’s equity-plan administrator and your older shares are at a private bank.
2. Back-to-back plans. You can hold a second plan that is not allowed to trade until the first one has finished or expired. If you terminate the first plan early, the later plan must observe a cooling-off period measured from that termination.
3. Sell-to-cover plans. A plan that only authorizes the broker to sell enough shares to cover tax withholding when an award vests, without your discretion, can run alongside a regular plan.

Single-trade plans. A plan designed to execute the whole amount in one transaction is limited to one in any 12-month period. This is the rule that ends the practice of setting up a fresh one-trade plan every quarter. For a concentrated holder it is a nudge in the right direction anyway: one large sale at a single price is rarely the best way to reduce risk.

Good faith, throughout. The old rule asked whether you entered the plan in good faith. The new condition asks whether you acted in good faith with respect to the plan for its whole life. Cancelling a plan just before a good quarter, or pressuring the company to time an announcement around your trades, can cost you the defense even if the plan was clean when signed.

Certification. Directors and officers must include representations in the plan that, at adoption, they are not aware of MNPI about the company or its securities and are adopting the plan in good faith and not as part of a scheme to evade the insider-trading rules. The certification is not filed with the SEC, but it is a written statement that can be tested later.

Who needs a 10b5-1 plan, and who just needs trading windows?

You need a plan if you are a director, a Section 16 officer, subject to pre-clearance, or regularly placed on special blackouts, and you intend to sell meaningful amounts of stock over the next year or two. Most rank-and-file employees can sell during open windows without one.

Even when a plan is optional, it has a second benefit that has nothing to do with the law: it takes you out of the timing decision. Many people with large RSU positions hold far more than they intend to, not because they are bullish but because every window arrives at a moment when selling feels wrong. A pre-committed schedule solves the behavioral problem as well as the legal one.

Two situations call for extra care. Newly public companies usually have a lock-up that prohibits sales for a period after the IPO; a plan can be adopted during the lock-up but cannot trade until it ends and the cooling-off has run. And anyone who is an affiliate of the company, which usually includes directors and senior officers, sells under Rule 144 with its volume limits and Form 144 notice, whether or not the trades are in a plan.

How do you design a 10b5-1 sales schedule?

Design the schedule from the target concentration backwards: decide where you want the position to be and by when, turn that into a tranche per quarter, then add a price grid, a lot-selection rule and the vest calendar. This is a portfolio decision that happens to be executed through a legal document, and it should be made that way.

1. Target and horizon. A common goal is to bring a single stock from well over half of liquid net worth to 20–30% within two years. Two years is long enough to spread the tax across three tax years and short enough that the position cannot drift back up with new grants.

2. Tranche size. Divide the shares to sell by the number of quarters, then check the result against Rule 144 volume limits if you are an affiliate, and against the stock’s trading volume so your orders are a small fraction of the day.

3. Price grid. Most plans combine a base sale at market with limit-price layers above it and, sometimes, a floor below which nothing sells. For example: sell one third of each tranche at market on the first trading day of the month, one third only at 10% above the adoption price, and one third only at 20% above. A floor protects you from selling into a crash you would rather ride out; the cost is that shares you meant to sell can stay unsold for quarters.

4. Lot selection. Tell the broker in writing which lots to sell: usually the highest-basis long-term lots first, which defers the most gain, or short-term lots that are about to become long-term last. Your plan broker must support specific-lot identification; confirm that before you sign.

5. Vest calendar. New RSU vests keep adding to the position. Either include a sell-to-cover plan for withholding and a rule to sell a percentage of each net vest, or size the main tranches to absorb future vests as well.

Chart 3 shows the honest version of the trade-off. On the same shares, a staged plan and a lump sale produce almost the same total federal tax, about $701,000 here, because the gain is the same and a large seller is in the top bracket either way. What the plan changes is when the tax is paid and how much price risk you carry while you sell. A lump sale removes the risk immediately; the staged plan averages the exit price across eight quarters, spreads the tax across three tax years and keeps you in the market if the stock keeps rising.

