10b5-1 Trading Plan Setup: Blackout Window Mechanics Plus the 90-Day Cooling-Off

What Rule 10b5-1 actually does

Rule 10b5-1(c) under the Securities Exchange Act is not a license to trade on inside information. It is an affirmative defense to insider-trading liability under Rule 10b-5. If you adopt a written plan that specifies the amount, price, and date of trades — OR a formula or algorithm that determines those parameters — at a time when you do NOT possess material nonpublic information, then trades executing later under the plan are protected even if you become aware of MNPI in the interim.

The protection is procedural, not substantive. The SEC or a private plaintiff can still challenge the plan, but the burden shifts: they must show you adopted the plan while possessing MNPI, modified it in bad faith, or used the plan as part of a scheme to evade Rule 10b-5. A properly structured plan, adopted during an open trading window, with realistic parameters and no subsequent modifications, is the strongest defense available to corporate insiders who need to trade.

The 2023 SEC amendments — what changed

The SEC adopted amendments to Rule 10b5-1 in late 2022 that took effect in early 2023. The amendments closed gaps that had attracted regulatory and academic criticism for over a decade. Five material changes:

1. Mandatory cooling-off periods. 90 days plus filing for Section 16 insiders; 30 days for non-Section 16 insiders. Previously, no mandatory cooling-off period existed.
2. Director and officer certification. At adoption, directors and Section 16 officers must certify in writing they are not aware of MNPI and are adopting the plan in good faith.
3. Single-trade plan restrictions. A plan covering a single sale or purchase can only be used once per 12-month period — eliminating the prior practice of adopting back-to-back one-off plans.
4. No overlapping plans. An insider cannot maintain multiple plans for the same class of securities with overlapping execution windows. Limited exceptions exist for later-commencing plans.
5. Item 408 quarterly disclosure. Companies must disclose director and officer plan adoptions, modifications, and terminations on Form 10-Q under Item 408 of Reg S-K. Form 4 trades pursuant to a 10b5-1 plan must check the disclosure box.

The 90-day cooling-off mechanic in detail

For directors and Section 16 officers (CEO, CFO, chief accounting officer, and any officer designated under Exchange Act Section 16), the cooling-off period is the LATER of:

• 90 days after the plan’s adoption date, OR
• Two business days after the company files the next 10-Q or 10-K covering the quarter in which the plan was adopted

The cooling-off period is capped at 120 days regardless of when the next filing occurs. The cap exists to prevent extreme outliers — for example, an insider who adopts a plan immediately after a 10-K filing and would otherwise wait until the following 10-K nearly a year later.

In practice, the timing usually works out like this:

Practical implication: adopt the plan immediately after an earnings filing if you want the cooling-off period to be exactly 90 days. Mid-quarter adoptions inherit additional waiting time because the next filing pushes the trigger later. The 120-day cap matters in Q4 adoptions when the next filing is the 10-K (which typically takes 60-90 days after fiscal year-end).

Blackout windows — how the plan coexists with company policy

Most public companies impose blackout windows during which insiders cannot trade. Typical structure:

• Quarterly earnings blackout: begins on a fixed date (often the 15th of the third month of each quarter) and ends 2-3 business days after the earnings release. Covers approximately six weeks per quarter.
• Event-driven blackouts: imposed by the legal team when a material event is pending (M&A, restatement, major product launch, executive transition). Can last weeks or months.
• Designated-insider blackouts: some companies place high-MNPI roles (CFO team, M&A team, certain executive-suite members) on permanent or quasi-permanent blackout, with very narrow open windows.

A Rule 10b5-1 plan executes during blackout periods. That is the point. The plan was adopted during an open window, the insider certified no MNPI at adoption, and the cooling-off period elapsed — so trades execute on the pre-committed schedule regardless of subsequent blackout designations.

However: company policy controls when you can ADOPT or MODIFY the plan. Most companies require plan adoption only during open trading windows. The legal logic: at adoption, the insider must be free of MNPI, and the most defensible time to make that assertion is during a window when the company itself has determined trading is permissible. Adopting a plan during a blackout window is technically possible under SEC rules, but it invites scrutiny — the SEC’s good-faith requirement is harder to satisfy if you adopted a plan precisely when your company prohibited trading.

Item 408 quarterly disclosure — what becomes public

Under Item 408 of Regulation S-K, each company must disclose in its Form 10-Q (and Form 10-K for the fourth quarter):

• The name and title of any director or Section 16 officer who adopted, modified, or terminated a Rule 10b5-1 plan during the quarter
• The date of adoption, modification, or termination
• The duration of the plan
• The aggregate number of securities to be sold or purchased under the plan
• Whether the plan was intended to satisfy the Rule 10b5-1(c) affirmative defense

Non-Section 16 insiders are NOT subject to Item 408 disclosure. Companies need not disclose plans adopted by rank-and-file employees, even if those employees possess MNPI. The disclosure regime is calibrated to the public-officer population whose trading attracts market and regulatory attention.

