Form 4 Derivative Securities Reporting: The Complete Table II Playbook

If your compliance team has ever filed a Form 4 for an option exercise and only entered one line, this guide is for you. Form 4 derivative securities reporting is the single most error-prone area of Section 16 compliance, and the consequences range from proxy statement embarrassment to SEC comment letters to enforcement action.

This walkthrough covers every stage of a derivative security's lifecycle on Form 4: which table, which fields, which transaction codes, and exactly what happens when an insider exercises, vests, or lets an option expire. The worked examples and instrument taxonomy below are what the SEC's own form instructions and the top-ranking articles leave out.

Key takeaway: Every derivative security transaction requires a Table II entry. An exercise or conversion also requires a simultaneous Table I entry for the underlying shares. Missing that second entry is the most common Form 4 error the SEC flags in comment letters.

What Is Form 4 Derivative Securities Reporting?

Form 4 derivative securities reporting is the obligation, under Section 16(a) of the Securities Exchange Act of 1934, for directors, officers, and 10%-plus beneficial owners to disclose every acquisition, disposition, or change in beneficial ownership of a derivative security within two business days of the transaction.

The governing rule is 17 CFR § 240.16a-4, which establishes the foundational principle:

"For purposes of section 16 of the Act, both derivative securities and the underlying securities to which they relate shall be deemed to be the same class of equity securities, except that the acquisition or disposition of any derivative security shall be separately reported."

In plain English: a stock option and the common stock it converts into are treated as the same class for Section 16 purposes, but every move in the derivative itself must be separately disclosed. That "separately reported" requirement is why Form 4 has two tables.

For a full map of which transactions trigger the Form 4 obligation in the first place, see What Transactions Trigger a Form 4 Filing Under Section 16.

Table I vs. Table II: Which Derivatives Go Where?

Table I covers non-derivative securities (common stock, preferred stock, restricted stock). Table II covers all derivative securities. The distinction matters because the two tables capture different information and generate different reporting obligations.

The SEC's official Form 4 instructions specify eleven columns for Table II:

1. Title of derivative security
2. Conversion or exercise price
3. Transaction date 3A. Deemed execution date (if applicable)
4. Transaction code
5. Number of derivative securities acquired (A) or disposed of (D)
6. Date exercisable and expiration date
7. Title and amount of underlying securities
8. Price of derivative security
9. Number of derivative securities beneficially owned following the transaction
10. Ownership form (Direct or Indirect)
11. Nature of indirect beneficial ownership

Derivative Instrument Taxonomy: Every Type and Its Form 4 Treatment

Not every instrument is obviously a "derivative security." The table below maps each common instrument to its Form 4 treatment across the full lifecycle.

One critical distinction: cash-settled SARs are not reportable on Form 4 at all, because they never involve equity securities. Equity-settled SARs, by contrast, are derivative securities requiring full Table II treatment. This distinction trips up compliance teams at companies that grant both types under the same plan.

The Dual-Entry Mechanic: How to Report an Option Exercise

This is where most Form 4 errors originate. Rule 16a-4(b) is explicit:

"The exercise or conversion of a call equivalent position shall be reported on Form 4 and treated for reporting purposes as: (1) A purchase of the underlying security; and (2) A closing of the derivative security position."

That means one exercise event requires two simultaneous Form 4 entries. Here is a worked example.

Scenario: A CFO holds 10,000 employee stock options with a $20 exercise price. The stock is trading at $45. She exercises all 10,000 options in a cashless (net) exercise through a broker on September 25, 2026.

In a cashless exercise, the broker sells enough shares to cover the exercise price and applicable taxes. The mechanics:

• Gross shares acquired on exercise: 10,000
• Exercise price per share: $20 (total cost: $200,000)
• Shares sold to cover exercise price: $200,000 / $45 = approximately 4,444 shares
• Shares sold to cover taxes (assume 22% federal + state): approximately 2,222 shares (illustrative)
• Net shares retained: approximately 3,334

Step 1: Close the Derivative in Table II

• Column 1: "Employee Stock Options"
• Column 2: $20.00 (exercise price)
• Column 3: 09/25/2026
• Column 4: Transaction code M (exercise or conversion of derivative security)
• Column 5: 10,000 (D, disposed of)
• Column 6: Date exercisable and expiration date (as originally granted)
• Column 7: Common Stock, 10,000 shares (the underlying)
• Column 9: 0 (if all options exercised)

Step 2: Record the Gross Share Acquisition in Table I

• Column 1: "Common Stock"
• Column 3: Transaction code M
• Column 4: 10,000 (A, acquired)
• Column 5: Updated total beneficial ownership

Step 3: Record the Shares Sold to Cover Exercise Price in Table I

• Column 1: "Common Stock"
• Column 3: Transaction code S (open-market sale through broker)
• Column 4: 4,444 (D, disposed of)

Step 4: Record the Shares Withheld for Taxes in Table I

• Column 1: "Common Stock"
• Column 3: Transaction code F (payment of tax liability by withholding shares)
• Column 4: 2,222 (D, disposed of)

The single most common error: reporting only the 3,334 net shares retained, with a single Table I entry and no Table II entry. That omits the derivative closing, misrepresents the gross transaction, and will draw an SEC comment letter.

