Last Modified: August 9, 2026
Table of Contents
SEC Rule 10b5-1, codified at 17 C.F.R. § 240.10b5-1 under the Securities Exchange Act of 1934, defines when trading in securities is conducted on the basis of material nonpublic information for the purposes of insider trading liability under Section 10(b) of the Exchange Act and Rule 10b-5, and establishes the conditions of an affirmative defense available to persons who trade pursuant to a binding contract, written trading plan, or standing instruction that was adopted at a time when the person was not aware of any material nonpublic information.
The rule addresses the central definitional ambiguity in insider trading law — what it means to trade on the basis of inside information — and resolves it by providing both a statutory standard for liability and a structured safe harbour through which insiders, issuers, and other persons may plan and execute securities transactions in advance while protecting themselves from insider trading exposure.
The affirmative defence mechanism, commonly referred to in practice as the Rule 10b5-1 plan, is one of the most commercially significant provisions in the Exchange Act's securities fraud framework, enabling corporate executives, directors, and institutional holders to manage their equity positions in a systematic and legally protected manner.
The December 2022 amendments — the most significant changes to Rule 10b5-1 since its original adoption in 2000 — substantially tightened the conditions for the affirmative defence by introducing mandatory cooling-off periods, director and officer certifications, restrictions on overlapping and single-trade plans, and an enhanced good faith condition, responding to a sustained body of academic research and journalistic investigation identifying systematic abuse of the pre-amendment framework.
Insider trading liability under Section 10(b) of the Exchange Act and Rule 10b-5 prohibits trading in securities on the basis of material nonpublic information in violation of a duty to disclose or abstain. The classical theory of insider trading liability, established through enforcement actions and judicial decisions over decades, turned on whether the trader possessed material nonpublic information and used it in connection with a trading decision.
The problem that Rule 10b5-1 was designed to address arose from a specific structural ambiguity in this framework: corporate insiders — executives, directors, and significant shareholders — routinely possess material nonpublic information by virtue of their positions, yet they also have legitimate needs to diversify their holdings, fund personal obligations, and manage their equity compensation.
How could an insider lawfully trade in company securities when, as a practical matter, they are almost always in possession of some category of nonpublic information about the company's affairs?
The pre-Rule 10b5-1 answer to this question required insiders to trade only during defined trading windows — periods following the public release of quarterly earnings when no material nonpublic information was pending — but this approach imposed inflexibility and left insiders exposed to the possibility that information they were unaware of might make a window-period trade unlawful.
Rule 10b5-1 addressed this problem by providing a more sophisticated framework: defining what it means to trade on the basis of MNPI, and creating an affirmative defence through which insiders who had committed to a trading plan before becoming aware of MNPI could execute that plan without insider trading liability, even if material nonpublic information later came to their attention.
The 2022 amendments addressed the documented abuse of this framework. Academic research, particularly the 2012 study by Jagolinzer published in The Accounting Review, and Wall Street Journal investigations in 2012 and 2022 documented that insiders who adopted Rule 10b5-1 plans earned anomalous trading profits consistent with trading on inside information — despite the theoretical protection that the plans provided.
The most common abuse patterns involved same-day plan adoption and trading, plan adoption immediately before favourable corporate announcements, selective cancellation of plans when they would have resulted in unfavourable trades, and adoption of multiple simultaneous plans to preserve optionality. The 2022 amendments targeted each of these patterns through the new conditions they imposed.
Rule 10b5-1 derives its statutory authority from Section 10(b) of the Securities Exchange Act of 1934, which prohibits the use of any manipulative or deceptive device or contrivance in connection with the purchase or sale of any security, and Section 23(a), which grants the Commission general rulemaking authority under the Exchange Act.
The rule was adopted on August 24, 2000, published at 65 FR 51737, as part of a package of Commission rulemaking addressing the definition of insider trading following the Supreme Court's decisions in United States v. O'Hagan (1997) and the line of cases addressing the misappropriation theory of insider trading.
