Revisions to Section 16 Rules Impace Forms 3,4 and 5 Reporting (Securities Compliance)

June 1, 1996 Advisory

The new Section 16 rules announced by the Commission also affect the reporting system pursuant to which officers and directors file Forms 3, 4 and 5 with the SEC and applicable stock exchange. Although the Commission chose not to do away with Form 5, there were several noteworthy changes made in the interest of simplification of the system, including the following:

  1. Transactions No Longer Required to be Reported.
    The new rules provide that the following transactions will no longer need to be reported on any of the Section 16 forms:

    • Transactions (other than discretionary transactions) in Qualified Plans, Stock Purchase Plans or Excess Benefit Plans
    • Transactions merely reflecting a change in nominal ownership rather than a change in true beneficial ownership
    • Acquisitions pursuant to dividend or interest reinvestment plans
    • A spin-off or other pro-rata stock dividend transaction

  2. Joint Group Reporting.
    The new rules allow joint owners of equity securities (who were previously required to file separately) to file jointly.

  3. Current Reporting of Exercises and Conversions.
    Exercises of options or other derivative securities and conversions of securities must now be reported on a current basis on Form 4 not later than 10 days after the month in which the exercise or conversion took place rather than on the next Form 4 or Form 5 required to be filed.

Practice Pointer
Companies should immediately notify directors and officers of the current changes in Section 16 reporting, particularly those set forth in item 3, above, which are more restrictive than the current Section 16 scheme.