Direct ownership refers to a form of security ownership in which a reporting person holds securities in their own name and for their own account, without the ownership being attributed through another person or entity. In U.S. securities regulation, the term is used descriptively to distinguish securities held directly by a reporting person from those attributed through indirect arrangements.
Within insider reporting under Section 16 of the Securities Exchange Act of 1934, the distinction between direct and indirect ownership determines how holdings and transactions are categorized and disclosed on insider reporting forms, rather than whether a reporting obligation exists.
Regulatory Context
Section 16 reporting focuses on beneficial ownership, which for these purposes is defined primarily by the presence of a direct or indirect pecuniary interest in the securities. Securities held directly by a reporting person are a common way in which pecuniary interest arises and are reported as direct ownership under the SEC’s insider reporting framework (17 CFR § 240.16a-1, https://www.law.cornell.edu/cfr/text/17/240.16a-1).
Holdings and transactions involving directly owned securities are disclosed on Form 3, Form 4, and Form 5. On these forms, directly owned securities are reported in the non-derivative tables, separate from instruments classified as derivative securities, consistent with the structure of the SEC’s reporting instructions.
Relationship to Beneficial Ownership
Direct ownership represents one way in which a person may have beneficial ownership of a security for Section 16 purposes. When securities are held directly, the reporting person’s pecuniary interest typically arises from holding the securities in their own name and account.
However, beneficial ownership under Section 16 is broader than direct ownership alone. A person may also be deemed a beneficial owner of securities that are not held directly, such as securities held through trusts, partnerships, family members, or controlled entities. These situations fall under indirect ownership and must be reported separately from direct ownership on insider filings.
Reporting Distinction
On Section 16 insider filings, direct and indirect ownership are disclosed separately. Direct ownership is reported as such, while indirect ownership requires an explanation of the relationship or arrangement through which the reporting person derives a pecuniary interest in the securities.
This distinction is structural rather than evaluative. It clarifies how ownership arises and how it must be disclosed, without altering the scope of the reporting obligation imposed by Section 16.
Sources
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17 CFR § 240.16a-1 — Definitions and pecuniary interest under Section 16
https://www.law.cornell.edu/cfr/text/17/240.16a-1 -
SEC Form 4 Data Instructions — Disclosure of direct and indirect ownership
https://www.sec.gov/files/form4data.pdf -
SEC Exchange Act Section 16 Overview — Insider reporting framework
https://www.sec.gov/education/smallbusiness/goingpublic/officersanddirectors