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U.S. Securities and Exchange Commission

Securities Exchange Act of 1934 — Section 16

October 15, 1999

Response of the Office of Chief Counsel
Division of Corporation Finance


American Bar Association
Incoming letter dated September 29, 1999

You have asked the Division's view about the application of Rule 16b-3 under Section 16 of the Securities Exchange Act of 1934 to open market stock purchase plans ("open market plans") that are not required to be registered under Section 5 of the Securities Act of 1933 ("Securities Act") under the standards of Securities Act Release No. 4790.

The Division is of the view that an officer or director's acquisition of issuer stock pursuant to accumulated payroll deductions under an open market plan is a transaction with "an employee benefit plan sponsored by the issuer" for purposes of Rule 16b-3(a), if the acquisition occurs as follows:

  • the issuer deducts funds from compensation;
  • deducted funds accumulate for a regular, specified interval no shorter than a pay period;
  • accumulated funds are invested in issuer stock; and
  • the open market plan restricts participation to employees of the issuer and its parents or subsidiaries who, under General Instruction A.1(a)(1) to Form S-8, would be eligible to purchase securities of the issuer under a registration statement on that form.

Such an acquisition will be exempt under Rule 16b-3(c) as a transaction pursuant to a Stock Purchase Plan, as defined in Rule 16b-3(b)(5), if the open market plan meets the conditions of Rule 16b-3(b)(5). Because subsequent sales or transfers by the participant of the securities so acquired would be outside the purview of the plan, these transactions would not be exempt under Rule 16b-3. Acquisitions pursuant to additional voluntary contributions, although not exempt under Rule 16b-3, would not make the exemption unavailable for acquisitions pursuant to payroll deductions.

Because this position is based on the representations made to the Division in your letter, it should be noted that any different facts or conditions may require different conclusions.


Anne M. Krauskopf
Special Counsel

Incoming Letter:

The Incoming Letter is in Acrobat format.


Modified: 04/26/2007