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Reports and Trading by Officers, Directors and Principal Security
Holders, 56 Fed. Reg. 7242, 7248 (Feb. 21, 1991). Similar to how
an insider’s opportunity for profit begins when he purchases
stock, the opportunity for profit begins when an insider
purchases or acquires an option because the insider knows at what
price he can obtain stock and can determine the extent of his
profit.7 Id.
As a result, the amendments require that the acquisition of
the option, not its exercise, be deemed the significant event to
commence the 6-month restricted period under section 16(b). Id.
The commentary explains that the exercise of an option merely
changes the form of beneficial ownership from indirect to direct,
representing “neither the acquisition nor the disposition of a
right affording the opportunity to profit”. Id. at 7249.
The parties dispute when the restricted 6-month period of
section 16(b) commences. Respondent argues that, because of the
1991 amendments to the regulations for section 16(b), the 6-month
period begins at the date of the grant of the option. Petitioner
concedes that if the 1991 amendment to the regulations for
7 The rules explain that the amendments adopted do not
distinguish between options that are purchased and other options,
such as those granted in this case. Final rules and solicitation
of comments: Ownership Reports and Trading by Officers,
Directors and Principal Security Holders, 56 Fed. Reg. at 7251.
Not to treat the employee option grant as a “purchase” for sec.
16(b) purposes would “provide a significant opportunity for the
short-swing transactions Congress wished to eliminate.” Id.
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