opinion: RELIANCE ELECTRIC CO. v. EMERSON ELECTRIC CO.
  No. 70-79.
  Argued November 10-11, 1971
  Decided January 11, 1972
  Thomas P. Mulligan argued the cause for petitioner. With him on the briefs were Patrick J. Amer, Stephen J. Bums, and Kenneth S. Teasdale.
  Albert E. Jenner, Jr., argued the cause for respondent. With him on the brief were Wesley G. Hall, R. H. McRoberts, and Thomas C. Walsh.
  Walter P. North argued the cause for the Securities and Exchange Commission as amicus curiae. With him on the briefs were Solicitor General Griswold, Samuel Huntington, Philip A. Loomis, Jr., and Jacob H. Stillman.
  Whitney North Seymour and John A. Guzzetta filed a brief for Gulf & Western Industries, Inc., as amicus curiae.
  Me, Justice Stewart
  delivered the opinion of the Court.
  Section 16 (b) of the Securities Exchange Act of 1934, 48 Stat. 896, 15 U. S. C. § 78p (b), provides, among other things, that a corporation may recover for itself the profits realized by an owner of more than 10% of its shares from a purchase and sale of its stock within any six-month period, provided that the owner held more than 10% “both at the time of the purchase and sale.” In this case, the respondent, the owner of 13.2% of a corporation’s shares, disposed of its entire holdings in two sales, both of them within six months of purchase. The first sale reduced the respondent’s holdings to 9.96%, and the second disposed of the remainder. The question presented is whether the profits derived from the second sale are recoverable by the Corporation under § 16 (b). We hold that they are not.
  I
  On June 16, 1967, the respondent, Emerson Electric Co., acquired 13.2% of the outstanding common stock of Dodge Manufacturing Co., pursuant to a tender offer made in an unsuccessful attempt to take over Dodge. The purchase price for this stock was $63 per share. Shortly thereafter, the shareholders of Dodge approved a merger with the petitioner, Reliance Electric Co. Faced with the certain failure of any further attempt to take over Dodge, and with the prospect of being forced to exchange its Dodge shares for stock in the merged corporation in the near future, Emerson, following a plan outlined by its general counsel, decided to dispose of enough shares to bring its holdings below 10%, in order to immunize the disposal of the remainder of its shares from liability under § 16 (b). Pursuant to counsel’s recommendation, Emerson on August 28 sold 37,000 shares of Dodge common stock to a brokerage house at $68 per share. This sale reduced Emerson’s holdings in Dodge to 9.96% of the outstanding common stock. The remaining shares were then sold to Dodge at $69 per share on September 11.
  After a demand on it by Reliance for the profits realized on both sales, Emerson filed this action seeking a declaratory judgment as to its liability under § 16 (b). Emerson first claimed that it was not liable at all, because it was not a 10% owner at the time of the purchase of the Dodge shares. The District Court disagreed, holding that a purchase of stock falls within § 16 (b) where the purchaser becomes a 10% owner by virtue of the purchase. The Court of Appeals affirmed this holding, and Emerson did not cross-petition for certiorari. Thus that question is not before us.
  Emerson alternatively argued to the District Court that, assuming it was a 10% stockholder at the time of the purchase, it was liable only for the profits on the August 28 sale of 37,000 shares, because after that time it was no longer a 10% owner within the meaning of § 16 (b). After trial on the issue of liability alone, the District Court held Emerson liable for the entire amount of its profits. The court found that Emerson’s sales of Dodge stock were “effected pursuant to a single predetermined plan of disposition with the overall intent and purpose of avoiding Section 16 (b) liability,” and construed the term “time of . . . sale” to include “the entire period during which a series of related transactions take place pursuant to a plan by which a 10%' beneficial owner disposes of his stock holdings ” 306 F. Supp. 588, 592.
  On an interlocutory appeal under 28 U. S. C. § 1292 (b), the Court of Appeals upheld the finding that Emerson “split” its sale of Dodge stock simply in order to avoid most of its potential liability under § 16 (b), but it held this fact irrelevant under the statute so long as the two sales are “not legally tied to each other and [are] made at different times to different buyers . . . .” 434 F. 2d 918, 926. Accordingly, the Court of Appeals reversed the District Court’s judgment as to Emerson’s liability for its profits on the September 11 sale, and remanded for a determination of the amount of Emerson’s liability on the August 28 sale. Reliance filed a petition for certiorari, which we granted in order to consider an unresolved question under an important federal statute. 401 U. S. 1008.
