Overview
Schedule 13D is a required filing (within 10 days) for anyone who acquires
beneficial ownership in a public company. Beneficial ownership is defined as one entity
holding more than 5% of the company's total shares.
Form Uses
Investors should always read any 13D filings that are made by companies
in which they are invested. These reports will show you who owns the majority of the
company's shares and, perhaps more importantly, why they have an interest in the company.
Obviously anyone holding a majority stake in the company has interests that are almost
always aligned with the smaller shareholders. These filings are often a precursor
to hostile takeovers, company breakups, and other unusual events that could result
in quick gains for longs.
Reading the Form
Schedule 13D consists of seven different sections:
Overview
Form 8-K a very broad form used to notify investors of any unscheduled material
event that is important to shareholders or the SEC. This is one of the most common
types of forms filed with the SEC.
Form Uses
Form 8k is used to notify investors of a current event. These events include:
Reading the Form
Typically an 8-K filing will only have two major parts. They are:
Overview
This is a required filing for all directors, officers, and beneficial owners
of a company, disclosing their transactions and holdings. The form contains the filer’s
information, the amount of securities beneficially owned, and an itemized list of
each individual transaction. In order to assure the form is timely, the SEC requires
that the form be filed before the end of the second business day following the day
on which the transaction occurs.
Form Uses
Form 4 is best used to track insider buying and selling. Key things to watch
are:
· How much ownership those close to the company have – Typically companies that
have a higher insider ownership perform better because the company’s future is tied
to their future.
· The timing of the purchase and sale of “common stock” – Buying and selling
common stock involves owners using their own money. The theory is that those close
to the company have the best knowledge of the company’s condition, and therefore should
serve as a reliable indicator of future company strength.
· The usage of options, grants, and other compensation/awards given to executives
– Executives that cash in their options, grants, and other forms of compensation are
often seen as having a lack of faith in the company. Heavy selling can indicate trouble
ahead.
Reading the Form
There are seven major sections in the Form 4 filing. They are:
1. Title of Security – This simply indicates the type of security, which may
include “common stock”, “preferred stock”, or derivatives.
2. Transaction Date – This is the date that the transaction took place.
3. Transaction Code – This is a code that indicates the type of transaction.
See the “Transaction Codes” section below for more information.
4. Securities Acquired/Disposed – This section indicates whether the securities
were bought or sold, how many shares were transacted, and the total value of the transaction.
5. Amount of Securities Beneficially Owned Following the Transaction – This section
indicates the total number of share owned by the filer including the shares bought
in the listed transaction.
6. Ownership Form – This indicates the type of ownership. Directly owned securities
indicate those held in the reporting person’s name or in the name of a bank, broker,
or nominee for the account of the reporting person. If the owner has a contract, understanding,
or relationship that permits their shares to be held in the name of another person,
then the owner is an indirect owner of the securities.
7. Nature of Indirect Beneficial Ownership – This section sheds light on the
relationship, contract, or understanding of indirect ownership.
Transaction Codes
Each transaction listed on the Form 4 filing has a transaction code, which can help
you determine the type of securities being transacted. Here is a list of each transaction
code:
General Transaction Codes
P – Open market or private purchase of securities
S – Open market or private sale of securities
V – Transaction voluntarily reported earlier than required
Rule 16b-3 Transaction Codes
A – Grant, award, or other acquisition
D – Sale (or disposition) back to the issuer of the securities
F – Payment of exercise price or tax liability by delivering or withholding securities
I – Discretionary transaction, which is an order to the broker to execute the transaction
at the best possible price
M – Exercise of conversion of derivative security
Derivative Securities Codes
C – Conversion of derivative security (usually options)
E – Expiration of short derivative position (usually options)
H – Expiration (or cancellation) of long derivative position with value received (usually
options)
O – Exercise of out-of-the-money derivative securities (usually options)
X – Exercise of in-the-money or at-the-money derivatives securities (usually options)
Other Sections 16b Exempt Transactions and Small Acquisition Codes
G – Bona fide gift
L – Small Acquisition
W – Acquisition or disposition by will or laws of descent and distribution
Z – Deposit into or withdrawal from voting trust
Other Transaction Codes
J – Other acquisition or disposition (transaction described in footnotes)
K – Transaction in equity swap or similar instrument
U – Disposition due to a tender of shares in a change of control transaction