(dissenting in part and concurring in part).
Judge KALODNER and I join in the holding that no violation of section 16(b) occurred when the appellant surrendered his convertible debentures and received their equivalent in common stock less than six months after he had purchased the convertible debentures. We dissent from the holding that the appellant’s sale of that common stock less than 6 months after the conversion violated section 16 (b). Accordingly, we join in setting aside part of the money judgment that was recovered below but dissent from the affirmance of the remainder of that award.
Our position is that the conversion on March 18,1959 was neither a “sale” nor a “purchase” of securities within the meaning and proscription of section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b). And since more than six months elapsed between the purchase of the convertible security and the sale of the equivalent conversion security for which it had been exchanged, the appellant engaged in no such in and out trading within a six month period as the statute seeks to prevent.
The district court and a majority of this court view the March 18 conversion as both a sale of debentures, which had been purchased less than six months earlier, and a purchase of common stock, which was sold less than six months later. They reason that a convertible debenture is a form of property distinct from the common stock of the same corporation for which, by its terms, it can be exchanged. And each is an “equity security” under section 3(a) (11) of the Securities Exchange Act of 1934, 15 U.S.C. § 78c(a) (11). Therefore, employing the normal meaning of words in the law of sales, one can describe the exchange of such a debenture for common stock as a “sale” of one equity security and a “purchase” of another. In this view, the “sale” of the debentures occurred less than six months after Webster had bought them, the simultaneous “purchase” of common stock occurred less than six months before Webster sold it, and each set of paired transactions violated the statute. Moreover, support for this analysis appears in a considered decision of the Court of Appeals for the Second Circuit. Park & Tilford, Inc. v. Schulte, 1947, 160 F.2d 984, cert. denied *172332 U.S. 761, 68 S.Ct. 64, 92 L.Ed. 347. But cf. Blau v. Lehman, 2d Cir. 1960, 286 F.2d 786, aff’d, 368 U.S. 403, 82 S.Ct. 451, 7 L.Ed.2d 403; Roberts v. Eaton, 2d Cir. 1954, 212 F.2d 82, cert. denied, 348 U.S. 827, 75 S.Ct. 44, 99 L.Ed. 652.
Judge KALODNER and I think that, in the context of the present ease, this rationalization of the majority is an oversimplication of the problem which leads to an unjust and unwarranted result. This is a situation where a director bought in when he acquired convertible debentures and sold out when he disposed of conversion stock. Whether the words “sale” and “purchase” as used in section 16(b) also include the intermediate exchange of the convertible security for the conversion security is to us a debatable question of statutory construction, not foreclosed by any rationally inescapable meaning of the words used by Congress. Therefore, these words should be interpreted in the light of the objectives Congress sought to realize through this statute.
Congress indicated in the statute, and the courts have consistently recognized that the whole purpose of section 16(b) is to discourage corporate insiders from trading for short swing profits on the basis of information about corporate circumstances, plans and prospects not available to the public. Smolowe v. Delendo Corp., 2d Cir. 1943, 136 F.2d 231, 235, 148 A.L.R. 300, cert. denied 320 U.S. 751, 64 S.Ct. 56, 88 L.Ed. 446; Cook & Feldman, Insider Trading Under the Securities Exchange Act, 1953, 66 Harv.L. Rev. 385, 386-87. For this purpose Congress fashioned a provision compelling an insider to disgorge whatever profit he might acquire through short term — less than six months — in-and-out trading in his corporation’s equity securities. It is in this context that Congress used the words “purchase” and “sale” to describe the terminal transactions of the prohibited trading. Therefore, it is relevant to consider, on the one hand, whether the intermediate conversion could accomplish such a change in the economic position of the security holder that he could fairly be said tó be taking a profit on his investment at that time, and, on the other, whether the decision to convert could possibly involve speculative judgment as to any trading advantage to be anticipated from acquiring common stock and subsequently selling it rather than convertible debentures. If not, the section 16(b) concepts of “sale” and “purchase” should not be construed as including such an exchange.
In circumstances such as we have here, the conversion affords the insider no opportunity either to realize a trading gain on speculative judgment exercised when the debentures were purchased or to exercise speculative judgment anew on the basis of inside information possessed at the time of conversion. The debentures were readily salable and were adequately protected against dilution both by their own provisions and by provisions of the underlying indenture. They would continue to be immediately convertible. Because of these features, the market price of the common would continue to be reflected fully in the market price commanded by the convertible security. There is no dispute about these facts. Actually, in terms of market economics, with which section 16(b) is concerned, the security holder, having surrendered his preferred position as a creditor, had less after converting than he had before. The compensating fact that his new position as stockholder was attended by new rights within the corporation — voting and dividend sharing, for example — was not a market or trading advantage and, therefore, is not relevant to our present problem. In the circumstances of this case, the continuing stable market relationship of convertible security and conversion security remains the decisive consideration against characterizing their exchange as a section 16(b) sale.
