What Is SEC Form 4 and How Do You Read Form 4 Filings?

The Logo of US Security And Exchange Commission is placed in the centre of fuzzy image.

Form 4 is a US Securities and Exchange Commission (SEC) filing related to insider transactions. Officially known as Form 4: Statement of Changes in Beneficial Ownership, Form 4 needs to be completed and filed with the SEC whenever a company ‘insider’ in the US buys or sells shares in their own company.

In this guide, we look at the basics of SEC Form 4, including how to read Form 4 filings. We also explain how you can use Form 4 filings to generate investment ideas and how our own analysts use the data the forms provide.

What Is SEC Form 4?

Form 4: Statement of Changes in Beneficial Ownership is a two-page document in which corporate insiders must list any recent purchases or sales of company stock they have made, and the exercise of any company options. A Form 4 Filing requires insiders to list the details of any such transactions, their holding in the company after the transactions and their relationship to the company.

What Is SEC Form S-4 and Who Must File It?

To avoid any confusion with SEC Form 4, an SEC Form S-4 must be filed by any publicly traded company that becomes involved in a merger or acquisition. Additionally, when securities are offered as payment in lieu of cash, companies must file during their exchange offer.

What Triggers a Form 4 Filing?

Form 4 Filings are triggered when someone considered an insider purchases or sells company stock. Once a Form 4 is filed, it is made publicly available to ensure transparency of insider transactions in company securities, including number of shares bought or sold and the price paid for them.

Who Is Required To File Form 4?

Insiders consist of officers and directors of a company, as well as any shareholders that own 10% or more of a company’s outstanding stock.

Where Can I Get an SEC Form 4?

The Form 4 is available through the SEC’s website as a downloadable PDF. Once filled out correctly (see below for filing information), the reporting person must file the form via the Commission’s Electronic Data Gathering and Analysis and Retrieval System (EDGAR). There are specific circumstances where a Form 4 may be filled via paper version and these are outlined on the SEC website.

When Does Form 4 Need To Be Filed?

Form 4 is required to be filed before the end of the second business day following the day on which a transaction resulting in a change of beneficial ownership has been executed. These transactions include the company’s common stock, derivative securities and options, such as warrants and convertible securities.

How Can Investors Use Form 4 Filings to Their Advantage?

Form 4 filings can help investors identify transactions that top corporate insiders such as CEOs, CFOs, and Chairmen have made in US publicly listed companies. This is valuable because corporate insiders have a genuine information advantage over other investors. A number of academic studies have found a link between insider transaction activity and future stock returns. As such, investors can potentially use such insight to generate investment ideas.

As a general rule, Form 4 filings that show substantial insider buying activity are a bullish signal. If insiders are buying, they are confident about the future and expect the company’s share price to rise.

Form 4 filings showing insiders have been selling stock are more challenging to interpret. This is because there are often several reasons that insiders sell stock that have nothing to do with the company’s prospects. For example, an insider may simply wish to diversify their investments. Form 4 filings that show large insider sales should not be ignored. However, as in some situations, it can indicate that insiders are offloading their stock with the expectation that the stock will soon fall.

Where Can Investors Find Form 4 Filings?

There are a few ways you can gain access to Form 4 filings. The first way is to go directly to the SEC’s EDGAR database. Here, you can search information collected by the SEC using various search tools. The second way is to access websites that offer Form 4 information. The third and easiest way to track Form 4 filings is to subscribe to an insider transaction data provider such as 2iQ Research.

How To Read a Form 4 Filing

SEC Form 4 filings are easy to read and interpret. Below is an example of a completed Form 4 document and a breakdown of this filing.

  • Section 1 contains the details of the insider that made the transaction. In this case, it was Elon Musk.
  • Section 2 contains the name of the security – Tesla Inc.
  • Section 3 contains the date of the earliest transaction – 14 February 2020.
  • Section 5 contains the details of the relationship of the reporting person to the company. From the boxes ticked, we can see that the insider was a Director, Officer (CEO), and 10% Owner.
  • Table 1 contains the details of the trade. In this case, we can see that Musk purchased (P) 13,037 Tesla shares at a price of $767 per share. Following the transaction, he owned 34,098,597 Tesla shares.
  • There is also a comment in the Explanation of Responses section that provides more information. This tells us that Musk purchased the stock through the Elon Musk Revocable Trust, which he is a trustee of.