For a net settlement (where the company withholds shares to cover the exercise price rather than a broker sale), the shares covering the exercise price use code F rather than S, because the disposition is back to the issuer rather than into the market.

Key takeaway: A cashless exercise generates at minimum three Table I entries (gross acquisition, sale to cover exercise price, withholding for taxes) and one Table II entry. Report the gross, not the net.

RSU and PSU Reporting: Settlement Is the Exercise

RSUs and PSUs are derivative securities for Form 4 purposes and must be reported in Table II at grant. This surprises compliance teams that think of RSUs as "just stock that hasn't vested yet."

The SEC's Form 4 instructions treat RSU settlement (delivery of underlying shares) as the functional equivalent of an option exercise. The dual-entry mechanic applies:

1. At grant: Table II entry, transaction code A, recording the number of RSUs awarded, the vesting schedule in column 6, and the underlying common stock in column 7.
2. At settlement (vesting + share delivery):
   • Table II: close the RSU position (code M, disposed of)
   • Table I: record acquisition of underlying shares (code M, acquired)
   • Table I: record shares withheld for taxes (code F, disposed of)

The two-business-day clock starts on the settlement date, not the vesting date, if those differ. Many RSU plans vest on one date and settle (deliver shares) on another. The filing deadline runs from share delivery.

PSU-specific footnoting requirement: PSUs with performance conditions require a footnote at grant describing the performance metric, the performance period, and the threshold/target/maximum share ranges. SEC staff have issued comment letters specifically requesting this information when it is absent. Best practice is to include language such as: "Represents the target number of PSUs that may be earned based on [metric] over the [period] performance period. Actual shares earned may range from 0% to 200% of target."

For a complete walkthrough of equity award reporting across the full lifecycle, including net settlement mechanics and the 2026 FPI expansion, see Section 16 Reporting for Equity Awards: 2026 Practitioner Walkthrough.

Transaction Codes for Derivative Securities

Selecting the wrong transaction code is a recurring SEC comment letter theme. The full code set for derivative transactions:

For a full practitioner guide to every transaction code, including the V modifier for voluntarily reported transactions and the J code for other acquisitions, see Form 4 Transaction Codes: 2026 Practitioner Walkthrough.

The 60-Day Right-to-Acquire Rule and Table I Beneficial Ownership

This is a layer of complexity that most Form 4 guides skip entirely.

Rule 16a-1(a)(1) provides that a reporting person beneficially owns any securities they have the right to acquire within 60 days through the exercise of an option, warrant, right, or conversion. This means that vested, in-the-money options already count toward the insider's beneficial ownership of the underlying shares in Table I, even before exercise.

The practical consequence: the "amount of securities beneficially owned following the transaction" column in Table I should already reflect the underlying shares attributable to exercisable options. When the insider actually exercises, the Table I total does not jump by the full number of shares acquired, because some of those shares were already counted. Compliance teams that ignore this rule consistently misstate the post-transaction beneficial ownership total in Table I.

The 60-day window is a rolling calculation. An option that becomes exercisable within the next 60 calendar days is counted today. An option with a vesting date 90 days out is not counted until it falls within the window.

The Expiration and Cancellation Exemption

Not every derivative event requires a Form 4. Rule 16a-4(d) provides:

"The disposition or closing of a long derivative security position, as a result of cancellation or expiration, shall be exempt from section 16(a) of the Act if exempt from section 16(b) of the Act pursuant to § 240.16b-6(d)."

In plain English: if an out-of-the-money option simply expires worthless, and the expiration is also exempt from short-swing profit liability under Rule 16b-6(d), no Form 4 is required.

But the exemption has limits:

• It applies to long derivative positions (options the insider holds). It does not apply to short derivative positions (options the insider wrote or sold).
• The expiration must be exempt under Rule 16b-6(d). If the expiration is paired with a matching purchase or sale within six months that creates short-swing profit liability, the exemption may not apply.
• If the company cancels the option in exchange for cash or other consideration (code H), the exemption does not apply and the transaction is reportable.

The practical risk runs in both directions. Some compliance teams file unnecessarily for exempt expirations, creating a public record of a non-event. Others assume all expirations are exempt and miss a reportable cancellation. When in doubt, confirm with securities counsel whether Rule 16b-6(d) covers the specific expiration.

10b5-1 Plans and Derivative Security Footnoting

The SEC's 2022 amendments to Rule 10b5-1 (effective February 27, 2023, per Release No. 33-11138) added a specific Form 4 footnote requirement: when a derivative security transaction is executed pursuant to a Rule 10b5-1(c) plan, the Form 4 must include a footnote identifying the plan and its adoption date.

Many compliance teams have not fully integrated this requirement into their derivative reporting workflows. The Form 4 form itself now includes a checkbox at the top to indicate that a transaction was made pursuant to a 10b5-1(c) plan, but the footnote with the adoption date is a separate, additional requirement.