The original Rule 10b5-1 had two principal components: the awareness standard defining when trading is on the basis of MNPI, and the affirmative defence framework. The awareness standard of Rule 10b5-1(b) replaced the prior use standard with a definitional rule providing that a purchase or sale is on the basis of MNPI if the person making the purchase or sale was aware of the information when the transaction was made. The affirmative defence of Rule 10b5-1(c) provided that the awareness of MNPI does not give rise to liability where the trade was made pursuant to a contract, instruction, or plan that met specified conditions.
The December 14, 2022 amendments — Securities Act Release No. 33-11138, published at 87 FR 80429, December 29, 2022, effective February 27, 2023 — were the first substantive amendments to Rule 10b5-1 since its original adoption. The amendments were adopted by the Commission unanimously and were among the most significant insider trading regulatory actions taken by the Commission since the original Rule 10b-5 rulemaking. The eCFR confirms December 29, 2022 as the date of the most recent amendment, with no subsequent changes through June 2026. No pending rulemaking proposes further amendments through June 2026.
Rule 10b5-1(b) establishes the awareness standard. A purchase or sale of a security is made on the basis of material nonpublic information about that security or issuer if the person making the purchase or sale was aware of the material nonpublic information when the person made the purchase or sale.
The awareness standard is broader than the older use standard — liability attaches to trading while aware of MNPI regardless of whether the insider subjectively used or relied on that information in making the trading decision. An insider who is aware of a material pending merger and places a sell order that day cannot escape liability by claiming that the sell order was triggered by an independent market signal rather than by the insider's knowledge of the merger.
Rule 10b5-1(c)(1) establishes the affirmative defence conditions. A person asserting the Rule 10b5-1 affirmative defence must demonstrate that the purchase or sale was made pursuant to a binding contract, an instruction to another person to execute the transaction, or a written plan for trading the security, and that when the person entered into the contract, instruction, or plan, the person was not aware of any material nonpublic information.
The contract, instruction, or plan must have specified the amount of securities to be purchased or sold and the price at which or the formula for determining the price, or must have been entered into without permitting the person to exercise any subsequent influence over how, when, or whether to effect purchases or sales under the plan.
First, mandatory cooling-off periods for persons other than issuers. For directors and Section 16 officers, trading under a new or modified plan may not commence until the later of: 90 days after the adoption of the plan, or two business days following the disclosure in a periodic report of the issuer's financial results for the fiscal quarter in which the plan was adopted — but in no case longer than 120 days following plan adoption. For all other persons who are not directors, Section 16 officers, or issuers, trading may not commence until at least 30 days after the plan's adoption.
Second, director and officer certification at plan adoption. Directors and Section 16 officers must include a representation in the written plan certifying that, at the time of adoption, they are not aware of any material nonpublic information about the issuer or its securities, and that 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.
Third, prohibition on overlapping plans. Persons other than issuers may not enter into a new Rule 10b5-1 plan if they have an outstanding plan covering trades in the same class of securities, subject to exceptions for plans with separate brokers that together satisfy Rule 10b5-1(c)(1)'s conditions when viewed as a single plan, sequential plans where the later plan does not commence trading until the earlier plan has been completed or expired, and sell-to-cover plans designed solely to cover tax withholding obligations on equity award vesting events.
Fourth, single-trade plan limitation. Persons other than issuers may rely on the affirmative defence for a single-trade plan — a plan designed to effect only one trade in the relevant security — only once per rolling 12-month period. This condition prevents the practice of adopting a series of single-trade plans throughout the year, effectively using the Rule 10b5-1 framework as a continuous series of ad hoc trades rather than a genuine pre-commitment.