What Are the Form 4 Transaction Codes?

Form 4 transaction codes are listed below:

General Transaction Codes
P – Open market or private purchase of securities
S – Open market or private sale of securities
V – Transaction voluntarily reported earlier than required

Rule 16b-3 Transaction Codes
A – Grant, award, or other acquisition
D – Sale (or disposition) back to the issuer of the securities
F – Payment of exercise price or tax liability by delivering or withholding securities
I – Discretionary transaction, which is an order to the broker to execute the transaction at the best possible price
M – Exercise of conversion of derivative security

Derivative Securities Codes
C – Conversion of derivative security
E – Expiration of short derivative position
H – Expiration (or cancellation) of long derivative position with value received
O - Exercise of out-of-the-money derivative securities
X – Exercise of in-the-money or at-the-money derivatives securities

Other Sections 16(b) Exempt Transactions and Small Acquisition Codes
G – Bona fide gift
L – Small Acquisition
W – Acquisition or disposition by will or laws of descent and distribution
Z – Deposit into or withdrawal from voting trust

Other Transaction Codes
J – Other acquisition or disposition (transaction described in footnotes)
K – Transaction in equity swap or similar instrument
U – Disposition due to a tender oof shares in a change of control transaction

How Does 2iQ Use Form 4 Data To Analyze Insider Trades?

Form 4 filings feed directly into our analyst research and reports.

For example, in September 2020 CEO Marty Flanagan of Invesco Ltd made a large trade recorded in a Form 4 SEC filing. The trade at the time was 290,300 IVZ shares at a price of $10.19 per share, which cost Flanagan $2.96 million.

A more recent example was short selling within $WISH, which we recently reported. Mobile eCommerce company WISH completed its IPO in December 2020 with shares valued at $24 each. Just a year later, shares were at an all-time high of $31.19 each, but over the last 12 months the company has taken a dive.

Down 83.26% year on year, $WISH stocks are now sitting at $3.22 each. Precursors to the dive in stock price were perhaps seen through Form 4 Filings from five of the company’s shareholders after the resignation of the company’s founder and CEO. Analyzing the precursor activity allowed investors to see potential cracks beneath the surface of this digital unicorn and ultimately lead to 142,887 shares being sold for a total of $440,649.

At the other end of the spectrum, we reported the purchase of 83,000 (GES:US) shares by the company’s CEO Carlos Alberini in September 2021. For investors watching the market, this was an interesting move. At the time, Guess? Inc, an American clothing brand was down approximately 50% because of COVID-19 impacts.

2iQ’s Insider Model considers bullish purchases like this example, and with a track good track record of share purchases, seeing this Form 4 Filing was an indicator that stock could rise – as had been the case the two previous times Alberini purchased stock.

What Are Some Form 4 Insider Trade Examples?

2iQ’s market-leading data allow investors to keep up to date with all the latest Form 4 Filings. These allow investors to make educated decisions when buying and selling shares. Our most recent Insider Buying Reports are published on our blog regularly and include.

  • Dillard’s Inc (DDS:US) – on February 23, 2022, board member Warren Stephens purchased 20,000 DDS shares at a price of $230.51 per share.

Form 4 Summary

SEC Form 4: Statement of Changes in Beneficial Ownership is a document that is required to be completed and filed with the SEC whenever a company insider in the US buys or sells shares in their own company.

Insiders consist of officers and directors of a company as well as any shareholders that own 10% or more of a company’s outstanding stock.

Form 4 filings can potentially provide investors with trading signals. Insiders have an information advantage over other investors and studies show a link between their trades and stock performance. A Form 4 filing that shows a significant purchase or sale can be a good starting point to further investigate a stock.

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