Section 16 and Form 4 Insider Reporting

If a company's CFO sells a large block of stock, the market generally wants to know — is this routine diversification, or a signal the CFO thinks the stock is overvalued? US securities law doesn't leave this to guesswork: Section 16 of the Securities Exchange Act requires "corporate insiders" — officers, directors, and anyone owning more than 10% of a company's shares — to report their trades in that company's stock publicly, and to do it fast.

The filing that does this is Form 4, and it must be filed with the SEC within two business days of the trade. It discloses the insider's name and role, the type of transaction (open-market purchase or sale, exercise of stock options, a gift, and several other codes), the number of shares, the price, and the insider's total holdings afterward. Because Form 4s are filed so quickly and are public the moment they hit the SEC's EDGAR system, they're one of the few places where the market gets a near-real-time look at what a company's own leadership is doing with its own stock.

This is also why "insider buying" and "insider selling" get tracked as a signal by many investors and quant strategies: a cluster of unprompted open-market purchases by multiple executives at once tends to carry more information than a single scheduled sale (which is far more often routine — funding a tax bill, diversifying, or executing a pre-set 10b5-1 plan than it is a bearish signal). Reading Form 4 filings well means paying close attention to the transaction code: an option exercise followed by an immediate sale to cover the tax bill looks very different in intent from a discretionary open-market sale, even though both show up as "insider sold shares" at a glance.