What the rule actually requires, in one clause, before the specifics. The arrangement must be entered into in good faith and not as part of a scheme to evade the prohibition, a cooling-off period must pass before any trade occurs, and a director or officer must certify at adoption that they hold no material nonpublic information. Those conditions, the cooling-off arithmetic and the certification are set out in full on the insider trading entry, which works through a dated example. What follows here is the part that governs how the plan is set up and lived with.
Three permitted forms, and the point they share. Rule 10b5-1(c)(1)(i)(A) allows the person, before becoming aware of the information, to have entered a binding contract to buy or sell, instructed another person to trade for their account, or adopted a written plan. Whichever form is used, (c)(1)(i)(B) requires one of three things: the arrangement specifies the amount, price and date; or it includes "a written formula or algorithm, or computer program" for determining them; or it does not permit the person to exercise any subsequent influence over how, when or whether trades happen. The rule defines those terms narrowly: "amount" is a specified number of securities or dollar value, "price" is the market price on a particular date or a limit price or a particular dollar price, and "date" is a specific day for a market order or the day a limit order is in force. Vagueness is not an option.
Deviating from the plan destroys the protection, and so does hedging. Under (c)(1)(i)(C) a trade is not "pursuant to" the arrangement if the person "altered or deviated from the contract, instruction, or plan ... (whether by changing the amount, price, or timing of the purchase or sale), or entered into or altered a corresponding or hedging transaction or position with respect to those securities". The hedging half is the one people miss: an offsetting position taken outside the plan can undo the protection for trades inside it.
One plan at a time, and three qualifications on that. Paragraph (c)(1)(ii)(D) bars a person other than the issuer from having any other outstanding qualifying arrangement for open-market trades. Three qualifications follow. A series of separate contracts with different broker-dealers may be treated as a single plan where they collectively meet the rule's conditions. A person may have one later-commencing plan, under which trading cannot begin until the earlier plan's trades are completed or have expired unexecuted, subject to a defined cooling-off restriction on its first trade. And an eligible sell-to-cover arrangement does not count as an outstanding plan at all: the rule describes it as one authorizing an agent "to sell only such securities as are necessary to satisfy tax withholding obligations arising exclusively from the vesting of a compensatory award, such as restricted stock or stock appreciation rights", where the insider has no control over the timing. That carve-out is what lets an employee run a diversification plan and a routine vest-withholding instruction at the same time.
A single-trade plan can be used only once a year. Under (c)(1)(ii)(E), if an arrangement is designed to sell or buy the whole position in one transaction, it is unavailable to someone who adopted another such single-transaction plan in the previous twelve months. The rule aims squarely at using a one-off plan as a fig leaf for an opportunistic trade.
A modification is not a modification. Paragraph (c)(1)(iv) provides that "any modification or change to the amount, price, or timing of the purchase or sale of the securities underlying" the arrangement "is a termination of such contract, instruction, or written plan, and the adoption of a new" one. It adds that substituting or removing the executing broker counts too, where doing so changes the price or date of the trades. The practical consequence is the single most useful thing to know about these plans: a pause, a tweak or a cancellation is not a small act. It restarts the clock, and the person cannot trade under the replacement until a fresh cooling-off period has run.
Adoption and termination are public for directors and officers. Regulation S-K Item 408(a) requires a registrant to disclose, each quarter, whether any director or officer adopted or terminated such an arrangement, and to describe its material terms: the name and title, the date of adoption or termination, the duration, and the aggregate number of securities involved. Price terms are expressly excluded from what must be disclosed. Item 408(b) separately requires the company to say whether it has adopted insider trading policies and procedures and, if so, to file them as an exhibit. So for a public company, both the existence of an executive's plan and the company's own trading rules are matters of record.
One narrow bridge worth knowing. Where a company's retirement plan enters a pension blackout period, federal law bars its directors and executive officers from trading company stock acquired through their service. A trade under a plan meeting Rule 10b5-1(c) is exempt from that bar, but only if the director or officer did not enter into or modify the plan during the blackout or while aware of its approximate start or end dates. In other words, the plan has to predate the knowledge, which is the same principle the rule rests on throughout.
