SEC No-Action Letter Allows Aggregate Reporting by Insiders of Same-Day, Same-Way, Open Market Stock Purchases or Sales Occurring Within a One-Dollar Price Range

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 trades must involve securities owned in the same form. Trades in indirectly owned shares such as shares owned through a corporation, may not be aggregated with trades in directly owned shares or trades in shares owned indirectly in another form such as shares owned through a trust rather than a corporation.
• The trades reported on a single line must occur on the same day within a one-dollar price range. For example, all trades from $14.01 through $15.00 may be reported on a single line, all trades from $15.01 through $16.00 may be reported on another line, and so on.
• The price column must report the weighted average purchase or sale price for the transactions reported on that line, with a footnote disclosing the range of prices paid or received.
• The insider must undertake, in a footnote, to provide to the SEC, the company, or a security holder of the company, on request, full information regarding the number of shares purchased or sold at each separate price.

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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If you have any questions about this alert or would like to discuss the topic further, please contact your Foley attorney or the following individual:

Peter D. Fetzer
Milwaukee, Wisconsin
414. 297.5596
[email protected]