A 10b5-1 plan is a pre-arranged trading plan that allows company insiders—such as executives, directors, and employees—to buy or sell company stock while avoiding accusations of insider trading. It is named after Rule 10b5-1 of the Securities Exchange Act of 1934 and, if properly structured, provides a legal defense against insider trading allegations.
How It Works:
The plan must be set up before the insider has any material non-public information (MNPI).
It must specify the number of shares, the price, and the timing of trades, or include a formula for determining these factors.
Once the plan is in place, the insider is obligated to follow it, regardless of any inside information they may later obtain.
By contacting Morgan Stanley / E*Trade (the custodian for your AbbVie RSUs), they can provide you a template for this plan and then ensure that it’s designed and filled out appropriately after you consult with a financial advisor and lawyer.
Why Use a 10b5-1 Plan?
Avoid Insider Trading Accusations: Since the trades are pre-planned, they show no intent to misuse MNPI.
Liquidity for Insiders: Executives can systematically sell shares without worrying about blackout periods or market timing.
Public Perception: Investors may see 10b5-1 sales as less suspicious than discretionary insider trades.
Recent Regulatory Changes
The SEC updated the rules in 2023, requiring a cooling-off period (usually 90-120 days) before the first trade occurs and limiting multiple, overlapping plans to prevent abuse.
But how do I use a 105b1 plan with AbbVie RSUs?
1. Selling RSUs Automatically Upon Vesting
RSUs typically vest on a set schedule, and once they do, they become taxable as ordinary income.
A 10b5-1 plan can be set up in advance to automatically sell a portion (or all) of the vested RSUs on specific dates to cover taxes or diversify holdings.
This eliminates the risk of being unable to sell due to insider trading restrictions or blackout periods.
Example:
You have RSUs that vest annually. A 10b5-1 plan prearranges sales on the vesting dates to sell a percentage at market price. This helps with tax planning and reduces the risk of stock price fluctuations.
2. Diversifying Holdings Over Time
Employees and executives often accumulate a large position in their company’s stock through RSUs.
A 10b5-1 plan can schedule sales over time, reducing exposure to single-stock risk.
This avoids sudden large sales that might impact stock price or raise red flags.
Example:
Instead of selling all RSUs upon vesting, a 10b5-1 plan could spread sales out over 6–12 months. This creates a dollar-cost averaging effect, reducing price risk.
3. Avoiding Insider Trading Restrictions & Blackout Periods
Company insiders frequently face blackout periods that restrict when they can sell stock.
A 10b5-1 plan permits trades to occur even during blackout periods, provided that the plan was established before the insider possessed material non-public information (MNPI).
Example:
Your company enforces a quarterly earnings blackout that prevents open-market trading for executives.A 10b5-1 plan ensures that pre-planned RSU sales continue, even if the insider would otherwise be restricted.
4. Tax Optimization with Scheduled Sales
RSUs are taxed as ordinary income upon vesting, but capital gains tax applies to any additional gains after that.
A 10b5-1 plan can be structured to sell some RSUs immediately for tax coverage while holding others for long-term capital gains.
Example:
You sell enough RSUs immediately upon vesting to cover taxes. The rest are scheduled for sale after one year to benefit from lower long-term capital gains rates.
Key Considerations
✅ Plan Early – Must be established before acquiring MNPI.
✅ Lock-in Sale Parameters – Define share amounts, timing, and price triggers.
✅ Account for Tax Withholding – Many companies withhold RSUs for taxes, so ensure the plan aligns with this.
✅ Compliance Checks – Companies may require pre-approval of 10b5-1 plans.