Affiliate compliance

Rule 144 and 10b5-1 plans: two rules, one sale.

Adopting a 10b5-1 plan solves your insider-trading problem. It does not solve your resale problem. If you are a director, executive officer, or 10%+ holder of a public company — an "affiliate" under securities law — every stock sale you make must also comply with Rule 144, regardless of whether that sale happens inside a 10b5-1 plan. The rules operate in parallel, and a plan that ignores Rule 144 will stall at the broker before the first trade executes.

What each rule actually does

One rule protects you from insider-trading claims. The other authorizes the resale itself. A 10b5-1 plan addresses only the first. If you are an affiliate, you need both.

Who is an affiliate under Rule 144

Rule 144 defines "affiliate" by reference to "control." Control means the power to direct or cause the direction of a company's management or policies, through ownership, contract, or otherwise. In practice, three categories of people are almost always affiliates:

• Directors — any board member, whether executive or independent.
• Executive officers — the CEO, CFO, COO, General Counsel, and any officer performing a principal policy-making function. Many vice presidents with division or functional authority qualify.
• 10% beneficial owners — any person or entity directly or indirectly owning more than 10% of a registered equity class.

If you adopted a 10b5-1 plan and you are in any of these categories, Rule 144 applies to every sale your plan executes.

The five conditions affiliates must meet

1. Current public information

The issuer must have been a reporting company under the Exchange Act for at least 90 days and must be current in its required SEC filings — Forms 10-K, 10-Q, and 8-K, as applicable. If the company misses a periodic filing, affiliate sales under Rule 144 become unavailable until the company becomes current again. Most 10b5-1 plans include a provision allowing the company or broker to suspend trades if this condition fails.

2. Volume limitation

During any three-month period, an affiliate may not sell more than the greater of:¹

• 1% of the outstanding shares of the class being sold, or
• the average weekly reported trading volume during the four calendar weeks preceding the filing of the Form 144 notice.

The three-month window is rolling — it looks back 90 days from the planned sale date. All sales by the affiliate and their affiliates aggregate for purposes of the limit. This includes open-window sales outside the plan, gifts with retained rights, and sales by family members sharing the same household if attributable to the insider.

3. Manner-of-sale requirement

Affiliate sales of equity securities must be executed as a "brokers' transaction" or directly with a "market maker." A brokers' transaction means the broker executes the trade through ordinary market activity — soliciting buyers is not permitted. Brokers cannot receive more than their usual and customary commission. Direct transactions with market makers are permitted, but the market maker must be acting in that capacity at the time.

For most 10b5-1 plan executions — market orders or limit orders routed through an exchange — the manner-of-sale requirement is automatically satisfied. The constraint becomes relevant if you are attempting a large negotiated block sale or an accelerated distribution, which typically require a separate registration statement rather than Rule 144.

4. Form 144 notice

If you plan to sell more than 5,000 shares or more than $50,000 worth of stock in any three-month period under Rule 144, you must file Form 144 concurrently with placing the order.² Key requirements:

• The filing is concurrent with the sale order — not at month-end or after the fact.
• Since April 13, 2023, Form 144 must be filed electronically on EDGAR for sales of reporting-company securities. Paper and email submission are no longer accepted.³
• The form requires the approximate date of sale, number of shares, and the aggregate market value. It also requires disclosure of sales during the prior three-month period.
• For 10b5-1 plans, the initial Form 144 is typically filed by the broker or counsel at plan adoption, updated at each new 90-day window.

5. Holding period (restricted securities only)

If the shares being sold are restricted securities — acquired in a private transaction without registration — they must be held for at least six months before the affiliate can sell them under Rule 144 (for a reporting company). Non-reporting company restricted securities require a one-year holding period. Control securities that were acquired in registered transactions (e.g., shares bought in the open market, or shares issued under a Form S-8) have no holding period requirement for affiliates — only the other four conditions apply.

How the broker enforces Rule 144 inside a 10b5-1 plan

When a broker agrees to execute a 10b5-1 plan for an affiliate, they take on a compliance role. The plan agreement will typically state that the broker will not execute any trade that would exceed the then-applicable Rule 144 volume limitation. Before each trade, the broker checks the affiliate's trailing-90-day sales activity, compares it to the current volume headroom, and blocks or reduces the trade if the limit would be exceeded.

This means your 10b5-1 sale schedule is not a guarantee. If you or a household member made unplanned sales outside the plan — open-window market sales, gifts, margin calls — those sales consume headroom. If the plan's scheduled sale would exceed the remaining headroom, it will not execute as specified. The plan document may allow partial execution up to the limit, or may skip that sale entirely and wait for the next period.

Plan design implications

An advisor building your 10b5-1 sale schedule should model Rule 144 headroom into the plan from day one. Specific questions to answer before adoption:

• What is the current share count? The 1% ceiling updates quarterly as shares outstanding changes. Secondary offerings, buybacks, and RSU vestings all shift the denominator.
• What is the four-week average trading volume? In a thin market, the 1% cap may actually be more generous than the volume average. In a heavily traded large-cap, the weekly average will dominate.
• Will the sell cadence trigger Form 144 filings? If the plan calls for monthly sales, each 90-day window will almost certainly exceed 5,000 shares or $50,000, requiring a Form 144 each quarter. The broker or counsel must have a workflow for this.
• Are there any anticipated transactions that will consume headroom? Option exercises with immediate sale, ESPP enrollments, or other sales events that overlap with the plan window need to be accounted for.

Where Rule 144 most often creates plan failures

Rule 144 and 10b5-1 compared at a glance

Getting both rules right

Securities counsel handles the Rule 144 compliance review — confirming affiliate status, calculating volume headroom, managing Form 144 filings, and ensuring manner-of-sale requirements are met. The financial advisor handles the financial inputs that feed counsel's review: the sell schedule, the lot selection, the estimated share counts and tax obligations, and the projection of whether the proposed cadence fits within Rule 144 headroom across the full plan duration.

Plans drafted without that coordination often have to be restructured after the broker's compliance review — sometimes after the cooling-off period has already started running. Front-loading the Rule 144 analysis, before adoption, avoids restarts.

For the broader framework, read the 10b5-1 plan rules overview and the pre-adoption checklist. For the Section 16 reporting obligations that also apply to most affiliates, see the Section 16 and Form 4 guide.