Trading Constraint, Disclosure and Welfare: Implications for SEC Rule 10b5-1

Rule 10b5-1 facilitates insider's trades without liability when the insider preplans future purchase and sale without possessing of any material nonpublic information. We develop a Kyle's type equilibrium model to show the rule allows strategic plans disclosure and explore its impacts on the functioning of the financial market and welfare. We also address its implications for government intervention in stressed and overheated markets and conclude that the insider's strategic disclosure could stabilize the market with the cost of informativeness.