Insider Trading Rules - When do Insiders Need to Report Their (Change in) Stock Ownership
Insider trading is legal, as long
as this trading is done in a way that does not take advantage of non-public information. In order
to prevent illegal insider trading the regulators have adopted some insider trading rules.
As an investors, I appreciate the insider trading rule which oblige corporate
officers, key employees, directors or significant shareholders to report their insider trading to the regulator or
to have them publicly disclosed, usually within a few business days of the trade.
As I primarily invest in the American and Canadian stock markets, I will limit the
scope of this article to the resources which reveal when an insider needs to report their (change in) stock
ownership within these countries.
Reporting Period for American Listed Companies
In America an insider is required to file its initial filing on Form 3 within 10
days of becoming an officer, director, or beneficial owner. Changes in insider stock ownership are reported on Form
4 and must be reported to the SEC within two business days. Insiders must file a Form 5 to report any transactions
that should have been reported earlier on a Form 4 or were eligible for deferred reporting. If a Form 5 must be
filed, it is due 45 days after the end of the company's fiscal year. For a more detailed explanation about the
different insider reporting forms (3, 4 and 5) from the SEC you can click here.
Reporting Period for Canadian Listed Companies
In Canada an insider is required to file an initial insider report on SEDI within
10 calendar days of becoming a reporting insider. Thereafter, an insider must file an insider report within 5
calendar days of any change in stock ownership.
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Note: Please keep in mind that insiders can have
many acceptable reasons why they are selling stock from their personal holdings. They may be selling to diversify
their stock holdings or they may need the cash for personal reasons. Heck, their insider sales can even be
justified as tax loss selling at the end of the year. However, when you ascertain that not only one, but
two or more members of the management team are selling a substantial part of their personal holdings, you should
become very cautious!
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Jeroen Snoeks is the founder of UndervaluedEquity.com, a website for
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