When a company's directors and officers buy or sell its shares, they must say so in public within two business days. That filing is Form 4. It is one of the few places where you can see what the people running a company do with their own money. It is also easy to misread, because most Form 4 lines are not trades at all.
Who files
Section 16 of the Securities Exchange Act covers three groups, together called insiders:
- the company's directors;
- its officers, meaning the executives who make policy: the chief executive, the chief financial officer, the principal accounting officer, division heads and similar, not everyone with "vice president" in their title;
- anyone who owns more than 10% of a class of its registered equity securities.
Each insider files Form 3 on becoming one, Form 4 within two business days of most changes in their holdings, and Form 5 once a year for anything not yet reported. Insiders of foreign private issuers are exempt, so those companies have no Form 4s.
The parts of a Form 4
The header names the insider, the company, the insider's relationship to it (director, officer with title, 10% owner) and the date of the earliest transaction. A checkbox says whether any transaction was made under a Rule 10b5-1 plan.
Table I covers shares and other non-derivative securities. For each line:
- the title of the security and the transaction date;
- the transaction code, with a
Vif it is reported voluntarily; - the number of shares, and (A) if acquired or (D) if disposed of;
- the price per share;
- the shares held after the transaction;
- whether they are held directly (D) or indirectly (I), and if indirectly, through whom: a trust, a spouse, a partnership.
Table II covers derivative securities: options, restricted stock units, warrants. It shows exercise prices, exercise and expiry dates, and the underlying shares.
The footnotes are where the explanation lives. Read them every time. They give the range of prices behind a weighted average, name the trust that holds the shares, give the date a trading plan was adopted, and explain anything unusual.
The code matters more than the direction
A Form 4 line that says shares were disposed of may be a sale, a gift, or shares withheld for tax. The transaction code tells you which.
| Code | What it is | Is it a market decision? |
|---|---|---|
| P | Purchase on the open market or in a private deal | Yes. The insider chose to spend their own money |
| S | Sale on the open market or in a private deal | Yes, unless made under a 10b5-1 plan, when the decision was made earlier |
| A | Grant or award from the company as pay | No. The company gave it |
| M | Exercise of options or conversion of a derivative under a company plan | Partly. Timing can be chosen, but options also expire |
| F | Shares withheld or delivered to pay an exercise price or the tax on vesting | No. It is how the tax gets paid |
| G | Gift | No market decision, though the timing can be chosen |
| D | Shares returned to the company under an exempt plan | Rarely |
Two codes are worth reading together. An option exercise (M) followed the same day by a sale (S) of the same number of shares is a cashless exercise: the insider turned options into cash. It is a sale, but it is often driven by the options' expiry date or the vesting schedule more than by a view of the company.
Mind the two meanings of D. The "(A) or (D)" column says whether shares were acquired or disposed of. Code D is a specific kind of disposition to the company. A sale is code S with (D) in the column.
Reading the price
The price on a Form 4 is the price the insider reported, not a market quote. Large orders are often filled in many trades at different prices, and the form may show one weighted average with a footnote giving the range. Listed labels it "reported price" for that reason, and shows no market prices anywhere.
What a purchase can tell you, and what it cannot
Open-market purchases (code P) are the transactions people watch most, because an insider who buys with their own money is making a choice nobody required of them. Some things to weigh:
- Size relative to the person. A purchase that is small next to the insider's pay or existing holding says less than one that is large.
- Who is buying. A purchase by the chief executive or chief financial officer, who see the most, is different from one by a newly appointed outside director meeting a share-ownership guideline.
- More than one insider. Several insiders buying in the same window is a pattern. One is an event.
- Timing. Most companies let insiders trade only in windows after results are published. A purchase just after results is normal.
None of this tells you what will happen next. Insiders can be wrong about their own companies, and they buy for reasons of their own.
What a sale can tell you, and what it cannot
Insiders sell far more often than they buy, mostly for reasons that have nothing to do with their view of the company: diversifying, paying tax, buying a house. Most executive pay arrives in shares, so selling some of them is ordinary.
- Check for a 10b5-1 plan. A sale under a plan was set up months earlier, after a mandatory waiting period. It says less about the insider's view today.
- Check the share of the holding. The "shares held after" column shows whether the sale was a small part of the holding or most of it.
- Check for patterns. A sale that breaks a long habit is more interesting than one that follows it.
Late filings
A Form 4 is due within two business days, but some are late. The company's proxy statement must name insiders who filed late during the year. Compare the transaction date with the filing date, especially for older transactions reported on Form 5.
How Listed shows insider trades
- Company pages list the last 20 open-market transactions, codes P and S. Each is marked "Purchase" with ▲ or "Sale" with ▼, in words as well as colour, with the reported price and the value.
- Insider pages list one person's filings across every company they report on, keyed by their CIK.
- Timing: Form 4s appear on Listed about five minutes after EDGAR accepts them.
- Alerts: members can set an alert for a company's Form 4 filings.
Each line links to the Form 4 on sec.gov, so you can read the footnotes and the full table yourself. They usually explain more than the numbers do.