Form 4 filings for individual trades executed under a 10b5-1 plan must include a checkbox indicating the trade was made pursuant to a plan adopted in compliance with Rule 10b5-1(c). The 2023 amendments added this checkbox to make plan-driven trades visually distinguishable from discretionary trades in the public Form 4 record.

Worked example: VP at a public SaaS company selling 30,000 shares over 12 months

Marcus is a VP of Product at a publicly traded SaaS company. He is a Section 16 officer because the board designated him as such (despite not being a traditional executive officer). He holds 75,000 vested RSU shares at $80/share — $6 million in employer stock, representing 65% of his $9.2 million net worth. He wants to reduce employer-stock exposure to under 25% over the next 12-18 months.

Plan parameters

Item 408 disclosure on Q1 10-Q

The company files its Q1 10-Q on May 7, 2026. Under Item 408, the company must disclose Marcus’s plan in that filing:

“On February 8, 2026, Marcus [LAST NAME], Vice President of Product (a Section 16 officer), adopted a Rule 10b5-1(c) trading arrangement providing for the sale of up to 30,000 shares of the Company’s common stock. The arrangement has a term of 14 months and is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).”

Each Form 4 filed by Marcus during the plan’s execution must check the Rule 10b5-1 disclosure box. Activist investors, journalists, and short-sellers monitor these disclosures — adoption of a large 10b5-1 plan by senior insiders is sometimes interpreted as a negative signal, but the post-2023 normalization of plans has reduced that effect.

What happens during a Q3 product-launch blackout

In late August 2026, Marcus’s company announces a major product launch will occur on September 15. Legal imposes a special blackout covering all insiders from August 25 through September 17. Marcus’s 10b5-1 plan continues to execute normally — the September 3 trade of 2,500 shares occurs as scheduled. Marcus does not need to do anything. The plan was adopted in February (open window), the cooling-off period elapsed in May, and trades execute on autopilot regardless of subsequent blackouts or his receipt of MNPI about the launch.

What happens if Marcus learns of MNPI between trades

On October 10, 2026, Marcus learns from an executive committee meeting that the company is in advanced negotiations to acquire a competitor for $1.2 billion. The November 3 plan trade still executes — Marcus did not modify the plan, did not have MNPI at adoption, and the plan’s good-faith requirement remains satisfied because he is allowing the pre-committed trades to occur without intervention. The Form 4 for the November trade will note 10b5-1 status, and SEC enforcement scrutiny will focus on the original plan adoption rather than the individual trade.

Single-trade plan restriction — what it kills

Before 2023, a common insider tactic was the “adopt-and-execute” one-off plan: adopt a plan covering a single sale of 50,000 shares, wait the minimal informal cooling-off period the broker required (sometimes as little as 30 days), execute the sale, terminate the plan, and adopt another single-trade plan when more liquidity was needed. This approach effectively used 10b5-1 as a series of pre-clearance shortcuts rather than as a systematic trading framework.

The 2023 amendments limit single-trade plans (defined as plans designed to result in a single purchase or sale) to ONE per 12-month period per insider. If you need to sell shares more than once per year, you must structure the plan as a multi-trade plan with a defined schedule, formula, or algorithm. The single-trade restriction does not apply to plans where individual trades are small components of a larger multi-trade program — only to plans intentionally designed around a single transaction.

Modification — why the cooling-off restart matters

Any modification to amount, price, or timing under an active 10b5-1 plan is treated as termination of the existing plan and adoption of a new plan. The cooling-off period restarts in full. For a Section 16 officer, this means waiting another 90 days plus filing before the modified plan’s first trade can execute.

Modifications that do NOT trigger restart:

• Updating insider contact information
• Changing the designated broker (administrative)
• Correcting clerical errors in the plan document that do not affect substantive trading parameters
• Adjustments required by corporate actions (stock splits, mergers, dividends-in-kind)

The SEC has also warned that a pattern of frequent modifications — even technically compliant ones — can undermine the good-faith requirement. If you modify a plan three times in 18 months, expect enforcement scrutiny if any trade subsequently looks suspicious. Practical guidance from securities-law counsel: design the original plan with realistic parameters and intentional flexibility (price floors, share-count tolerances, automatic adjustments for corporate actions) so that modifications rarely become necessary.

Termination — how and when

You can terminate a 10b5-1 plan at any time by written notice to the broker and the company. The termination is effective on the date specified or, if no date is specified, on receipt of the notice by the broker.

Termination triggers Item 408 quarterly disclosure for directors and Section 16 officers. The company’s 10-Q for the quarter of termination must identify the insider, the termination date, and confirm the plan was a 10b5-1(c) arrangement. The market sees this. If the stock subsequently moves in a direction that would have been unfavorable under the plan, the inference — sometimes valid, often unfair — is that the insider terminated based on MNPI.

The strongest defense against this inference is a plan structured with realistic parameters so termination never seems attractive. The second-strongest defense is documenting a non-MNPI business reason for termination (a divorce settlement, a tax payment obligation, a planned charitable gift, a different liquidity need) and disclosing it contemporaneously to compliance.

