Legal Insider Trading

Legal trades by insiders are common, as employees of publicly-traded corporations often have stock or stock options. These trades are made public in the US through SEC filings, mainly Form Prior to 2001, US law restricted trading such that insiders mainly traded during windows when their inside information was public, such as soon after earnings releases.

SEC Rule 10b5-I clarified that the U.S. prohibition against insider trading does not require proof that an insider actually used material nonpublic information when conducting a trade; possession of such information alone is sufficient to violate the provision, and the SEC would impute an insider in possession of material nonpublic information uses this information when conducting a trade.

However, Rule 10b5-I also created for insiders an affirmative defense if the insider can demonstrate that the trades conducted on behalf of the insider were conducted as part of a preexisting contract or written, binding plan for trading in the future.

For example;
if a corporate insider plans on retiring after a period of time and, as part of his or her retirement planning, adopts a written, binding plan to sell a specific amount of the company's stock every month for the next two years, and during this period the insider comes into possession of material nonpublic information about the company, any subsequent trades based on the original plan might not constitute prohibited insider trading.