  II
  The history and purpose of § 16 (b) have been exhaustively reviewed by federal courts on several occasions since its enactment in 1934. See, e. g., Smolowe v. Delendo Corp., 136 F. 2d 231; Adler v. Klawans, 267 F. 2d 840; Blau v. Max Factor & Co., 342 F. 2d 304. Those courts have recognized that the only method Congress deemed effective to curb the evils of insider trading was a flat rule taking the profits out of a class of transactions in which the possibility of abuse was believed to be intolerably great. As one court observed:
  “In order to achieve its goals, Congress chose a relatively arbitrary rule capable of easy administration. The objective standard of Section 16 (b) imposes strict liability upon substantially all transactions occurring within the statutory time period, regardless of the intent of the insider or the existence of actual speculation. This approach maximized the ability of the rule to eradicate speculative abuses by reducing difficulties in proof. Such arbitrary and sweeping coverage was deemed necessary to insure the optimum prophylactic effect.” Bershad v. McDonough, 428 F. 2d 693, 696.
  Thus Congress did not reach every transaction in which an investor actually relies on inside information. A person avoids liability if he does not meet the statutory definition of an “insider,” or if he sells more than six months after purchase. Liability cannot be imposed simply because the investor structured his transaction with the intent of avoiding liability under § 16 (b). The question is, rather, whether the method used to “avoid” liability is one permitted by the statute.
  Among the “objective standards” contained in § 16 (b) is the requirement that a 10% owner be such “both at the time of the purchase and sale ... of thé security involved.” Read literally, this language clearly contemplates that a statutory insider might sell enough shares to bring his holdings below 10%, and later — but still within six months — sell additional shares free from liability under the statute. Indeed, commentators on the securities laws have recommended this exact procedure for a 10% owner who, like Emerson, wishes to dispose of his holdings within six months of their purchase.
  Under the approach urged by Reliance, and adopted by the District Court, the apparent immunity of profits derived from Emerson’s second sale is lost where the two sales, though independent in every other respect, are “interrelated parts of a single plan.” 306 F. Supp., at 592. But a “plan” to sell that is conceived within six months of purchase clearly would not fall within § 16 (b) if the sale were made after the six months had expired, and we see no basis in the statute for a different result where the 10% requirement is involved rather than the six-month limitation.
  The dissenting opinion, post, at 442, reasons that “the 10% rule is based upon a conclusive statutory presumption that ownership of this quantity of stock suffices to provide access to inside information,” and that it thus “follows that all sales by a more-than-10% owner within the six-month period carry the presumption of a taint, even if a prior transaction within the period has reduced the beneficial ownership to 10% or below.” While there may be logic in this position, it was clearly rejected as a basis for liability when Congress included the proviso that a 10% owner must be such both at the time of the purchase and of the sale. Although the legislative history affords no explanation of the purpose of the proviso, it may be that Congress regarded one with a long-term investment of more than 10% as more likely to have access to inside information than one who moves in and out of the 10% category. But whatever the rationale of the proviso, it cannot be disregarded simply on the ground that it may be inconsistent with our assessment of the “wholesome purpose” of the Act.
  To be sure, where alternative constructions of the terms of § 16 (b) are possible, those terms are to be given the construction that best serves the congressional purpose of curbing short-swing speculation by corporate insiders. But a construction of the term “at the time of . . . sale” that treats two sales as one upon proof of a pre-existing intent by the seller is scarcely in harmony with the congressional design of predicating liability upon an “objective measure of proof.” Smolowe v. Delendo Corp., supra, at 235. Were we to adopt the approach urged by Reliance, we could be sure that investors would not in the future provide such convenient proof of their intent as Emerson did in this case. If a “two-step” sale of a 10% owner’s holdings within six months of purchase is thought to give rise to the kind of evil that Congress sought to correct through § 16 (b), those transactions can be more effectively deterred by an amendment to the statute that preserves its mechanical quality than by a judicial search for the will-o’-the-wisp of an investor’s “intent” in each litigated case.
  III
  The Securities and Exchange Commission, participating as amicus curiae, argues for an interpretation of the statute that both covers Emerson’s transaction and preserves the mechanical quality of the statute. Seizing upon a fragment of legislative history — a brief exchange between one of the principal authors of the bill and two members of the Senate Committee during hearings on the bill — the Commission suggests that the sole purpose of the requirement of 10%' ownership at the time of both purchase and sale was to exclude from the statute’s coverage those persons who became 10% shareholders “involuntarily,” as, for example, by legal succession or by a reduction in the total number of outstanding shares of the corporation. The effect of such an interpretation would be to bring within § 16 (b) all sales within six months by one who has gained the position of a 10%' owner through voluntary purchase, regardless of the amount of his holdings at the time of the sale. We cannot accept such a construction of the Act.