Company insider-trading policies — the layer above SEC rules

The SEC sets the floor. Your company’s insider-trading policy almost always sets a higher ceiling. Common company-level additions:

• Pre-clearance. All plan adoptions, modifications, and terminations must be cleared with legal/compliance before execution. Typical pre-clearance turnaround: 5-15 business days.
• Designated brokers. Plan must be administered by one of a small list of company-approved brokers (commonly Morgan Stanley at Work, Charles Schwab, Fidelity, E*TRADE, Bank of America/Merrill).
• Adoption only during open windows. No plan adoption during quarterly or event-driven blackouts, even though SEC rules technically permit it.
• Minimum plan duration. Common minimums of 6 or 12 months.
• Plan-on-plan cooling-off. If you terminate a plan, you cannot adopt a new one for some additional period (often 60-90 days) beyond the SEC’s cooling-off period.
• Counsel review. Outside securities counsel or in-house legal must review the plan document before signing.
• Prohibition on overlapping plans even where the SEC would permit a later-commencing plan.

Violating company policy may not trigger SEC liability, but it can trigger termination for cause, clawback of equity compensation under Sarbanes-Oxley sec. 304 or Dodd-Frank sec. 954, and complete loss of the 10b5-1 affirmative defense if the SEC later investigates. Read the policy before contacting any broker.

Common plan structures

Tax treatment — the plan does NOT change tax outcomes

This is the part most newly-promoted insiders miss: Rule 10b5-1 is a securities-law mechanism. It does not change the federal income tax treatment of trades executed under the plan.

• RSU sales: ordinary income at FMV on vest date (already taxed on W-2); capital gain or loss on the difference between sale price and vest-date FMV. Long-term if held more than 12 months after vesting, short-term otherwise. Same as any RSU sale.
• ISO sales: qualifying vs disqualifying disposition under IRC sec. 422. The plan’s execution date determines which holding-period tests are met. Selling ISOs before 2 years from grant + 1 year from exercise via a 10b5-1 plan still produces a disqualifying disposition with full ordinary-income treatment of the spread.
• ESPP sales: qualifying vs disqualifying under IRC sec. 423. The plan’s schedule must accommodate the 2-year-from-offering + 1-year-from-purchase tests if qualifying treatment is the goal.
• NSO sales: ordinary income on the spread at exercise; capital gain/loss on appreciation between exercise and sale. The plan’s timing controls when sales occur, but the tax mechanics are independent.

If you want qualifying-disposition treatment on ISOs or ESPP shares through a 10b5-1 plan, structure the plan to identify specific lots and sell each only after the holding-period clocks have run.

Good faith — the catch-all the SEC enforces aggressively

The 2023 amendments added an explicit good-faith requirement: the plan must not be “part of a plan or scheme to evade the prohibitions of [Rule 10b-5].” This is assessed at adoption AND throughout the plan’s life. Behaviors that undermine good faith:

• Adopting a plan while aware of upcoming material events even if the formal MNPI definition is debatable
• Hedging the plan’s sales through options, swaps, or derivatives on the same security
• Influencing the timing of company announcements to coincide with plan trades
• Terminating the plan immediately before unfavorable trades would execute
• Patterns of repeated adoption-and-termination cycles
• Coordinating plan adoption with other insiders in ways that suggest shared MNPI

Good faith is a facts-and-circumstances test. There is no bright-line safe harbor. The strongest defense is a plan adopted during an open window, with a 12+ month duration, no modifications, and trades executing through both favorable and unfavorable price periods.

Key takeaways

• Rule 10b5-1(c) provides an affirmative defense against insider-trading liability for pre-arranged trades adopted when the insider did not possess MNPI. It is not automatic protection — the plan must be adopted in good faith and comply with the 2023 SEC amendments.
• Section 16 officers and directors face a cooling-off period of the later of 90 days after adoption or 2 business days after the next 10-Q/10-K filing — capped at 120 days. Non-Section 16 insiders wait 30 days. No trades execute during the cooling-off window.
• Item 408 of Reg S-K requires quarterly disclosure of director and Section 16 officer plan adoptions, modifications, and terminations. Form 4 filings for plan-executed trades must check the 10b5-1 disclosure box.
• Any modification to amount, price, or timing resets the cooling-off period entirely. Frequent modifications can negate the affirmative defense even if each individually complies.
• Single-trade plans are limited to one per 12-month period. For ongoing diversification, use a multi-trade plan with a defined schedule, formula, or algorithm.
• The plan operates during blackout windows once the cooling-off period elapses, but adoption itself typically must occur during open trading windows under most company insider-trading policies.
• The plan does not change tax treatment. RSU, ISO, NSO, and ESPP sales follow their normal IRC sections — 10b5-1 only controls WHEN sales occur. Coordinate plan timing with IRC sec. 422 and 423 holding periods if qualifying-disposition treatment matters.