Short-Swing Profit Rule

DEFINITION of 'Short-Swing Profit Rule'

A Securities & Exchange Commission regulation that requires company insiders to return any profits made from the purchase and sale of company stock if both transactions occur within a six-month period. A company insider, as determined by the rule, is any officer, director or holder of more than 10% of the company's shares.

BREAKING DOWN 'Short-Swing Profit Rule'

The rule was implemented to prevent insiders, who have greater access to material company information, from taking advantage of information for the purpose of making short-term profits. For example, if an officer buys 100 shares at $5 in January and sells these same shares in February for $6, he/she would have made a profit of $100. Because the shares were bought and sold within a six-month period, the officer would have to return the $100 to the company under the short-swing profit rule.

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