What is Section 16 of the Securities Act of 1933? (2024)

What is Section 16 of the Securities Act of 1933?

Section 16 requires insiders of a public company to report their direct and indirect ownership of the company's equity securities and any transactions in such securities, and to disgorge any “short-swing profits,” which are discussed below.

What is the purpose of Section 16?

Understanding Section 16

Anyone who can be classified as an insider must file specific forms with the SEC that disclose their equity interests. These documents also describe how their investment positions have changed over time, in light of previous transactions.

Who is subject to Section 16 reporting?

Anyone who owns 10% or more of a company, or is a named director or officer of the company, must file this form. That sounds straightforward. However, you yourself do not have to physically hold equity in a company to be subject to Section 16 requirements.

What does it mean to be a Section 16 officer?

Section 16 Officer means every person who is directly or indirectly the beneficial owner of more than [number]% of any class of any equity security which is registered. Section 16 officers include officers or directors of the issuer of such security, and those who perform a policy-making function for the issuer.

What transactions are exempt from Section 16?

240.16b-1 — Transactions approved by a regulatory authority.

Any purchase and sale, or sale and purchase, of a security shall be exempt from section 16(b) of the Act, if the transaction is effected by an investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.)

What does Section 16 say?

Section 16(1) of the Occupational Health and Safety Act, appoints the CEO of the business or body corporate as the accountable person, responsible to provide and maintain a safe and healthy work environment that is without risk to employees and others.

What type of insider trading is Section 16 of the 1934 Act?

The short-swing profit rule comes from Section 16(b) of the Securities Exchange Act of 1934. The rule was implemented to prevent insiders, who have greater access to material company information, from taking advantage of information for the purpose of making short-term profits.

Who is the immediate family member under Section 16?

(e) The term immediate family shall mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive relationships.

What is Section 16 B of the 1934 Act?

Provision of the Securities Exchange Act of 1934 that requires that any profit realized by a company insider from the purchase and sale, or sale and purchase, of the company's equity securities within a period of less than six months must be returned to the company. It is also known as the "short-swing profit" rule.

What happens if you own more than 20% of a public company?

An investor subject to U.S. GAAP that owns 20% or more of the company's voting stock (but not control of the company) is presumed to have significant influence over the company and is generally required to account for its investment on the equity method by including its proportionate share of the company's net income/ ...

What is the difference between Section 16 and 3b 7?

Rule 16a-1(f) encompasses all of the persons included in Rule 3b-7's definition of “executive officer” – with the only significant difference being that the relevant Section 16 rule specifically includes the principal financial officer and the principal accounting officer, neither of whom are specifically referenced in ...

What is a Form 4 Section 16?

Anyone who is a Section 16 insider of a reporting company must file a Form 4 with the SEC under Section 16 of the Exchange Act to report any changes in the filer's beneficial ownership of any class of the company's equity securities after the filer executes a transaction.

What type of security gives the owner immediate control over the issuer?

What type of security gives the owner immediate control over the issuer? Explanation: Common stock carries voting privileges and, as a result, common shareholders have control over the issuer (e.g., electing board members). Bonds and preferred stocks don't offer the ability to vote in corporate elections.

Does Section 16 apply to debt securities?

Section 16 is not applicable to companies that have reporting obligations only under Section 15(d) of the Exchange Act or that have registered only debt securities under Section 12.

Does Section 16 apply to foreign private issuers?

The SEC has long exempted foreign private issuers from the requirements of Section 16 of the Exchange Act, along with other provisions of the Exchange Act (e.g., U.S. proxy rules), in an effort to accommodate home country practices and facilitate cross-listings by non-U.S. companies.

What are Section 16 short-swing exemptions?

There are four basic types of transactions that can qualify for an exemption from liability under the short-swing trading rules of Section 16: Discretionary transactions; ■ Grants, awards and other acquisitions from the company; ■ Dispositions to the company; and ■ Tax-conditioned plans.

Who does section 16 of the 1934 Act prohibit short-swing trading on the part of officers directors and controlling shareholders?

Section 16(b) of the 1934 Act imposes liability on insiders for profits realized on short-swing trades, that is, for any profits an insider receives from the purchase and sale (or sale and purchase) of registered securities of the company within a period of less than six months in nonexempt transactions.

What kind of insider trading is illegal?

When Is Insider Trading Illegal? Insider trading is deemed illegal when the material information is still non-public and comes with harsh consequences, including potential fines and jail time. Material non-public information is defined as any information that could substantially impact that company's stock price.

What are the three types of insider trading?

Classic Insider Trading: Buying or selling assets based on important non-public information. Tipper-Tippee Trading: An insider gives others access to confidential information so they can trade using it. Trading During Blackout Periods: Insider trading during times when particular people are barred from trading.

Who is not considered immediate family?

What is a non-immediate family? Non-immediate family members include grandparents, grandchildren, great-grandparents, great-grandchildren, cousins, uncles, aunts, nieces, nephews, parents-in-law, siblings-in-law, step-children, adopted children, half-siblings, civil and cohabiting partners.

Who is the only immediate family member?

In general, a person's immediate family is their smallest family unit, including parents, siblings, spouse, and children. It may include relatives through marriage, such as a mother-in-law.

Is an aunt considered immediate family?

For purposes of subdivision (d) of Labor Code Section 2066, "immediate family member" means spouse, domestic partner, cohabitant, child, stepchild, grandchild, parent, stepparent, mother-in-law, father-in-law, son-in-law, daughter-in-law, grandparent, great grandparent, brother, sister, half-brother, half-sister, ...

When a violation of Section 16 B occurs a corporation can bring an action to recover the short-swing profits?

If an officer, a director or a large (10% or more) shareholder of a public corporation realizes a profit from buying and selling stock within a six-month period, Section 16(b) of the Securities Exchange Act of 1934 (the “Act”) authorizes the corporation to recover from such statutory insider any so-called “short swing” ...

What denotes an executive officer subject to section 16 of the Securities Exchange Act of 1934?

Certain officers are specifically deemed to be an “officer” under Section 16, including the company's president, principal financial officer, principal accounting officer (or, if there is no principal accounting officer, the controller), and any vice president in charge of a principal business unit, division or ...

What is the 5% ownership rule?

Exchange Act Sections 13(d) and 13(g) and the related SEC rules require that an investor who beneficially owns more than five percent of a class of voting equity securities registered under Section 12 of the Exchange Act ("covered securities") report such beneficial ownership and certain changes in such ownership by ...

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