Worked example: an eight-quarter plan

1. Position: 60,000 shares at $100 = $6,000,000, in a $10,000,000 liquid portfolio (60%). Average basis $20, all lots long-term.
2. Target: 25% in eight quarters, holding the price flat for the illustration.
3. Tranche: 4,600 shares a quarter ($460,000 at $100), 36,800 shares in total, leaving 23,200.
4. Tax per tranche: gain of $80 × 4,600 = $368,000; at 23.8% federal that is about $87,600 a quarter, before state tax.
5. Result: the position falls from 60% to about 25%; about $372,000 a quarter is reinvested after tax into a diversified portfolio.
6. Filings: as an affiliate, each quarter’s sales exceed $50,000, so a Form 144 is needed for each three-month period and a Form 4 within two business days of each sale, with the 10b5-1 box ticked.

The tax on each tranche depends on the basis of the specific lots sold; our guide to the tax on each sale walks through the lot math, and managing concentrated positions covers where the proceeds should go.

How does a 10b5-1 plan fit with hedging and tax strategy?

A plan decides what you sell and when; hedging decides what happens to the shares you have not sold yet; tax planning decides which lots go and in which year. They have to be designed together, and in that order of legal priority: the insider trading policy first, then the plan, then any hedge.

Hedging the unsold shares. On an eight-quarter plan, most of the position is still exposed for most of the period. The textbook answer is collaring the unsold shares or buying protective puts on a slice of them. For insiders, three constraints come first:

• Company policy. Companies must disclose whether they permit hedging by directors, officers and employees, and many prohibit it outright for insiders. If yours does, the plan is your risk-reduction tool.
• The rule itself. The 10b5-1 defense is lost if you enter into or alter a corresponding or hedging transaction with respect to the securities the plan covers. A hedge must never touch the shares scheduled for sale, and even hedging other shares should be cleared by counsel.
• Section 16. Directors and officers may not sell company stock short, their derivative trades are reported on Form 4, and purchases and sales within six months can create short-swing profit liability under Section 16(b). Plan sales are not exempt from 16(b).
• Option grants. If you hold ISOs or NSOs, decide the exercise schedule before the plan sells the shares; the ISO vs NSO tax rules change which lots to sell first.

Where hedging is allowed, the collar is usually the practical choice for insiders because it costs close to zero and caps downside on the shares you plan to hold longest. If the Greeks and payoff shapes are new to you, options for RSU holders and our guide to hedging a stock portfolio with options cover the mechanics.

Tax. RSUs are taxed as ordinary income when they vest, at the market value on that date, which becomes your basis in the shares. Any sale afterwards is a capital gain or loss measured from that basis: short-term if you held the shares one year or less, long-term if longer. A plan can make this work for you:

• Spread tranches across tax years so a single year doesn’t carry the whole gain, which matters most for state tax and for the net investment income tax thresholds at lower income levels.
• Sell recent high-basis vests first once they go long-term; the gain per share is small, so each dollar of risk reduction costs less tax.
• Match estimated tax payments to the plan’s calendar so a large April bill doesn’t force an unplanned sale.
• Harvest losses elsewhere in the diversified portfolio to offset plan gains.

Which filings and disclosures does a 10b5-1 plan trigger?

For a director or officer, a plan triggers quarterly company disclosure when it is adopted or ended, a Form 4 within two business days of every trade, and a Form 144 before affiliate sales above the Rule 144 thresholds. Other insiders usually have none of these, though their broker still reports the sales for tax.

The practical consequence is that your plan is public. Analysts, journalists and your own employees can see how many shares you intend to sell and read every trade two business days later. That is another reason to design a steady, boring schedule: a plan that sells the same amount each quarter reads as diversification, while an irregular one invites questions.

What mistakes can cost you the 10b5-1 affirmative defense?

