The staff of the U.S. Securities and Exchange Commission (SEC) recently issued a no-action letter that allows insiders to report, on an aggregate basis, same-day, same-way, open market purchases or sales made within a one-dollar price range, using a single line on the insider’s Form 4 or Form 5 ownership report. Previously, each same-way transaction that occurred at a different price (even if the difference was a single penny) had to be reported on a separate line on the insider’s ownership report. Since brokers typically execute trade orders in small increments and report trade prices carried out to four decimal places, insiders often had to report dozens of transactions on separate lines, and sometimes even on more than one form due to space limitations, just to report the execution of a single market order.
The SEC’s no-action letter is limited to open market purchases or sales, reported using transaction code “P” or “S,” that are executed by a broker-dealer, where the following conditions are met:
The no-action letter was issued in response to a request by the Society of Corporate Secretaries & Governance Professionals. The no-action letter noted that investors may have a more difficult time understanding a trade order reported on a disaggregated basis. The required footnote disclosure of price ranges will enable companies and their security holders to determine whether any short-swing insider trading liability resulted from the reported trades under Section 16(b) of the Securities Exchange Act of 1934. Forms 4 and 5 are designed to enforce the insider trading liability provisions of Section 16(b), which require officers, directors, and more than 10 percent shareholders to pay to the company any deemed profit deemed realized on opposite way transactions occurring within the same six-month period.
At the same time the SEC staff issued the no-action letter, it deleted from the SEC’s Web site its prior guidance prohibiting aggregation of same-day, same-way transactions made at different prices. The no-action letter, which the SEC staff issued on June 25, 2008, can be found on the SEC’s Web site at http://www.sec.gov/divisions/corpfin/cf-noaction/2008/scsgp062508-sec16.htm.
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Peter D. Fetzer