A short swing rule restricts officers and insiders of a company from making short-term profits at the expense of the firm. It is part of United States federal securities law, and is a prophylactic measure intended to guard against so-called insider trading.See William A. Klein et al., Business Associations, 511 (6th ed. Foundation Press)(2006). The rule mandates that if an officer, director, or any shareholder holding more than 10% of outstanding shares of a publicly traded company makes a profit on a transaction with respect to the company's stock during a given six-month period, that officer, director, or shareholder must pay the difference back to the company.The statutory text of the rule can be found at section 16(b) of the Securities Exchange Act of 1934, codified at 15 U.S.C. section 78p(b). Note that the profit calculated is the maximum considering each pair of sales and purchases, a larger trade could be paired with trades up to six month prior as well as up to six months later and the correct calculation is a linear programming problem
As stated by a federal circuit court of appeals:
See also Securities and Exchange Commission (SEC)
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