Why is SEC Form 3 required

Looking for the facts on SEC Form 3? We've got you covered. In this article, we'll look at what SEC Form 3 is, when and how it's used, and who needs to submit one. 

What is SEC Form 3? 

SEC Form 3 stands for Initial Statement of Beneficial Ownership of Securities, and it's a document that major shareholders or company insiders file with the Securities and Exchange Commission (SEC) to avoid insider trading. When an insider takes a role within a registered company (such as a directorship or significant share buyer) they must complete and submit the form within 10 days of their affiliation.

Basically, SEC Form 3 is used to avoid instances of insider trading, which occurs when someone buys or sells securities (such as company stocks) based on material information that isn't available to the general public. This form exists so that individuals with this kind of insider information can disclose themselves, and so that the Securities and Exchange Commission (SEC) can regulate trades.

Is SEC Form 3 optional?

Absolutely not. The Securities and Exchange Commission (SEC)  mandates all owners, directors, and officers of registered companies to complete these forms and place vital information on public record to avoid insider trading. A key feature of these forms is that they can be scrutinized freely by the public. This stops market abuse from taking place.

Who needs to complete SEC Form 3?

The SEC mandates the following affiliated individuals to declare their interests within any registered company:

1. Company directors or officers with equity securities in the entity
2. Beneficial owners, or advisors, with 10% or more of any equity security class within the company
3. Company investment advisers and members of the company's boards
4. Any other company trustees or trusts, beneficiaries or settlors with reporting obligations. 

It's important to note that each company must submit the form for any insiders, even if those individuals hold no equity position at the time of completion.

What information is given on the SEC Form 3?

The key information includes:

  • Company information
  • Details of affiliated persons or company beneficiaries (as described above), including their name and address, security name, relationship to the reporting individual, and ticker symbol.
  • Details of beneficially owned securities - including non-derivatives and derivatives that might be calls, puts, options, warrants, and convertible securities.

When is SEC Form 3 filed?

The form must be completed and filed whenever the company takes a new insider on board. The form contains detailed information to help companies identify who these individuals are. (Please note that SEC Form 4 must be completed if the company's significant stock ownership changes - again, detailed information is provided by the SEC on the security ownership thresholds here. Read our guide to stock transfers too.)

Does SEC Form 3 link to other forms?

Yes, Form 3 is linked with SEC forms 4 and 5, plus the provisions of the Securities Exchange Act of 1934 (SEA).  This act was implemented to govern securities trades within the secondary market (aka: after their first issue.) This is to create a higher degree of transparency and to prevent fraud instances, by monitoring legal compliance.

  • SEC Form 4 is used when securities transactions occur within a company. They must be reported in two business days to the SEC. 
  • SEC Form 5 reports transactions that were either missed previously in Form 4 or that were allowable for deferred reporting purposes. 

Other forms exist for public companies too, with equal importance. For example, registered companies must file their annual Form 10-K performance summary. This details the business and its operations, risk factors that the company faces, financial data, management analysis, and financial statements with audited supplementary data (such as the balance sheet, income statement, and cash flow statement. Learn more about our full-service EDGAR filings.)

What is the penalty for Insider Trading?

Insider Trading, when it occurs illegally (via access to material information that isn't shared with the public) can be either a criminal or civil offense. Either way, it can result in hefty fines or even prison time. 

Key summary points:

  1. The Securities and Exchange Commission (SEC) mandates major shareholders or company insiders of registered companies to complete and file SEC Form 3. This is to prevent any instances of insider trading. 
  2. The information in the form details the holdings of individuals within the registered company (directors, majority or beneficial owners, and officers). It then becomes a public record and can be seen by any member of the public to prevent securities fraud or insider trading.
  3. The form must be completed and submitted by company insiders within 10 days of their affiliation, whether by appointment or share purchase.
  4. SEC Form 3 sits within a suite of mandatory forms that companies must file at certain defined points throughout their course of business, or throughout the year according to a calendar. These are also used by potential investors to assess whether they wish to purchase securities in that particular company.

SEC Form 3 includes detailed information on how the SEC defines company insiders. Further information is available from the Securities and Exchange Commission (SEC)


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