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10b5-1 Plans – the lowdown


A charge or even the perception of insider trading can cause catastrophic reputational and financial damage to both companies and individuals. There are countless benefits associated with employee stock equity, but of course, there are also some downsides. The risk associated with insider trading is one of the largest. One method that is frequently used by individuals to limit the potential damage associated with a claim of insider trading is the use of rule 10b5-1.

What is a 10b5-1 plan?

The rule provides an affirmative defence for employees, officers and directors of public companies against insider trading violations for transactions executed under a properly established contract, plan or instruction.


What does 10b5-1 prohibit?

The regulation states that “it is illegal for anybody to directly or indirectly use any measure to defraud, make false statements, omit relevant information, or otherwise conduct operations of the business that would deceive another person in relation to conducting transactions involving stock and other securities.”

“Properly established and executed Rule 10b5-1 trading plans can help your employees diversify holdings of company securities in an orderly and regular fashion.”


What are the 10b5-1 benefits?

Properly established and executed Rule 10b5-1 trading plans can help your employees diversify holdings of company securities in an orderly and regular fashion. It will allow employees to accomplish virtually any of their investment goals, without being limited by insider trading policies and more importantly creates an affirmative defence against insider trading.


How is a 10b5-1 plan set up?

A 10b5-1 plan typically takes the form of a contract between your employee and his or her broker. The plan must be entered into at a time when the insider has no Material non-public information about the company or its securities.


What are the 10b5-1 conditions?

The plan must be in writing between the employee and his/her broker. It must contain:

The number of shares to be bought or sold. This can be designated as a number of shares, as a percentage of the Insider’s holdings or as the number of shares needed to produce a specific dollar amount.
Prices at which the shares will be bought or sold. This may be designated as a specific dollar amount, a limit order price or as the prevailing market price.
Timing of the purchases or sales. This may be designated as a specific date or time or as the time at which a specific event occurs.


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Please Note: This publication contains general information only and Global Shares is not, through this article, issuing any advice, be it legal, financial, tax-related, business-related, professional or other. The Global Shares Academy is not a substitute for professional advice and should not be used as such. Global Shares does not assume any liability for reliance on the information provided herein.

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