Insider reporting requirements are vital to maintaining fair and transparent markets. Businesses must understand their responsibilities when it comes to insider reporting. They should provide accurate and timely disclosure of any material information likely to affect their share prices and the market.
Being an insider trader is much more common than some investors think. Insider trading is when someone uses information not available to the public to influence investment decisions. To protect against any potential misuse of this type of information, there are a variety of requirements and regulations that must be followed by company insiders and that are set forth by the Securities and Exchange Commission (SEC).
Defining an Insider
An insider or affiliate of the company is defined as a director, officer, or any other person who has access to material, non-public information of the company they work for. Such individuals may access this information through their job responsibilities or by virtue of their position in the company.
According to the SEC, an insider can be anyone that:
- Is an officer
- Is a director
- Is a 10% stockholder
- Anyone who possesses inside information because of their relationship or role with the company
- Anyone with inside information based on their relationship with an officer, director, or principal stockholder of the company
Insider Reporting Requirements: Forms and Timelines
As an insider, your main requirement will be to fill out certain forms, including Section 16 forms 3, 4, and 5, and Form 144, Schedule 13D, and Schedule 13G, and turn them in by a set timeline. Below are some of the most common forms you will encounter as an insider and when to file them.
Form 4
The most commonly used filing form for insiders is Section 16 Form 4, which is used to report transactions such as purchases, sales, gifts, or options of company securities. This form must be filed within two business days after the transaction was made and must include information on the security, including the name and number of shares, type of transaction, date of the transaction, name or ticker used during trading, and other relevant information that needs to be filled out accurately.
Form 3
Section 16 Form 3 is the initial filing that must be made by all insiders buying or selling stock (see list above) who are subject to Section 16 of the Securities Exchange Act of 1934. This form discloses any holdings of company securities owned by an insider, including stock options, restricted stock, and other equity awards or derivatives. It also must be filed within ten days of a person becoming an insider.
Form 5
Form 5 is used to report unreported transactions in the past year. Insiders must submit this form within 45 days of the end of the company's fiscal year, and it includes information such as gifts made, any exercise or expiration of stock options, and any transfers between certain family members.
Form 144
Form 144 reports the sale or transfer of restricted and controlled securities. This form must be submitted by an executive officer, director, or the affiliate of a company when selling a company's stock during any three-month period in which the sale exceeds 5,000 shares or units or has an aggregate sales price greater than $50,000. It does not need to be filed electronically.
Schedule 13D
Known as a beneficial ownership report, Schedule 13D is a document that must be filed with the SEC when any person or group acquires more than 5% of a publicly traded company's voting securities. This document must be filed within ten days of the acquisition. It must include information such as the names of the individuals or entities that make up the group, their purpose (e.g., to influence control of the issuer), and other information about their interest in the company.
Schedule 13G
Similar to Schedule 13D, Schedule 13G is a filing that must be made when a person or group acquires more than 5% of a company's voting securities. The main difference between Schedule 13D and 13G is that 13G requires a different level of detail than 13D when disclosing information about the group's purpose and intentions. It is used by passive investors who have no intention to influence control of the company and who own less than 20% of a public company's outstanding shares.
Online Filing Requirements
The SEC requires that Forms 3, 4, and 5 be filed electronically to ensure transparency and accuracy in reporting. The EDGAR system is used for all insider filings and can be accessed online.
Making Compliance Easier
Insider reporting requirements can be tricky and time-consuming, but there are a few ways to make it easier for company insiders. One of the best tips is to stay organized and accurate with your filings, as mistakes or omissions could lead to serious legal repercussions. Using an SEC filing service also ensures everything is filed correctly and on time. This can help free up resources for the company and provide peace of mind that all insider reporting requirements are being met. Knowing which forms to use, when to file, and any other reporting requirements are vital to prevent legal penalties.
Form 3, Form 4, Form 5