A recently issued SEC no-action letter simplifies the reporting of certain same-day, same-way open market purchases or sales.

The Staff of the U.S. Securities and Exchange Commission (SEC) issued a no-action letter dated June 25, 2008, to the Society of Corporate Secretaries and Governance Professionals that permits Section 16 reporting persons to report same-day, same-way open market purchases or sales on an aggregate basis.  The no-action letter is considered "global" and thus the relief it provides is available to all Section 16 reporting persons. 

Previously, the SEC Staff had taken the position that, where a filer's purchases or sales on a particular day are executed at different prices, those purchases or sales could not be aggregated on a single line, but instead must be reported individually, on separate lines of the Form 4 or Form 5.  Because many brokers execute trade orders in small increments and report trade prices at prices that are carried out to as many as four decimal places, this interpretive position had the effect of requiring filers to report on multiple lines of Form 4 purchases or sales that occur on a single day pursuant to a single market order (e.g., an order to sell 5,000 shares of stock at the market price), solely because the trade is executed at multiple prices that may be as little as a fraction of a penny apart.  Often, this meant that a filer had to separately itemize dozens or even hundreds of transactions, involving only 100 or fewer shares each, to report the execution of a single order.  Because the electronic filing system limits each Form 4 to 30 lines per table, a filer was required to prepare and file multiple Forms 4 or 5 to report each separately priced trade. 

This was unduly burdensome to the persons who must prepare and file the forms.  It was also confusing to investors because it created a misleading impression that the filer has placed dozens of sell orders rather than effecting what is essentially a single trade resulting from a single investment decision.  Further, investors had to read multiple lines of multiple Forms 4 or 5 to understand the filer's trading activity and gather data regarding the total number of shares involved in the trade.

The no-action letter permits aggregate reporting as follows:

  • The transactions reported on an aggregate basis must be effected through a broker-dealer on the open market and must occur on the same day.

  • Purchases may only be aggregated with purchases, and sales may only be aggregated with sales.

  • Each form of ownership must be reported separately, so that transactions in direct holdings may not be aggregated with transactions in indirect holdings, and each form of indirect holdings must be reported separately.

  • The prices must be within a one dollar range so that if, for example, a filer sold 1,000 shares in 20 separate trades at prices ranging from $16.50 to $17.49 a share, and another 500 shares in 10 separate trades at prices ranging from $17.50 to $17.75 a share, all of the transactions could be reported on two separate lines, showing the weighted average price for the transactions in each line.

  • A footnote to each line must indicate the range of prices and include an undertaking to provide on request detailed breakouts in order that the SEC Staff, the issuer or any security holder of the issuer can receive full information regarding the number of shares purchased or sold at each separate price.

  • The filer must maintain copies of the detailed reports of all the trades described in the report.

A copy of the no-action letter is available here. 

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