I need help understanding SEC designations. The following descriptions are from InsiderTrader and I don't know what registering a Form 3 means. Does it merely let the SEC know you're an insider? I'm asking based on AVNX's long list of Form3 filings, listed at the end. It looks all very proper, so I'm only asking for my education. Since they're all dated 2/03, they were obviously timed to the IPO, which makes sense. The only non-Form3 filings are options-related buys by Todd Brooks, a company director, dated 4/04/00. How does someone get an insider designation? Is it based on numbers of shares owned or something else?
TIA --
Pat
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Forms 3, 4, and 5
Once pegged as an "insider", the SEC becomes very interested in how the person may be benefiting from the unfair advantage they presumable have when trading their own companies' shares. The concept of "disclosure" mandated in the 1934 Act was put into practice by Section 16(a) of the Act, which requires insiders to report their stock holdings and trading activity on Forms 3, 4, and 5.
Insiders must make an initial statement of holdings via the SEC's Form 3 within 10 days after gaining their insider status.
Subsequent changes in ownership must be reported to the SEC on a Form 4 by the 10th day of the month following an insider's trade. Any trade by an insider in the month of January, for instance, must be reported to the SEC by February 10. To guard against any funny business just before becoming an insider, trades made up to six months prior to achieving the status must also be reported on a Form 4 soon after filing the Form 3. Filing requirements linger on for another six months after insiders lose their status as well. This helps stop abuses such as a director giving up his seat on a company's board just in time to buy as much stock as possible before an imminent merger.
The SEC's nosiness doesn't stop there. Insiders must also file a Form 5 within 45 days after their companies' fiscal year end. A Form 5 not only has to be filed by anybody considered an insider at fiscal-year end, but also by anyone who was considered an insider for any part of the previous year. This is another way the SEC attempts to stop people from popping back-and-forth between being an insider or not just to skirt filing requirements.
The Form 4
Of these three Forms the Form 4 is the most important source of useful insider data, and it deserves a bit more explanation. While Forms 3 and 5 record a snapshot of an insider's holdings of his company's shares, the Form 4 is the dynamic information that gives the best window into the feelings insiders have about their firms' shares.
A Form 4 lists the name of the insider, their relationship to the company, how many shares were traded, and at what price. It also gives the date of the trade, total holdings of the insider after the transaction, and if the trade was open market, related to the exercise of stock options, or for some other special reason.
Besides being quite detailed, a Form 4 is also timely. With the deadline for filing being the 10th of the month following the transaction, an insider's trade should take 41 days tops to reach the SEC, and that's only if the insider trades during a 31-day month. Form 4s can, of course, be filed immediately, and some are. However, there is always a predictable bulge in the number of filings around the 10th of the month as insiders rush to meet the deadline.
Insiders don't wait until the last minute to be sneaky. The deadline surge is more the result of procrastination. The fact is that filling out a Form 4 is just annoying paperwork for insiders, most of whom are busy executives. Typically, the Form is passed to an equally overloaded secretary or company lawyer to complete, and it is not likely their first priority either.
This may explain why some of the From 4s filed the SEC are filled out incorrectly. These mistakes seem to be made as much by highly paid legal counsel as overworked secretaries, and explain why even the most expensive insider database isn't perfect. Another subset of filings also reaches the SEC late. In any given week, Form 4s with trade dates that are months or even a year old betray the largess of insiders or their charges. Again, this is more likely the result of a mistake than intended deceit. Late filers generally don't get more than a slap on the wrist from the SEC if no harm seems to be done. But worse can, and does, happen to late filers.
Fortunately, the vast majority of insiders are both diligent and accurate when filing their Form 4s, and they supply the market with high-quality investment information every time they trade their own company's shares in the open market.
Not All Form 4s Are Created Equal
There is a reason "in the open market" is stressed in that last sentence. Using the Form 4 and other insider data as an investment tool is more involved than blindly mimicking the trades of a chairman. Some signals and patterns are important, while others are just time-wasting noise. And most important sources of noise in Form 4 data are the option-related, non-open market, and private transactions. The open-market Form 4s (indicated by transaction codes B and S on InsiderTrader) generally supply the most important investment information.
