SEC Form 4 explained: how to read insider buying and selling
Who has to file
Section 16 of the Securities Exchange Act of 1934 covers a company's directors, its officers (such as the CEO and CFO) and beneficial owners of more than 10% of a class of its shares. They file Form 3 when they become insiders, Form 4 for changes in their holdings, and Form 5 annually for certain late or exempt items. All three are free on the SEC's EDGAR system.
The transaction codes that matter
| Code | Meaning | Is it a market decision? |
|---|---|---|
| P | Open-market or private purchase | Yes: the insider chose to spend their own money |
| S | Open-market or private sale | Usually, but often planned in advance |
| A | Grant or award from the company | No: compensation |
| M | Exercise or conversion of options or other derivatives | Mostly not |
| F | Shares withheld to pay taxes or the exercise price | No |
| G | Gift | No |
Researchers who study insider trading usually focus on P purchases, because insiders sell for many ordinary reasons (taxes, diversification, a house) but buy for one main reason. FundsGo counts only P and S transactions as insider buys and sells.
Pre-planned trading plans (Rule 10b5-1)
Many insider sales happen under a Rule 10b5-1 plan: instructions set up in advance so trades happen automatically, which helps insiders avoid accusations of trading on news. Since 2023 the SEC requires Form 4 to say whether a trade was made under such a plan. A sale under a plan set months earlier tells you much less than an unplanned purchase.
Signals people look for
- Cluster buying: several insiders at the same company buying within a few weeks.
- Size relative to holdings: a CEO adding 20% to their stake says more than a token purchase.
- Buys after a price drop: insiders buying when the stock is down.
None of these guarantee anything. Always measure a signal against an index over the same dates, after costs. FundsGo's Research Lab does this automatically.
Key takeaways
- Form 4 is due within two business days, so insider data is much fresher than congressional data.
- Code P (purchase) is the most informative; grants (A), exercises (M) and tax withholding (F) are mostly not.
- Check whether a sale was under a pre-planned 10b5-1 plan.
Sources
- U.S. Securities and Exchange Commission: Forms 3, 4 and 5 and their General Instructions (transaction codes)
- Securities Exchange Act of 1934, Section 16(a)
- SEC Rule 10b5-1 amendments (2022, effective 2023)
Frequently asked questions
How quickly must insiders report trades on Form 4?
Within two business days of the transaction.
What does code P mean on Form 4?
P is an open-market or private purchase: the insider chose to buy shares with their own money. It's usually the most informative code.
What is a 10b5-1 plan?
A pre-arranged trading plan that executes automatically. Since 2023, Form 4 must say whether a trade was made under one.