Trading Windows and Blackout Periods: Rules for Employees
Why your company blocks you from selling stock for weeks at a time, what a special blackout means, and how Rule 10b5-1 plans let insiders sell on a schedule after the SEC's 2022 changes.
A trading window is the period when a public company lets its directors, officers and designated employees buy or sell company stock; a blackout period is when they may not. Windows usually open a day or two after quarterly earnings are released and close a few weeks before the quarter ends. The exact dates and who is covered are set in your company’s insider trading policy.
The windows are company rules, not SEC rules. They exist because trading while aware of material nonpublic information is illegal under the federal securities laws, and blackouts keep insiders out of the market when that risk is highest.
Who has to follow trading windows?
Directors and executive officers are always covered. Most policies also name “designated insiders,” such as finance, legal and investor relations staff and anyone who sees results before they are public, and they extend the rules to family members and accounts those people control. Rank-and-file employees are usually not on the window list, but the ban on trading on inside information still applies to them.
Since the SEC’s December 2022 amendments, companies must say in their annual report whether they have adopted insider trading policies, and many file the policy itself as an exhibit to Form 10-K. Searching your company’s latest 10-K on EDGAR is the quickest way to read the rules you are under.
When do quarterly blackouts start and end?
Each policy sets its own dates. A common pattern is a window that closes two to four weeks before the end of each fiscal quarter and reopens after one or two full trading days have passed since the earnings release. That makes the open window roughly four to eight weeks per quarter.
| Type of blackout | Who it covers | When it applies |
|---|---|---|
| Quarterly blackout | Insiders named in the policy | Before each quarter end until shortly after earnings |
| Special or event blackout | People who know about a specific event | During a pending deal, financing or other undisclosed matter; often without a stated reason |
| Pension plan blackout (Regulation BTR) | Directors and executive officers | When 401(k) or similar plan participants cannot trade company stock for more than 3 business days |
The third type is a federal rule. Under the SEC’s Regulation BTR, when at least 50% of a plan’s US participants are blocked from trading company stock in an individual account plan for more than three consecutive business days, directors and executive officers may not trade company stock they received through their service. The company must give them notice, generally at least 15 calendar days ahead, and file it with the SEC on Form 8-K.
What is a special blackout?
A special blackout closes the window for a smaller group, or for everyone covered, because something material is not yet public: a merger negotiation, a large contract, a restatement or an offering. Policies usually tell people only that they may not trade, without saying why, because the reason itself is confidential.
If you are told a special blackout applies to you, the policy usually also bars telling others about it. Telling a friend that “we’re in a blackout” can itself signal that news is coming.
How do Rule 10b5-1 trading plans work after the 2022 changes?
A Rule 10b5-1 plan is a written instruction, set up while you have no inside information, that tells a broker to buy or sell on a formula or schedule. Trades under a qualifying plan can go through during blackouts, because the decision was made earlier. The SEC tightened the conditions in amendments adopted in December 2022, summarized in its fact sheet on Release 33-11138.
| Condition | Directors and officers | Other employees |
|---|---|---|
| Cooling-off before the first trade | The later of 90 days after adoption or 2 business days after the 10-Q or 10-K for the quarter of adoption, capped at 120 days | 30 days |
| Certification in the plan | Must certify no awareness of inside information and good faith | Not required |
| Overlapping plans | Generally not allowed | Generally not allowed |
| Single-trade plans | One per 12 months | One per 12 months |
| Good-faith duty | Applies for the life of the plan | Applies for the life of the plan |
Companies must also report each quarter which directors and officers adopted or ended a plan, and Forms 4 and 5 now have a checkbox showing that a trade was made under a 10b5-1 plan. Changing the price, amount or timing of a plan counts as ending it and adopting a new one, which restarts the cooling-off period.
Can you sell RSU shares during a blackout?
Usually only the shares sold to cover taxes. Most companies withhold tax at vesting by having the broker sell enough shares automatically, a “sell-to-cover,” and treat that sale as permitted because the employee does not choose its timing. The text of Rule 10b5-1 also exempts eligible sell-to-cover arrangements from the limits on overlapping and single-trade plans.
Selling the remaining shares has to wait for an open window, after pre-clearance if your policy requires it, or must run through a 10b5-1 plan set up in advance. How the vesting income and the later sale are taxed is covered in our guide to how RSUs are taxed. Employees who buy through an ESPP face the same window rules when they sell, though the purchase itself typically happens automatically.
How does pre-clearance work?
- Check that the window is open under your policy’s calendar.
- Submit a pre-clearance request to the compliance officer or general counsel, naming the security, the number of shares and whether you are buying or selling.
- Wait for written approval. Approval is usually valid for a few business days only.
- Place the trade within that period, or request clearance again.
- If you are a Section 16 officer or director, report the trade on Form 4 within two business days.
Bottom line
An open window does not make a trade safe if you know something material that the market does not. If you hold a large position, ask the company’s legal team whether it permits 10b5-1 plans for employees below officer level; the 30-day cooling-off is short, and a plan lets sales continue through every quarterly blackout.
FAQ
Is trading during a blackout illegal?
Breaking a company blackout is a policy violation that can lead to discipline or firing. It becomes illegal insider trading when the trade is made while aware of material nonpublic information, whether or not a blackout is in place.
Do blackouts apply to my 401(k)?
Company policies often cover changes to company stock holdings in the 401(k), such as moving money into or out of a company stock fund. Regular payroll contributions under standing instructions are usually allowed.
Can I exercise stock options during a blackout?
Many policies allow a cash exercise and hold, because no shares are sold. Cashless or same-day-sale exercises involve a market sale and are usually blocked until the window opens.
Do the rules end when I leave the company?
Policies often keep departing insiders under the rules until the next window opens. The ban on trading on inside information continues for as long as the information is nonpublic.