Option-related Form 4 buys (indicated by a B*) are less useful for indicating an insider's true sentiment regarding his company's shares. This is just common sense, really. The incentive options given ever more frequently to employees allow insiders to make a risk-free profit by buying shares directly from the company at a below-market price, and then selling them in the open market at the going rate. With free money dangling over their heads, insiders don't necessarily have to feel there stock is overvalued to give into temptation and grab it.
Even less indicative of an insider's sentiment towards his company's shares are the non-open market Form 4 transactions (indicated by JB, JS, PB, and PS on the site). Although diligent research may now and then yield an interesting insight from Form 4s with these transaction types, the information is usually not worth the effort. Especially compared to the much more meaty bits of information that can be scoffed from the open-market transactions. Investigating these "other" trade types more often uncovers that the insider got a more advantageous price for the shares, was making or receiving a "gift", or some other factor that mitigated the insider's risk of losing money.
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# Insider Name Rel # of Shares Trans Type Trans Date(s) Trans Price(s) Trans Value ($mm) Total Holdings D/I Own %
Owned Amend # Date Entered
1. BROOKS, TODD A. DIR 5,000 PB 2/4/00 $36.00 - 5,000 D - - 4/4/00
2. BROOKS, TODD A. DIR 35,000 PB 2/4/00 $36.00 - 5,304,427 I - - 4/4/00
3. BROOKS, TODD A. DIR 5,269,427 JB 2/4/00 - - - I - - 4/4/00
4. ALESSANDRINI, WALTER PR - 3 2/3/00 - - 5,258,648 D - - 2/3/00
5. BROOKS, TODD A. DIR - 3 2/3/00 - - - D - - 2/3/00
6. CAO, XIAOFAN(SIMON) DIR - 3 2/3/00 - - 3,608,226 D - - 2/3/00
7. CERF, VINT DIR - 3 2/3/00 - - - D - - 2/3/00
8. CHAO, JESSY CFO - 3 2/3/00 - - 1,440,000 D - - 2/3/00
9. CROSSPOINT VNTR PRTS97 B/O - 3 2/3/00 - - - D - - 2/3/00
10. FAGGIN, FEDERICO DIR - 3 2/3/00 - - 40,000 D - - 2/3/00
11. FLORENCE, ANTHONY A VP - 3 2/3/00 - - 195,000 D - - 2/3/00
12. GOGUEN, MICHAEL DIR - 3 2/3/00 - - - D - - 2/3/00
13. JIANG, PAUL OFF - 3 2/3/00 - - 2,010,000 D - - 2/3/00
14. MAGUIRE, PETER OFF - 3 2/3/00 - - 825,000 D - - 2/3/00
15. NEIMAN, SETH DIR - 3 2/3/00 - - - D - - 2/3/00
16. PICKERING, JAMES L III VP - 3 2/3/00 - - 263,880 D - - 2/3/00
17. QUINN, MARGARET VP - 3 2/3/00 - - 135,000 D - - 2/3/00
18. REYES, GREGORY JR DIR - 3 2/3/00 - - - D - - 2/3/00
19. SEQUOIA CAPITAL VII B/O - 3 2/3/00 - - - D - - 2/3/00
20. SMITH, JOEL A. III DIR - 3 2/3/00 - - - D - - 2/3/00
21. US INFORM.TECH.2-IEP B/O - 3 2/3/00 - - - D - - 2/3/00
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Key to abbreviations:
B=Open-Market Form 4 Buy, B*=Option-Related Form 4 Buy, S=Open-Market Form 4 Sale,
144=Form 144, JB=Non Open-Market Form 4 Buy, JS=Non Open-Market Form 4 Sale.
PB=Private Form 4 Buy, PS=Private Form 4 Sale
Premium Histories only: 3=Form 3, 13D=Schedule 13D, 13G=Schedule 13G. |
