SEC Rule 10b5-1 seemed like a win-win situation for executives and the investing public.
The commission adopted the rule in 2000 to give a safe harbor from insider trading charges to executives who create a plan to automatically buy or sell stock at routine intervals. So for instance, an executive who needs to liquidate $30,000 worth of stock holdings each August to pay a child’s college tuition can set up a trust to sell a certain number of shares each year on July 15. The trades would not attract insider-trading charges–even if they occurred during a blackout period–because they were scheduled and planned for at a time when the executive didn’t have material, non-public information that would prohibit him or her from making a trade. Thus, a 10b5-1 plan prevents insider trading while not overly restraining an executive’s ability to liquidate his or her stock holdings. At least that’s how the plans are supposed to work.
