Following disclosure of inappropriate trading in public company securities by two veteran Securities and Exchange Commission staff members, on May 22 the SEC announced a series of measures to strengthen its rules relating to securities trading by SEC employees.
Under the new initiative, the SEC will (i) require SEC employees to obtain preclearance on all securities trades (currently preclearance is recommended but not mandatory), among other things to be sure the company whose stock is traded is neither being investigated nor the subject of a pending registration statement; (ii) hire an outside vendor to develop a computer system to track and audit employee securities transactions in real time; and (iii) consolidate compliance and reporting responsibility within the SEC’s Ethics Office and hire a new chief compliance officer.
Current agency rules prohibit SEC employees from short-selling, carrying securities on margin, engaging in options or futures transactions in instruments whose value is derived from an underlying security and holding a security interest in broker dealers and registered investment advisors. The current rules also mandate that employees hold stock for at least six months and require the reporting of trades within five days of confirmation. The new rules will add to the prohibited ownership list publicly traded exchanges and transfer agents, require employees to authorize their brokers to provide the SEC with duplicate trade confirmation sheets and require employees to certify they do not possess non-public information about the company being traded.