The relationship between private and public markets has evolved over the past two decades. While initial public offerings (IPOs) once provided investors access to companies
Deciphering 10b5-1 Plans For Company Employees
Published Date : October 23, 2026
Rule 10b5-1 trading plans have garnered more attention in recent months as some high-profile IPOs have occurred or are rumored to be coming soon. But what exactly are these specialized trading plans? 10b5-1 plans can help corporate executives, company insiders, and employees with access to material nonpublic information (MNPI) sell company stock in a structured and disciplined way while reducing the risk of insider trading allegations. It is a written arrangement that establishes in advance how and when an individual will trade company stock. Under Securities and Exchange Commission (SEC) rules, a properly established plan may provide an affirmative defense against insider trading allegations, provided all applicable requirements are met. This can be particularly relevant for employees whose equity compensation includes restricted stock units (RSUs) or stock options, which can represent a substantial portion of their overall wealth.
From a wealth management perspective, a 10b5-1 plan should be considered as part of a broader financial strategy. Selling company stock can affect capital gains taxes, portfolio diversification, charitable giving, and future liquidity needs. Coordinating a trading plan with an individual’s overall financial goals can help ensure that decisions around equity compensation support their long-term financial well-being.
Establishing a plan requires careful timing and preparation. Generally, because an individual must adopt the plan when they are not in possession of MNPI, these plans are often established during a company’s open trading window. Employees and insiders must also act in good faith, including making the required certification at adoption that they are not aware of MNPI and are not adopting the plan as part of a strategy to evade Rule 10b-5. The plan must meet applicable requirements for specifying the amount, price, and timing of trades, or establish a formula for determining those details. Once the structure is approved by company counsel and the trading broker, it can be signed and adopted by all parties.
After adoption, a mandatory cooling-off period applies before trading can begin. For directors and officers, this period is generally longer, such as the later of 90 days after adoption or modification of the plan, or two business days following the filing of the company financial reports for the fiscal quarter in which the plan was adopted or modified (up to a maximum of 120 days). For other individuals, the required cooling-off period is generally 30-60 days. Companies may also impose additional restrictions. Once the cooling off period ends, trades are then carried out in accordance with the plan’s terms, typically through a designated broker and subject to oversight by the company’s legal counsel.
Changes to an existing plan require careful consideration, as modifications may be treated as the adoption of a new plan and trigger additional requirements or cooling-off periods. Other limitations may also apply, including restrictions on overlapping plans and limits on single-trade plans. Because the rules can vary depending on an individual’s role and the structure of the arrangement, it is important to review the applicable requirements with the company’s legal or compliance team before proceeding.
A 10b5-1 plan is not a guarantee of legal protection, and it should be developed with input from qualified legal, tax, and financial professionals. When thoughtfully implemented, it can be a useful tool for managing company stock, reducing concentrated investment risk, and supporting long-term financial goals. Sand Hill’s wealth managers often work with clients to incorporate 10b5-1 plans into their broader financial strategies, helping them approach equity compensation, diversification, and long-term wealth management with greater clarity and confidence.
Source: SEC
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