An RSU (restricted stock unit) is a contractual right to receive an issuer’s equity securities at a future date, subject to specified vesting conditions. An RSU represents a promise of delivery rather than present ownership and does not constitute issued or outstanding shares until the units vest and are settled.
In U.S. securities regulation, RSUs most commonly arise in equity compensation arrangements and are treated as a distinct category of rights for disclosure and reporting purposes.
Regulatory Context
Within insider reporting under Section 16 of the Securities Exchange Act of 1934, RSUs are generally treated as derivative securities because they represent a right to acquire equity securities at a later time. Their classification and reporting are governed by the SEC’s Section 16 rules and the instructions applicable to insider reporting forms.
The regulatory treatment focuses on how and when ownership changes, not on the economic purpose of the award. Whether an RSU contributes to beneficial ownership, and at what stage, depends on the applicable rule set and the specific terms of the award, including vesting and settlement features.
Structure and Vesting
An RSU typically specifies:
- a vesting schedule, which determines when the right to receive shares becomes non-forfeitable;
- the number of shares to be delivered upon vesting;
- the settlement method, such as delivery of shares or, in some cases, cash equivalent.
Until vesting and settlement occur, the holder does not own the underlying equity securities and does not possess shareholder rights, such as voting or dividend rights, with respect to the RSUs themselves.
Reporting Treatment
For Section 16 insiders, RSU holdings and transactions are disclosed on Form 3, Form 4, and Form 5, as applicable. RSUs are reported in the derivative securities table, separate from non-derivative equity holdings.
When RSUs vest and are settled in shares, the transaction results in a change in beneficial ownership of the underlying equity securities. That change is reportable in accordance with the SEC’s insider reporting rules and reflected on the appropriate form.
Scope and Boundaries
An RSU is a compensation and reporting construct, not a statement of investment intent or market expectation. The regulatory framework describes how RSUs are classified and disclosed when ownership changes occur, without assigning interpretive or predictive significance to their grant, vesting, or settlement.
Sources
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17 CFR § 240.16a-1(c) — Definition of derivative securities for Section 16 reporting
https://www.law.cornell.edu/cfr/text/17/240.16a-1 -
17 CFR § 240.16a-4 — Treatment of derivative securities in insider reporting
https://www.law.cornell.edu/cfr/text/17/240.16a-4 -
SEC Form 4 Data Instructions — Reporting of derivative and non-derivative securities
https://www.sec.gov/files/form4data.pdf