While we are considering potential changes to corporate insider trading policies in the wake of the SEC’s recent Rule 10b5-1 amendments, the SEC will consider changes to its rules around employees trading in securities. Yesterday the SEC proposed amendments to its ethics rules to strengthen and modernize its ethics compliance program related to trading in securities. As noted in the SEC’s announcement:
The amendments, which are being proposed jointly with the Office of Government Ethics, would update the SEC’s Supplemental Ethics Rules, 5 CFR Part 4401.102, Supplemental Standards of Conduct for Members and Employees Securities and Exchange Commission. Specifically, if adopted, the amendments would:
– Expand the existing prohibited holdings restrictions to ban employees from investing in financial industry sector funds;
– Authorize the SEC to collect data on employees’ covered securities transactions and holdings directly from financial institutions through an automated electronic system; and
– Exempt diversified mutual funds from the Supplemental Ethics Rule’s requirements, given that they generally pose a low risk of conflicts of interest, misuse of nonpublic information for personal gain, or appearance problems. Mutual funds that concentrate investments in a particular sector, industry, business, state, or country other than the United States would remain subject to the rules.
In general, SEC employees are required to preclear securities transactions and comply with minimum holding periods. All employees are prohibited from, among other things, transacting in securities of companies the agency is investigating, engaging in short selling, transacting in derivatives, participating in initial public offerings for seven calendar days, or purchasing or carrying securities on margin.
– Dave Lynn, TheCorporateCounsel.net, January 31, 2023