  In the first place, we note that the SEC’s own rules undercut such an interpretation. Recognizing the interrelatedness of § 16 (a) and § 16 (b) of the Act, the Commission has used its power to grant exemptions under § 16 (b) to exclude from liability any transaction that does not fall within the reporting requirements of § 16 (a). A 10% owner is required by that section to report at the end of each month any changes in his holdings in the corporation during that month. The Commission has interpreted this provision to require a report only if the stockholder held more than 10% of the corporation’s shares at some time during the month. Thus, a 10% owner who, like Emerson, sells down to 9.96% one month and disposes of the remainder the following month, would presumably be exempt from the reporting requirement and hence from § 16 (b) under the SEC’s own rules, without regard to whether he acquired the stock “voluntarily.”
  But the SEC’s argument would fail even if it were not contradicted by the Commission’s own previous construction of the Act. As we said in Blau v. Lehman, 368 U. S. 403, 411, one “may agree that . . . the Commission present [s] persuasive policy arguments that the Act should be broadened ... to prevent 'the unfair use of information’ more effectively than can be accomplished by leaving the Act so as to require forfeiture of profits only by those specifically designated by Congress to suffer those losses.” But we are not free to adopt a construction that not only strains, but flatly contradicts, the words of the statute.
  The judgment is
  Affirmed.
  Mr. Justice Powell and Mr. Justice Rehnquist took no part in the consideration or decision of this case.
  Section 16 (b) provides:
  “For the purpose of preventing the unfair use of information which may have been obtained by such beneficial owner, director, or officer by reason of his relationship to the issuer, any profit realized by him from any purchase and sale, or any sale and purchase, of any equity security of such issuer (other than an exempted security) within any period of less than six months . . . shall inure to and be recoverable by the issuer, irrespective of any intention on the part of such beneficial owner, director, or officer in entering into such transaction of holding the security purchased or of not repurchasing the security sold for a period exceeding six months. . . . This subsection shall not be construed to cover any transaction where such beneficial owner was not such both at the time of the purchase and sale, or the sale and purchase, of the security involved, or any transaction or transactions which the Commission by rules and regulations may exempt as not comprehended within the purpose of this subsection.” 15 U. S. C. §78p (b).
  The term “such beneficial owner” refers to one who owns “more than 10 per centum of any class of any equity security (other than an exempted security) which is registered pursuant to section 12 of this title.” Securities Exchange Act of 1934, § 16 (a), 15 U. S. C. §78p (a).
  The Court of Appeals for the Second Circuit has held that an exchange of shares in one corporation for those of another pursuant to a merger agreement constitutes a “sale” within the meaning of § 16 (b). Newmark v. RKO General, Inc., 425 F. 2d 348, 354.
  “[A] person who owns 15 percent and wants to sell down to 5 percent should sell 5-plus percent in one transaction and then, after he becomes a holder of slightly less than 10 percent, sell out the remainder.” 2 L. Loss, Securities Regulation 1060 (2d ed. 1961).
  “[T]he intention of the language was to exclude the second sale in a case where 10% is purchased, 5% sold within three months and the remaining 5% a month later. This latter construction of the Act is, it is believed, the only safe one to rely upon.” Seligman, Problems Under the Securities Exchange Act, 21 Va. L Rev. 1, 20 (1934).
  See, e. g., Adler v. Klawans, 267 F. 2d 840 (one who is a director at the time of sale need not also have been a director at the time of purchase). In interpreting the terms "purchase" and "sale," courts have properly asked whether the particular type of transaction involved is one that gives rise to speculative abuse. See, e. g., Bershad v. McDonough, 428 F. 2d 693 (granting of an option to purchase constitutes a "sale"). And in deciding whether an investor is an "officer" or "director" within the meaning of § 16 (b), courts have allowed proof that the investor performed the functions of an officer or director even though not formally denominated as such. Colby v. Klune, 178 F. 2d 872, 873; cf. Feder v. Martin Marietta Corp., 406 F. 2d 260, 262-263. The various tests employed in these cases are used to determine whether a transaction, objectively defined, falls within or without the terms of the statute. In no case is liability predicated upon "considerations of intent, lack of motive, or improper conduct" that are irrelevant in § 16 (b) suits. Blau v. Oppenheim, 250 F. Supp. 881, 887.
  That exchange was as follows:
  “Senator Carey. Suppose this stock passed to an estate, and the estate had to raise money?
  “Mr. Corcoran. I do not think, in that case, sir, the statute would apply.
  “Senator Kean. Why not?
  “Senator Carey. The estate is the beneficiary.
  “Mr. Corcoran. I do not believe it would. Certainly the intention was that it should not apply to that sort of a situation.” Hearings on Stock Exchange Practices before the Senate Committee on Banking and Currency pursuant to S. Res. 84, 56, and 97, 73d Cong., 1st and 2d Sess., pt. 15, p. 6558. It was sometime after this exchange that the bill was revised to add the exemptive provision.
  SEC Rule 16a-10, 17 CFR § 240.16a-10.
  Form 4, Securities Exchange Act Release No. 6487 (Mar. 9, 1961).