What is Section 16?
By InsiderAlpha · Published · Updated
Written from SEC primary filings, with every rule cited inline. Editorial standards.
Section 16 of the Securities Exchange Act of 1934 is the reason insider trades are public. It requires a defined group of corporate insiders to report their holdings and every change to them, and it lets the company recover certain short-term trading profits. Almost every filing InsiderAlpha tracks exists because of it.
Who is a "Section 16 insider"?
- Directors of the issuer.
- Officers with policy-making authority (CEO, CFO, president, principal accounting officer, and similar).
- 10% beneficial owners of any class of registered equity.
Follow insider buying without reading every filing
We read every Form 4 as it is filed and rank the insider purchases worth a look into a daily trading plan, so you do not have to open each filing yourself.
Free by email: highlights from the previous session's daily trading plan each market morning, plus a Friday roundup of the week's insider buying.
Basic reads each plan from the previous close, before the open. Compare plans or see the daily plan.
The three Section 16 forms
- Form 3 - the initial statement of ownership, filed within 10 days of becoming an insider. It is the opening balance.
- Form 4 - filed within two business days of most transactions. This is where the buys and sells show up. See our Form 4 guide.
- Form 5 - an annual catch-up for small or exempt transactions that did not have to be reported earlier.
The short-swing profit rule (Section 16(b))
Section 16(b) requires insiders to hand the company any profit from a purchase and sale (or sale and purchase) of its stock within any six-month window, whether or not they used inside information. The rule is mechanical, which is why you rarely see an insider buy and then sell quickly: the profit would go to the company. The sale itself is still allowed. The short-swing rule guide covers how trades are matched.
Why it matters if you follow insider trades
Section 16 forces quick, standardized, public reports, so you see an insider's trade within days rather than months. And because of 16(b), an insider who buys on the open market cannot sell at a profit inside six months without giving the profit back. That is part of the case for reading insider purchases closely.
Browse the latest Section 16 filings → · What is Form 4? →
This article is informational and is not investment advice.