New SEC no-action letter permits limited aggregate reporting of transactions under Section 16(a)06/27/08

By Cydney Posner

Yesterday, the SEC posted a new update to its Section 16 FAQs, but apparently only to delete a previous interpretation (133.08) that contradicted a new no-action letter issued by the Staff on June 25, 2008, to the Society of Corporate Secretaries & Corporate Governance Professionals. The letter permits aggregate reporting of same-day, same-way open market purchases or sales on Form 4 and Form 5 under Section 16(a), even if the prices of those transactions vary (within a $1 range).

Instruction 4(a)(ii) to Forms 4 and 5 provides that "[e]ach transaction should be reported on a separate line." In the May 2007 FAQs, the Staff took the position that, where a filer's purchases or sales on a particular day are executed at different prices, those purchases or sales may not be aggregated on a single line, but must instead be reported individually, on separate lines of the Form 4 or Form 5. Because brokers execute trades in small increments and report trade prices carried out to four decimal places, a reporting person subject to Section 16(a) often must report dozens of transactions on multiple Forms 4 in order to report the execution of a single market order. Some of these multiple trades could be at prices that vary by only a fraction of a penny.. In addition, reporting each trade on a separate line can create a misleading impression for the investing public that the reporting person has placed dozens of sell orders rather than making, in reality, a single trade resulting from a single investment decision.

The new no-action position allows a reporting person who, through a trade order executed by a broker-dealer, effects multiple same-way open market purchase or sale transactions on the same day at different prices, to:

• report on a single line of the applicable form all such transactions that occur within a one dollar price range;
• report in the price column the weighted average purchase or sale price for the transactions reported on that line;
• specify, in a footnote to the applicable form, the range of prices for the transactions reported on that line; and
• undertake, in a footnote to the applicable form, to provide upon request by the SEC Staff, the issuer, or a security holder of the issuer, full information regarding the number of shares purchased or sold at each separate price (which would, in effect, require that the reporting person maintain copies of the detailed breakouts).

This position is limited to open market purchase or sale transactions reportable using transaction codes "P" and "S," respectively, and does not apply to aggregate reporting of separate transactions involving both direct and indirect forms of beneficial ownership or different forms of indirect beneficial ownership. That is, aggregation of transactions would be permissible only if they involved securities held in the same form of ownership. In reaching this position, the SEC took special note of the Society's representations that the range of prices reported in the footnote would allow the issuer and security holders to determine whether the reporting person realized a short-swing profit under Section 16(b), and the detailed information regarding the number of shares purchased or sold at each separate price that the reporting person would provide upon request would make it possible to determine the exact amount of that Section 16(b) liability.

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