Fifth, the sell-to-cover exception. A plan providing for an eligible sell-to-cover transaction — a transaction to sell only so many securities as necessary to satisfy tax withholding obligations arising from equity award vesting — is not considered an outstanding or additional plan for purposes of the overlapping plan prohibition and does not count toward the single-trade plan limit. This exception preserves issuers' and insiders' ability to manage the tax consequences of equity award vesting without the administrative burden of treating each sell-to-cover transaction as a separate plan subject to the overlapping and single-trade restrictions.
Sixth, the expanded good faith condition. All persons who enter into a Rule 10b5-1 plan must act in good faith with respect to the plan throughout its duration. The amended good faith condition applies not only at the time of plan adoption — as the pre-amendment condition required — but on a continuing basis throughout the life of the plan. An insider who adopts a plan in good faith but subsequently takes actions to manipulate the plan's execution, cancels the plan opportunistically, or otherwise acts contrary to the plan's intended operation in bad faith will lose the affirmative defence even if the original plan adoption was legitimate.
Rule 10b5-1 applies to all persons who trade in securities while aware of material nonpublic information — corporate insiders including executive officers, directors, and employees; significant shareholders; and any other person in possession of MNPI obtained in breach of a duty of trust or confidence. The affirmative defence of Rule 10b5-1(c)(1) is available to all of these persons, as well as to issuers themselves conducting share repurchase programmes, subject to the conditions of the rule.
The 2022 amendments imposed differentiated conditions depending on whether the plan is adopted by a director or Section 16 officer — who must observe the longer cooling-off period and provide the required certifications — or by other persons including employees below the Section 16 threshold and issuers themselves.
Issuers adopting Rule 10b5-1 plans to govern share repurchase programmes benefit from the affirmative defence without being subject to the cooling-off periods applicable to individuals — a distinction reflecting the Commission's determination that the structural concerns that animated the cooling-off periods for individuals, including the ability to exploit short-term earnings-related MNPI, are less acute for issuer repurchase programmes conducted pursuant to a systematic plan.
Rule 10b5-1 operates as a companion provision to Rule 10b-5 — the core antifraud rule prohibiting fraudulent and deceptive conduct in connection with securities transactions. Where Rule 10b-5 prohibits trading on the basis of MNPI, Rule 10b5-1 provides both the operative definition of what trading on the basis of MNPI means and the safe harbour through which trades planned in advance without MNPI can be executed without Rule 10b-5 exposure.
The 2022 amendments connected Rule 10b5-1 to new Regulation S-K disclosure requirements, adding Item 408 to Regulation S-K to require quarterly disclosure by issuers of the adoption, modification, and termination of Rule 10b5-1 plans by directors and officers, and annual disclosure of the issuer's insider trading policies. Issuers were also required to file their insider trading policies as exhibits to their Form 10-K or Form 20-F annual reports beginning in fiscal year 2024 filings — calendar year companies first satisfied this requirement in Form 10-Ks filed in early 2025 covering fiscal year 2024.
Rule 10b5-1 also interacts with Section 16 of the Exchange Act, which separately governs short-swing profit recovery and beneficial ownership reporting by corporate insiders. The 2022 amendments required conforming changes to Forms 4 and 5 to require Section 16 reporting persons to indicate whether a reported transaction was made pursuant to a Rule 10b5-1 plan, enabling market participants to track plan-based trading alongside ordinary window-period and open-market transactions.
The original Rule 10b5-1 framework was widely used from 2000 forward, with thousands of insiders adopting plans and relying on the affirmative defence in thousands of transactions annually. The framework's practical adequacy began to be questioned systematically from 2012 onward, when academic research demonstrated that insiders using Rule 10b5-1 plans earned trading profits significantly in excess of those earned by insiders trading during window periods without plans — a pattern inconsistent with the plans' theoretical function as a commitment device isolating trading from MNPI.
The Wall Street Journal's June 2022 investigation, which identified specific instances of insiders adopting and immediately exercising plans, adopting plans days before company-specific announcements, and cancelling plans when they would have resulted in unfavourable trades, provided the immediate political and media impetus for the Commission's December 2022 amendments.
