- 11 -
months, unless such security was acquired in good faith
in connection with a debt previously contracted, shall
inure to and be recoverable by the issuer, irrespective
of any intention on the part of such beneficial owner,
director, or officer in entering into such transaction
of holding the security purchased or of not
repurchasing the security sold for a period exceeding
six months. * * *
15 U.S.C. sec. 78p(b). The purpose of the section is to
eliminate trading on insider information and eliminate conditions
that would give rise to possibilities for such trading. Keller
Indus. v. Walden, 462 F.2d 388, 389 n.4 (5th Cir. 1972).
4. When Does the 6-month Restricted Period Under Section
16(b) Begin To Run?
We find that the 6-month restricted period under section
16(b) commences on the date of grant. In 1991, the Securities
and Exchange Commission adopted amendments to the section 16(b)
rules to clarify how the section applies to derivative
securities, including options.6 Magma Power Co. v. Dow Chem.
Co., 136 F.3d 316, 321 (2d Cir. 1998). The amendments recognized
that holding options is “functionally equivalent” to holding the
underlying equity securities for section 16(b) purposes because
the value of the option is related to the value of the underlying
security. Final rules and solicitation of comments: Ownership
6 A “derivative security” is defined to include options
with a fixed exercise price, like the one in issue. Final rules
and solicitation of comments: Ownership Reports and Trading by
Officers, Directors and Principal Security Holders, 56 Fed. Reg.
7242, 7252 (Feb. 21, 1991).
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Next
Last modified: May 25, 2011