A Rule 10b5-1 stock trading plan allows an individual with access to material, nonpublic information to execute sales or purchases of company stock in accordance with a pre-determined schedule, creating an affirmative defense to potential violations of company rules or federal securities laws regarding insider trading. Rule 10b5-1 plans, named for the section of federal securities laws dealing with insider trading, set forth conditions /upon which trades are executed automatically on behalf of an executive. So long as the executive did not have knowledge of material, nonpublic information at the time of the Rule 10b5-1 plan’s creation, he or she has an affirmative defense that the trades made pursuant to the plan violate the federal securities laws and/or company insider trading policies. Rule 10b5-1 plans only require three components: the number of shares to be sold, the prices at which the shares will be sold, and the timing of the sales. Individuals are afforded the flexibility to customize other aspects of 10b5-1 plans, such as the plan’s duration. For executives who frequently have knowledge of nonpublic material information and who receive significant pay in the form of equity, Rule 10b5-1 plans can be useful in facilitating diversification. The Center believes that properly designed and managed Rule 10b5-1 plans can be effective tools in helping executives to sell company stock when necessary while mitigating potentail securities law violations.