The amendments represented the Commission's comprehensive response to two decades of documented plan abuse and were adopted by a unanimous Commission vote — a rare occurrence for a significant rulemaking — reflecting the breadth of the consensus that the prior framework required reform.
The disclosure requirements adopted alongside the 2022 rule amendments began generating significant information about Rule 10b5-1 plan activity for the first time, with quarterly and annual reports from fiscal year 2023 forward providing investors with systematic data about insider plan adoption, modification, and termination patterns. No subsequent amendments have been proposed or adopted since February 2023.
The Commission's insider trading enforcement programme has historically relied on Rule 10b-5 directly, with Rule 10b5-1 serving primarily as an affirmative defence rather than as an independent source of liability. However, enforcement actions challenging the integrity of Rule 10b5-1 plans — alleging that plans were adopted in bad faith, that insiders possessed MNPI at the time of plan adoption, or that plans were cancelled and re-adopted to enable opportunistic trading — have increased substantially since the 2022 amendments became effective.
The Division of Enforcement has emphasised that the existence of a Rule 10b5-1 plan does not provide absolute protection from insider trading charges — where the government can demonstrate that the plan was adopted in bad faith, that the certification was false, or that the insider possessed MNPI at the time of adoption or acted in bad faith in operating the plan, the affirmative defence is unavailable. Enforcement actions in 2024 and 2025 specifically targeted plan cancellation practices — cases where insiders cancelled plans that would have generated losses and adopted new plans positioned to generate gains — as evidence of bad faith operation undermining the affirmative defence.
The 2022 amendments' certification requirement for directors and Section 16 officers has also created a new category of potential enforcement exposure: a certification that a director or officer was not aware of MNPI at the time of plan adoption may itself constitute a false statement if the certifying person was in fact aware of undisclosed information at that time, creating potential liability under the securities laws' general prohibition on false statements in documents filed with or submitted to the Commission.
Rule 10b5-1 is examined at the Series 7, Series 65, and Series 66 levels in the context of insider trading law and the mechanisms through which corporate insiders may lawfully manage their equity positions. Candidates should understand the awareness standard of Rule 10b5-1(b) — trading while aware of MNPI constitutes trading on the basis of MNPI regardless of whether the insider subjectively used the information — and the three-part structure of the original affirmative defence: the plan must have been adopted without MNPI awareness, must specify amounts and prices or a formula, and must not permit the insider to subsequently influence how, when, or whether to trade.
The 2022 amendments' key additions — cooling-off periods differentiated by position, the director and officer certification requirement, the overlapping plan prohibition, the single-trade plan limit, and the expanded good faith condition — are increasingly central examination content given their recent adoption and the enforcement attention they have attracted. The sell-to-cover exception is examined in the context of the overlapping plan restriction, confirming that plans designed solely to fund tax withholding on equity award vesting are exempt from both the overlapping plan prohibition and the single-trade plan limit.
The key points to retain are these. Rule 10b5-1 defines trading on the basis of MNPI as trading while aware of material nonpublic information, replacing the older use standard with an awareness standard. The affirmative defence requires that trades be made pursuant to a contract, instruction, or written plan adopted without MNPI awareness that specifies amounts and prices or a formula and does not permit subsequent influence over trading decisions.
The 2022 amendments added mandatory cooling-off periods — 90 days to 120 days for directors and Section 16 officers, 30 days for others — a director and officer certification requirement, a prohibition on overlapping plans subject to exceptions for sequential and sell-to-cover plans, a one-per-12-month single-trade plan limit, and an expanded good faith condition applying throughout the plan's duration.
New Regulation S-K Item 408 requires quarterly disclosure of plan adoption, modification, and termination and annual disclosure of insider trading policies, with insider trading policy exhibit filing required beginning in fiscal year 2024 annual reports. Rule 10b5-1 was last amended December 29, 2022 and no amendments are pending as of June 2026.
