Insider Transactions: Forms 3, 4 and 5
Officers, directors and large holders must report their own trades within two business days. The transaction codes are what separate a real signal from routine administration.
MadStockAlerts Research · Updated August 28, 2026
What to take away
- A Form 4 reports a change in an insider's holdings within two business days.
- The transaction code is the most important field on the form.
- Most sales are pre-scheduled under a 10b5-1 plan and carry little information.
- Open-market purchases are rarer and are the transaction most read into.
- An exercise-and-sell is compensation being converted, not a decision to sell.
MAD Academy Training Video · 0:46
The Two-Day Filing
Insider transactions must be reported within two business days, and the transaction code tells you whether it was a real decision.
This lesson is part of a Stock Alerts + Tools plan.
The three forms
- Form 3: an initial statement of holdings, filed when someone becomes an insider.
- Form 4: a change in holdings, due within two business days of the transaction.
- Form 5: an annual catch-up for transactions exempt from prompt reporting.
The two-business-day deadline on a Form 4 makes it one of the most current disclosures in the entire system. Unlike Form 13F, which is six weeks stale by construction, this is close to real time.
The transaction codes
| Code | Meaning | How much it usually says |
|---|---|---|
| P | Open-market purchase | The most read-into transaction there is |
| S | Open-market sale | Depends entirely on whether a plan governs it |
| A | Grant or award | Compensation, not a market decision |
| M | Exercise of a derivative security | Mechanical; usually paired with an S |
| F | Shares withheld to cover tax | Administrative, and not a sale decision |
| G | Gift | Not a market transaction |
An M followed by an S on the same day is an option exercise and immediate sale, which is compensation being converted to cash. Reporting that as an insider selling heavily, without the paired M, misreads the event completely. This is the single most common error in insider-transaction commentary.
10b5-1 plans
Insiders can adopt a written plan in advance that sells a set number of shares on a schedule, which provides a defence against insider trading allegations because the decisions were made when the insider had no material non-public information.
A Form 4 indicates when a transaction was made under such a plan, and the adoption date is disclosed. A sale executing on a plan adopted a year earlier says nothing about the insider's current view.
What can be informative is the plan being adopted, amended or terminated, since those are current decisions. A plan terminated early, or a new plan adopted shortly before a large scheduled sale, are both disclosed and both are choices made with current knowledge.
The asymmetry
There are many reasons to sell shares: tax, diversification, a house, a divorce, a scheduled plan. There is one obvious reason to buy them with your own money on the open market.
This asymmetry is why open-market purchases attract more attention than sales, and it is a general observation rather than a rule about any particular transaction. Insiders buy stocks that subsequently fall, and they do so regularly.
Size relative to the insider's own holdings and compensation is the useful qualifier. A chief executive buying shares worth two weeks of salary is a gesture; one buying shares worth several years of it is a different statement.
Insider transactions surfaced with the transaction code intact, so an exercise-and-sell is not mistaken for a decision to sell.
Corporate Events — for membersSection 16, and who is covered
The reporting obligation applies to officers, directors and beneficial owners of more than ten percent of a class of registered equity. Officer has a specific meaning here, covering the principal executive, financial and accounting officers, vice presidents in charge of a principal business unit, and anyone else performing a policy-making function.
Two consequences follow. Employees below that line, however senior in practice, file nothing, so an insider-transaction feed captures a narrow group rather than everyone with information. And an institutional holder crossing ten percent becomes subject to Section 16 alongside its 13D or 13G obligation, which is why some funds deliberately stop short of that level.
Section 16(b) also requires disgorgement of profits on any purchase and sale within six months of each other, regardless of whether any information was used. It is a strict-liability rule, and it is the reason insiders rarely trade in both directions within a half year.
Form 4 is due within two business days of the transaction, which makes it one of the fastest disclosures in the regime. Form 5 covers small or exempt transactions deferred to year end, and a transaction appearing there rather than on a Form 4 was one the rules allowed to be reported late.
Reading a Form 4 in practice
A Form 4 is a table of transactions with a code against each. The codes are what separate a purchase decision from an administrative event, and a feed that reports dollar values without them is close to uninformative.
| Code | What it is | Information content |
|---|---|---|
| P | Open-market purchase | The highest. Own money, at the market price |
| S | Open-market sale | Low on its own. Many ordinary reasons exist |
| A | Grant or award | None. The company gave it |
| M | Exercise of a derivative | None by itself. Usually paired with an S |
| F | Shares withheld for tax | None. An automatic consequence of vesting |
| G | Gift | Low, though the recipient is sometimes notable |
The M-then-S pairing accounts for a large share of reported insider selling. An executive exercises expiring options and sells enough to cover the cost and the tax, which is a mechanical event with a date set years earlier. Reported as a dollar figure it looks identical to a decision to reduce a stake.
The footnotes carry the rest. They state whether a transaction was made under a 10b5-1 plan and when that plan was adopted, which is the difference between a sale scheduled months in advance and one decided that week.