With reference to the question whether the conversion was a section 16(b) “purchase” of common stock, we have considered that the conversion might involve the exercise anew of speculative judgment if, despite price equivalence, a common stock could be sold more quickly than *173could unlisted debentures. Such ability to sell quickly might be important to a speculatively minded insider preparing to trade upon any market influencing information which might become available to him only a very short time before public disclosure. But a convertible debenture holder could act as quickly as a stockholder and achieve the same result by selling shares on the exchange and at the same time so disposing of his equivalent convertible as to satisfy the statutory rule against short selling.1
The majority suggest one situation in which they think such a conversion as this may facilitate new speculation based on inside information. That is the situation in which a call has been made, or at least is known by the insider to be imminent, and the insider also knows of something likely to occur in the near future, such as the declaration of a large dividend, which probably will increase the market prices of the conversion security. In these circumstances, it is said that the insider might convert his debentures into stock with a view to selling the stock within a few months. He could not obtain the same advantage by retaining the debentures since it is premised that they have been or are about to be called.
Our concern here is only with the situation in which no call is made before or soon after conversion and the price of the convertible security maintains a specified stable and direct relationship to the price of the conversion security at all relevant times. The full benefit of any anticipated increase in the price of the conversion stock can as well be obtained by holding the convertible security as by exchanging it for the conversion security. If, as the majority suggest, the added fact of the issuance or imminence of a call would create some possibility of speculative conversion, there will be time enough to consider this contention, along with any other matters pertinent to cases involving calls, when such a case is before us.
The foregoing considerations have led us to the conclusion that “sale” and “purchase” as used in section 16(b) should not be construed to include the exchange of securities involved in such a conversion as this case presents. We find support for our view of this case in the decision of the Court of Appeals for the Sixth Circuit in Ferraiolo v. Newman, 6th Cir., 1958, 259 F.2d 342, cert. denied 359 U.S. 927, 79 S.Ct. 606, 3 L.Ed.2d 629. The approach and reasoning of the Ferraiolo case are summarizd in the following excerpts from the opinion of Judge (now Mr. Justice) Stewart:
“[T]he question is not in any event primarily a semantic one, but must be resolved in the light of the legislative purpose — to curb short swing speculation by insiders.
“ * * *
“The standard that emerges * * * [is]: Every transaction which can reasonably be defined as a purchase will be so defined, if the transaction is of a kind which can possibly lend itself to the speculation encompassed by Section 16(b).” 259 F.2d at 345.
It is also noteworthy that only a few months ago the Court of Appeals for the Ninth Circuit, considering a case essentially like ours, has reasoned the same way and has concluded that the conversion in its case was not a “purchase” of the conversion stock under section 16(b). Blau v. Max Factor & Co., 9th Cir. 1965, 342 F.2d 304.
The majority reject the approach to the conversion problem under section 16(b) in the Ferraiolo and Blau cases as “subjective”, characterizing their own analysis, patterned after the Park & Tilford reasoning, as “objective”. However, we think both approaches apply objective standards and tests. The choice, as we see it, is between “a rule of thumb” — as *174the majority describe their solution — and a rule of reason designed to achieve a result that is both just and respectful of the legislative language and intendment.
Undoubtedly, in conversion situations that rule of reason imposes upon the judge who applies it the burden of determining from case to case the characteristics of the securities involved, the continuing relation of the convertible security to the conversion security, and what otherwise unattainable short term trading advantage, if any, might result from the exchange of the one for the other. But such sophisticated analysis is very often and properly required of a judge as he seeks to apply a statute in a way that is systematic, just and respectful of statutory language and manifest legisative will.
Accordingly, preferring the more discriminating analysis of Ferraiolo and Blau to a simplistic rule of thumb derived from Park & Tilford, we treat as decisive our reasoned conclusion that the conversion here was not such a transaction as could, in Judge Stewart’s words “possibly lend itself to the speculation encompassed by Section 16(b).”
One other consideration requires brief comment. Section 16(b) authorizes the Securities and Exchange Commission to exempt transactions from the proscription of the section where in its expert judgment the exemption is consistent with the purpose of the legislation. It is arguable, therefore, that a court should construe the general prohibitory language as broadly as reason permits, leaving any narrowing to the expert judgment of the Commission. We think, however, that there is ample room for appropriate exercise of administrative judgment in situations where the possibility of profitable speculation based on inside information exists but seems too slight to require that such trading be prohibited,2 or where what is indisputably a “purchase” and “sale” presents no such possibility. Perhaps some of the situations involving conversions after calls of convertible securities are appropriate for administrative exemption because the risk is small. But we are now considering a type of conversion in which the statutory language is not decisive and the danger with which section 16(b) is concerned seems nonexistent rather than small. We conclude, therefore, that the exchange accomplished in the present conversion involved neither a “purchase” nor a “sale” within the meaning of section 16(b). Of course, this conclusion involves no judgment whether such a transaction would be a purchase or a sale, or both, in any context other than section 16(b).
Finally, we agree with the other members of the court that the other separate grounds for reversal urged by the appellant are without merit, although if our view prevailed it would not be necessary to pass upon those contentions.
. While section 16(c) prohibits short sales by an insider of securities not owned by him, under the rules the Commission a person is deemed t- i the security he sells if he owns and has tendered a security convertible into it. See 2 Loss, Securities Regulation, 2d ed. 1961, 1090, 1231-32.
. But see the dictum in Greene v. Dietz, 2d Cir. 1957, 247 F.2d 689, 692-694, followed in Perlman v. Timberlake, S.D.N.Y. 1959, 172 F.Supp. 246, but criticized in Meeker & Cooney, The Problem of Definition in Determining Insider Liabilities Under Section 16(b), 1959, 45 Va.L.Rev. 949, 971-975.