An open market transaction refers to the purchase or sale of securities through ordinary trading channels, where the transaction price is determined by market conditions rather than by a special issuer-related arrangement. In U.S. securities regulation, the term is used descriptively to distinguish these trades from transactions executed under compensatory plans, issuer tenders, or other non-market mechanisms.
Within insider reporting under Section 16 of the Securities Exchange Act of 1934, open market transactions are identified and categorized on insider disclosure forms using standardized transaction codes.
Regulatory Context
For Section 16 reporting purposes, transactions executed through ordinary trading channels are typically reported using transaction code “P” (purchase) or “S” (sale) on Form 4. The SEC’s Form 4 instructions define these codes as covering open market or private purchases and sales, distinguishing them from transactions arising from issuer grants, plan awards, conversions, or other non-market events (SEC Form 4 Data Instructions, https://www.sec.gov/files/form4data.pdf).
Accordingly, the classification does not require execution exclusively on a national securities exchange. Transactions conducted person-to-person or through a broker-dealer may also be reported under Codes P or S, provided they are not otherwise categorized under a more specific transaction code.
Relationship to Other Transaction Types
Open market transactions are distinct from transactions conducted outside ordinary trading channels, such as private transactions involving negotiated issuer arrangements, grants of equity compensation, or acquisitions or dispositions resulting from the exercise or conversion of derivative securities. The distinction is based on how the transaction is executed and categorized, not on the identity of the participant or the size of the trade.
The classification affects how the transaction is coded and described on insider filings, but it does not alter the underlying reporting obligation imposed by Section 16.
Reporting Treatment
On Section 16 insider filings, open market transactions are disclosed with the applicable transaction code, execution date, number of securities transacted, and the transaction price. These disclosures appear in the non-derivative table for equity securities and are presented separately from transactions involving derivative instruments.
Sources
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SEC Form 4 Data Instructions — Transaction codes and classification of purchases and sales
https://www.sec.gov/files/form4data.pdf -
SEC — Ownership Form Codes (P and S)
https://www.sec.gov/edgar/searchedgar/ownershipformcodes.html -
17 CFR § 240.16a-3 — Reporting requirements for changes in beneficial ownership
https://www.law.cornell.edu/cfr/text/17/240.16a-3