The defense is lost when the plan was not adopted cleanly, was not followed, or was not operated in good faith. Most failures are one of these seven:

1. Adopting while aware of MNPI. Signing during a closed window, during a deal process, or days before a known bad quarter. The cooling-off period does not cure this.
2. Frequent modifications. Each change restarts the clock and, repeated, looks like trading on information through the back door.
3. Cancelling around news. Terminating a plan just before good news, when the scheduled sales would have looked cheap, is the textbook good-faith problem.
4. Trading outside the plan. Selling in an open window in addition to plan sales, or buying shares that match against plan sales, can undermine the defense and create Section 16(b) exposure.
5. Hedging the plan shares. A put or collar on the covered shares is a corresponding or hedging transaction under the rule.
6. Running two plans that overlap. Outside the narrow exceptions, a second concurrent plan costs the defense for both.
7. Influencing the broker. Under a discretionary plan, any conversation that steers timing defeats the point.

These are not hypothetical risks. In 2023 the Justice Department brought its first insider-trading prosecution based solely on trades made through 10b5-1 plans, against a public-company executive accused of adopting plans while aware of bad news, and a jury convicted him in 2024. The plan documents were in order; the timing was not.

What should you check before adopting a 10b5-1 plan?

1. Read your company’s insider trading and hedging policy, and confirm whether you are a Section 16 officer, an affiliate, or on the pre-clearance list.
2. Write down the target: concentration by date, not a share count. Check it against your tax-adjusted net worth.
3. Map the vest calendar and decide whether you need a separate sell-to-cover plan.
4. Choose the tranche size, the share of each tranche sold at market, the limit layers and any floor.
5. Set the lot-selection instruction with the broker and confirm specific-lot identification is supported.
6. Count the cooling-off from your likely adoption date and the next 10-Q or 10-K, and plan liquidity needs around the first trade date.
7. Decide, with counsel, whether the shares you will hold longest can be hedged, and keep any hedge away from the shares the plan covers.
8. Adopt only in an open window, with no MNPI, and then leave the plan alone.

Frequently asked questions

Key takeaways

1. A 10b5-1 plan is an affirmative defense, not an exemption: it protects trades set up in good faith while you had no material nonpublic information, and operated in good faith afterwards.
2. Directors and officers wait 90 to 120 days before the first trade; other insiders wait 30 days. When in the quarter you sign decides which prong binds.
3. Changing the amount, price or timing restarts the clock. Overlapping plans are barred with narrow exceptions, and single-trade plans are limited to one per 12 months.
4. Officer and director plans are public: adoption and termination appear in the 10-Q and 10-K, and each trade shows on a Form 4 with a 10b5-1 box.
5. Design the schedule as a portfolio decision: a target concentration, a tranche size, a limit-price grid, a lot-selection rule and a vest calendar.
6. A plan does not cut the tax on a sale; it spreads the tax and the timing risk and keeps them predictable.
7. Hedging the unsold shares is a separate decision that needs company approval and must never touch the shares the plan is selling.

Sources and method

1. SEC, Fact Sheet: Rule 10b5-1 and Insider Trading (Release 33-11138) — cooling-off periods, certification, overlapping and single-trade plan limits, disclosure requirements
2. SEC Release 33-11138, Insider Trading Arrangements and Related Disclosures (final rule) — full text of the December 2022 amendments, effective February 27, 2023
3. SEC, Insider Trading Arrangements and Related Disclosures (rule page) — Item 408 disclosure, Form 4 and Form 5 changes, compliance dates
4. 17 CFR § 240.10b5-1, Trading on the basis of material nonpublic information — the rule text, including the affirmative defense and the bar on corresponding or hedging transactions
5. IRS Publication 525, Taxable and Nontaxable Income — how restricted stock and RSU income is taxed at vesting
6. IRS Topic 409, Capital gains and losses — long-term capital gains rates (0%, 15%, 20%) and holding periods

Rule descriptions summarize SEC Release 33-11138 and 17 CFR 240.10b5-1 as in effect in September 2026. Chart 2 uses a hypothetical company calendar, and Chart 3 and the worked example use a hypothetical portfolio with the stock price held flat, a 23.8% federal rate (20% long-term capital gains plus 3.8% net investment income tax) and no state tax. This article is educational and is not legal or tax advice: your company’s insider trading policy, your general counsel and your own securities and tax advisers decide what you can do.