Selling company stock on schedule: a 10b5-1 trading plan from Scotia Wealth Management

What happens if the tuition bill lands in a blackout period?

A tuition bill that lands in a blackout period can't be paid by selling company stock, because trading windows close for weeks around earnings and can stay shut while a deal is discussed. A 10b5-1 plan sets dates and amounts in advance, so shares sell on schedule even then.

Most officers believe an open window is enough; it isn't when two $60,000 installments fall on dates you don't choose. The affirmative defense applies only because you adopted the plan without material nonpublic information. The household that usually needs this has company stock as its biggest cash source and a salary that doesn't cover large dated bills.

How do the twins' tuition bills turn into a 10b5-1 sale schedule?

Each bill's cutoff is counted back through the cooling-off period to find the earliest adoption date, then sales are sized to cover the bill after tax. For Andre and Gwen, a mid-March adoption allows a first sale in mid-June, ahead of the August 1 tuition cutoff, with $80,000 sold per installment.

Andre and Gwen, 52 and 50, open the college's cost letter for the twins (hypothetical, round numbers): $120,000 for the year, $60,000 due by August 1 and $60,000 by January 1. Andre is CFO of a healthcare services company; Gwen runs a small nonprofit. His instinct is that he'll sell when each bill comes. The cooling-off period decides otherwise. He adopts in a mid-March open window, Q1's 10-Q is filed in early May, and 90 days after adoption is mid-June, which is later, so the first sale can land in mid-June.

Each sale is $80,000 with a 25 percent basis, so $20,000 is basis and the gain is $60,000. Assuming a combined 25 percent tax on the gain, for illustration, $15,000 is set aside and $65,000 is left. Each installment is covered with $5,000 to spare. Plan proceeds pay first, the $2 million portfolio second, and the 401(k) isn't touched for tuition.

The last column carries the finding: only the vested shares sell on schedule, while everything else is backup or left alone.

If Andre's broker already drafted a plan that sells fixed amounts quarterly, Scotia Wealth Management checks only whether the dates land before the tuition cutoffs and leaves the rest alone. It also keeps proceeds out of healthcare-sector funds that would add to his industry exposure. The share price can fall, a limit price can block a sale, and any investment can lose money, so keep one installment's worth of cash as backup.

Shortcut: count back 120 days from the cutoff of the first bill you plan to pay with company stock. If you can't adopt in an open window before that date, while holding no material nonpublic information, don't count on plan sales for that bill.

When should an executive sign a 10b5-1 plan instead of waiting for the next window?

Sign in the next open window when a dated bill is under a year away, when retirement or departure is within two years, or when large vests cluster in one quarter. Waiting costs you the cooling-off again, because each delay pushes the first possible sale back by at least 90 days.

A possible acquisition is the hard case. If Andre already knows about deal talks, he holds material nonpublic information and can't adopt until the news is public or the talks end; the company's general counsel makes that call, not the advisor.

What happens during the 10b5-1 cooling-off, week by week?

Adoption takes about four weeks of preparation, then 90 to 120 days pass with no trades before the first sale settles. For officers, the SEC's cooling-off runs until the later of 90 days after adoption or two business days after the 10-Q for the adoption quarter, capped at 120 days.

In Andre's case, adoption falls in mid-March, the Q1 10-Q comes out in early May, and the first sale lands in mid-June, about six weeks before the August 1 tuition cutoff.

Adopting in the May open window, after the spring tuition letter arrives, moves adoption into Q2, so the first sale can't happen before mid-August. That's after the August 1 cutoff, the $60,000 has to come from the diversified $2 million portfolio, and Andre ends up more concentrated in his own company.

One limit: a plan can't be adopted while you know about a pending deal, and in a cash acquisition the shares convert at closing, leaving nothing to sell. The plan also won't tell you what share of your net worth should sit in company stock, and it won't measure golden parachute exposure. We review those two questions separately.

• Weeks one and two: Scotia Wealth Management reads the vest schedule, the share lots with their cost basis, the insider trading policy and any existing plan, then maps 12 to 24 months of cash needs: tuition, tax on upcoming vests and April estimated payments.
• Weeks three and four: we write the sale schedule (dollar amounts, dates and any limit price) and send it to the broker, who drafts the plan document. Company legal preclears it if the policy requires. Andre signs in an open window and certifies good faith and no material nonpublic information.
• Weeks five through 13: no trades happen. Changing the amount, price or timing restarts the cooling-off, so we set the schedule right the first time. Meanwhile we decide where proceeds land, a cash account for tuition and diversified holdings outside healthcare, and estimate the April tax.
• Around day 90 to 120: the first sale settles and a Form 4 is filed within two business days with the 10b5-1 checkbox marked. We compare the trade confirmation with the schedule. The first sale may fall just after the ninetieth day, so don't schedule a bill for the day the period ends.

Statements and letters Scotia Wealth Management asks for before a 10b5-1 review

Bring the equity award statements and vest schedule, which size the sales. The brokerage cost-basis report sets the tax estimate. The insider trading policy and window calendar fix the adoption date, and any existing 10b5-1 plan is needed because we check it before writing anything new. Tuition letters or other dated bills set the sale dates. Last year's tax return shows your bracket and estimated payments. If your company has a stock ownership guideline for officers, it limits how many shares can be sold. Send the documents through the request form on this page; no phone number is published.