For option exercises or RSU settlements executed under a 10b5-1 plan, best-practice footnote language is: "This transaction was made pursuant to a Rule 10b5-1 trading plan adopted by the reporting person on [date]."

For a full practitioner walkthrough of 10b5-1 plan adoption and modification requirements, see the 10b5-1 Plan Adoption Requirements: 2026 Practitioner Walkthrough.

Indirect Ownership of Derivative Securities in Table II

Derivative securities held indirectly, through trusts, partnerships, or family members sharing a household, must be reported in Table II with the indirect ownership disclosed in columns 10 and 11.

• Column 10: Mark "I" (Indirect) rather than "D" (Direct).
• Column 11: Describe the nature of the indirect ownership: "By Revocable Trust," "By Family Limited Partnership," "By Spouse," etc.

The beneficial ownership analysis for indirectly held derivatives follows the same Rule 16a-1(a) framework as for non-derivative equity. A director who is the trustee and sole beneficiary of a trust holding company warrants beneficially owns those warrants and must report every transaction in them on Form 4.

What Draws SEC Comment Letters on Derivative Reporting

The SEC's Division of Corporation Finance actively reviews Form 4 filings for derivative securities. Based on SEC comment letter patterns, the most common issues are:

1. Missing Table I entry on option exercise. The derivative is closed in Table II but no corresponding purchase of underlying shares appears in Table I.
2. Incorrect transaction codes. Using "A" for an exercise instead of "M", or using "S" for a tax withholding instead of "F".
3. Missing or inadequate PSU footnotes. No description of performance conditions, performance period, or threshold/target/maximum share ranges.
4. Failure to report indirect ownership. Derivative securities held through entities or family members omitted entirely.
5. Late filings not disclosed in the proxy. Under Item 405 of Regulation S-K, every late Form 4, including late derivative filings, must be disclosed in the company's annual proxy statement. Compliance teams consistently underestimate this reputational exposure.

As Finrep noted in What Transactions Trigger a Form 4 Filing Under Section 16: "Miss it by one day and the late filing is disclosed in the company's proxy statement. Miss it by enough days and it surfaces as an SEC comment. Miss enough of them and it signals a systemic control failure that draws sustained SEC scrutiny."

The two-business-day deadline was shortened from 10 days by Section 403 of the Sarbanes-Oxley Act of 2002 and applies equally to every derivative transaction: grants, exercises, RSU settlements, and warrant conversions.

Amending a Form 4 with a Derivative Reporting Error

When a previously filed Form 4 omitted the Table I entry on an option exercise, or used the wrong transaction code, an amendment (Form 4/A) is required. The amendment must:

• Check the amendment box and reference the date of the original filing
• Restate the complete corrected filing, not just the changed lines
• Be filed as promptly as possible (there is no separate two-business-day deadline for amendments, but delay compounds the reputational and regulatory risk)

The amendment does not reset or extend any short-swing profit liability analysis. The original transaction date governs Section 16(b) matching.

FAQ

Do RSUs count as derivative securities requiring Table II reporting? Yes. RSUs and PSUs are derivative securities for Form 4 purposes. They are reported in Table II at grant (code A) and closed in Table II at settlement (code M), with a simultaneous Table I entry for the underlying shares acquired and a separate Table I entry for any shares withheld for taxes (code F).

What transaction code applies when an insider exercises a stock option? Code M (exercise or conversion of derivative security) is the standard code. Some filers use code X for in-the-money exercises and code O for out-of-the-money exercises. The Table II entry uses the same code as the corresponding Table I entry for the underlying shares acquired.

Is the expiration of an out-of-the-money option reportable on Form 4? Generally no, if the expiration is also exempt from Section 16(b) under Rule 16b-6(d). But if the option was cancelled in exchange for consideration, or if the expiration is paired with a matching transaction that creates short-swing profit liability, the exemption may not apply. Confirm with counsel.

How does a cashless exercise differ from a net settlement for Form 4 purposes? In a cashless exercise, a broker sells shares in the open market to cover the exercise price; those shares use transaction code S. In a net settlement (share withholding by the issuer), the issuer withholds shares to cover the exercise price; those shares use transaction code F. Both require the gross acquisition in Table I and the derivative closing in Table II.

Are cash-settled SARs reportable on Form 4? No. Cash-settled SARs do not involve equity securities and are not reportable. Equity-settled SARs are derivative securities requiring full Table II treatment at grant and at settlement.

What footnote is required for a PSU grant on Form 4? SEC staff expect a footnote describing the performance metric, the performance period, and the threshold/target/maximum share ranges. For example: "Represents the target number of PSUs that may be earned based on [metric] over the [period] performance period. Actual shares earned may range from 0% to 200% of target."

When does the two-business-day clock start for an RSU vesting? The clock starts on the settlement date, meaning the date shares are actually delivered, not the vesting date if the two differ. Many RSU plans have a same-day settlement, but plans with a deferred delivery feature require careful tracking of the actual delivery date.