An acquisition refers to a transaction that increases a reporting person’s beneficial ownership of a security. In U.S. securities regulation, the term is used descriptively to cover purchases, awards, issuances, or other events through which a person obtains additional securities or rights to securities, regardless of the transaction’s economic purpose.
Within insider reporting under Section 16 of the Securities Exchange Act of 1934, an acquisition is a reportable event when it results in a change in beneficial ownership that must be disclosed under the SEC’s rules.
Regulatory Context
Section 16 reporting is concerned with changes in beneficial ownership, not with how or why a transaction occurs. An acquisition may arise from an open market purchase, a private transaction, an issuer grant or award, or from the settlement or conversion of a derivative security, where the structure of the derivative results in an increase in ownership of the underlying equity security.
For reporting purposes, acquisitions of non-derivative equity securities are reported under Exchange Act Rule 16a-3. Transactions involving derivative securities are subject to the reporting framework set out in Rules 16a-1 and 16a-4, which determine how acquisitions of derivative positions and resulting changes in ownership of underlying equity securities are disclosed.
Reporting Treatment
On Section 16 insider filings, purchases of securities are commonly reported using transaction code “P”, which the SEC defines as an open market or private purchase. Other types of acquisitions are reported using different transaction codes depending on the mechanism of the transaction, such as issuer grants or awards, option exercises, conversions, or other non-purchase events.
When an acquisition involves a derivative security, the reporting treatment depends on whether the acquisition relates to the derivative position itself or to the underlying equity security obtained through settlement or conversion. The Form 4 structure reflects these distinctions by separating derivative and non-derivative transactions into different tables.
Relationship to Other Transactions
An acquisition is the counterpart to a disposition, which reduces beneficial ownership. It is distinct from an option exercise, which converts an existing derivative right into ownership of the underlying equity security, even though an acquisition of equity securities may result from such a conversion.
The classification of a transaction as an acquisition depends on how ownership changes, not on the motivation for the transaction or its market context. As with other Section 16 concepts, the reporting framework describes structural changes in ownership without evaluating their significance.
Sources
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17 CFR § 240.16a-3 — Reporting requirements for changes in beneficial ownership
https://www.law.cornell.edu/cfr/text/17/240.16a-3 -
17 CFR § 240.16a-4 — Treatment of derivative securities
https://www.law.cornell.edu/cfr/text/17/240.16a-4 -
SEC Form 4 Data Instructions — Transaction codes and disclosure of acquisitions
https://www.sec.gov/files/form4data.pdf -
SEC — Ownership Transaction Codes
https://www.sec.gov/edgar/searchedgar/ownershipformcodes.html