shortswing

Shortswing refers to short-term trading profits earned by insiders of a corporation from the company’s securities within a six-month window. The term is most closely associated with U.S. securities law and the prohibition on insiders profiting from rapid, windowed trading after acquiring an ownership stake in the issuer.

The core legal framework is Section 16(b) of the Securities Exchange Act of 1934, commonly called the short-swing profit rule. It applies to officers, directors, and beneficial owners of more than 10% of a class of registered equity securities. Under the rule, any purchase and sale, or sale and purchase, of the issuer’s securities within a six-month period can trigger disgorgement of the profits. Profits are calculated as the difference between the sale price and the purchase price, and the rule operates automatically, regardless of whether the insider’s trades were based on inside information or intent.

Purpose and scope: The shortswing rule is designed to deter insiders from exploiting inside information for quick gains and to reduce insider trading ambiguities in corporate governance. If a transaction is deemed a short-swing trade, the company—often through enforcement by the issuer or the Securities and Exchange Commission—may seek disgorgement of the profits, which are then forfeited to the issuer. The rule is complemented by various exemptions and interpretations that address complex trading situations, plan-based transactions, and other nuanced cases.

See also: insider trading, Section 16(b) of the Securities Exchange Act of 1934, disgorgement, corporate governance.