Section 16(c)
Section 16(c) of the Securities Exchange Act prohibits insiders from making short sales of company stock. This prevents insiders from profiting from stock price declines, complementing other Section 16 restrictions.
The Trader's Take
The Signal
Section 16(c) ensures insiders can only profit from stock price increases, not decreases. This structural rule means insider purchases are inherently bullish—they can't short the stock.
The Noise
Section 16(c) is a structural rule that doesn't create trading signals—it prevents certain types of trades.
Actionable Insights
- 1Section 16(c) means insiders can only profit from price increases, making their buys more meaningful.
- 2The prohibition on short sales ensures insider activity is aligned with long-term value creation.
- 3Understanding Section 16(c) helps appreciate why insider purchases signal confidence.
- 4This rule complements Section 16(b)'s short-swing profit restrictions.
Regulatory Context & Context
Common Misconceptions
Section 16(c) doesn't prevent all short positions—only short sales of company stock.
The rule applies to officers, directors, and 10% beneficial owners.
Section 16(c) works alongside Section 16(b) to prevent insider trading abuses.
Frequently Asked Questions
What does Section 16(c) prohibit?
Section 16(c) prohibits insiders from making short sales of company stock, preventing them from profiting from stock price declines.
Who is subject to Section 16(c)?
Section 16(c) applies to officers, directors, and anyone owning more than 10% of a class of equity securities—the same group subject to Section 16(a) reporting requirements.