[Federal Register Volume 60, Number 195 (Tuesday, October 10, 1995)]
[Rules and Regulations]
[Pages 52625-52627]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-24795]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 200
[Release No. 34-36301]
Revision of Rule Concerning Members' and Employees' Securities
Transactions
AGENCY: Securities and Exchange Commission.
ACTION: Final rule.
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SUMMARY: The Securities and Exchange Commission is amending its rule
that prohibits Commissioners and members of the Senior Executive
Service in the Division of Investment Management from purchasing
securities issued by registered investment companies. The prohibition
was deemed to be too restrictive and not necessary to prevent conflicts
of interest or the appearance of impropriety. Commissioners and members
of the Senior Executive Service in the Division of Investment
Management and the Office of Compliance Inspections and Examinations
will now be permitted to purchase securities issued by registered
investment companies, provided that the securities are diversified
within the meaning of the Investment Company Act of 1940.
EFFECTIVE DATE: September 29, 1995.
FOR FURTHER INFORMATION CONTACT: William Lenox, Assistant Ethics
Counsel, Office of the General Counsel, at (202) 942-0970, 450 Fifth
Street NW., Washington, DC 20549.
SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission
(``Commission'') is amending 17 CFR 200.735-5(k) to permit
Commissioners and other senior officials to purchase securities issued
by registered investment companies. The Commission has regulated the
securities transactions of its Commissioners and employees since the
formation of the agency in 1934. In 1953 the Commission adopted a
Conduct Regulation that drew a bright line between entities regulated
by the Commission and those whose securities were merely registered
with the Commission under the Securities Act of 1933.
From 1953 to 1980, under this bright dividing line, no member or
employee could purchase securities issued by companies registered under
the Investment Company Act. In 1980, for the first time, the purchase
of money market and mutual funds was permitted for the staff, at a time
when interest rates on money market funds had climbed rapidly, in
contrast to rates then available at banks and savings and loans. The
prohibition against purchasing investment company securities was
retained in 17 CFR 200.735-5(k), however, for Commissioners and members
of the Senior Executive Service (``SES'') within the Division of
Investment Management. Commissioners and members of the SES in the
Division of Investment Management were permitted to retain any such
securities that they owned at the time they joined the Commission.
Capital or income dividends received by such persons from securities
acquired prior to entrance on duty could not be reinvested, but had to
be accepted in cash, if this option was available. In 1988, this rule
was amended to allow dividend reinvestment.
The Commission has now determined that such a broad restriction is
not necessary, even for high-level officials. Such officials would
continue not to participate in particular matters that would have a
``direct and predictable'' effect on the value of the person's
financial interest, which, in the case of matters involving registered
investment companies, would mean the value of the fund's shares. The
value of a fund's shares generally is derived from the value of its
portfolio assets. Virtually all of the matters in which the Commission
considers investment company issues would not have such a direct and
predictable effect on share values.
The amendment contains a restriction that the registered investment
company investment be in a fund that is diversified within the meaning
of section 5(b)(1) of the Investment Company Act of 1940, 15 U.S.C.
80a-5(b)(1). Limiting investments in registered investment companies to
those that are diversified further limits the extent to which senior
officials will be disqualified from particular matters.
Under the amended regulation, the Directors of the Division of
Investment Management and the Office of Compliance Inspections and
Examinations, in consultation with the General Counsel, would determine
in writing if a particular SES member in the Division or Office
performed official duties not involving investment companies, and might
therefore be exempted from the limitations discussed in the preceding
paragraph.1
\1\ The current rule covers members of the SES in the Division
of Investment Management. Some of the positions covered by the rule
were transferred to the recently created Office of Compliance
Inspections and Examinations. The purpose behind the restriction
still applies to these positions as well as to the new position of
Director of the Office.
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The Commission has determined that this amendment to its Conduct
Regulation relates solely to the agency's organization, procedure or
practice. Therefore, the provisions of the Administrative Procedure Act
(``APA'') regarding notice and comment are not applicable. See 5 U.S.C.
553. Similarly, the provisions of the Regulatory Flexibility Act, which
apply only when notice and comment are required by the APA or other
laws, are not applicable. See 5 U.S.C. 601-612.
Effects on Competition
Section 23(a)(2) of the Exchange Act requires the Commission, in
adopting rules under the Exchange Act, to consider the anti-competitive
effects of such rules, if any, and to balance any impact against the
regulatory benefits gained in furthering the purposes of the Exchange
Act. See 15 U.S.C. 78w(a)(2). The Commission has considered the changes
adopted in this release in light of the standards cited in section
23(a)(2) and believes that their adoption would not impose any burden
on competition not necessary or appropriate in furtherance of the
Exchange Act.
Statutory Basis of Rule
The amendment to the Commission's rule is adopted pursuant to 15
U.S.C. 77s(a), 78w(a), 79t(a), 77sss(a), 80a-37(a), 80b-11(a).
List of Subjects in 17 CFR Part 200
Conflict of interests.
Text of Amendment
For the reasons set out in the preamble, 17 CFR Part 200, Subpart
M, is amended as follows:
PART 200--ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND
REQUESTS
1. The authority citation for Part 200, Subpart M, continues to
read as follows:
Authority: 15 U.S.C. 77s, 78w, 79t, 77sss, 80a-37, 80b-11; E.O.
11222, 3 CFR, 1964-1965 Comp.; 5 CFR 735.104 unless otherwise noted.
Section 200.735-5 is issued under 15 U.S.C. 77s(a), 78w(a),
79t(a), 77sss(a), 80a-37(a), 80b-11(a).
2. Section 200.735-5(k) is revised to read as follows:
Sec. 200.735-5 Securities Transactions.
* * * * *
(k) Members and employees holding a Senior Executive Service
position in the Division of Investment Management or the Office of
Compliance Inspections and Examinations may make discretionary
investments in any investment company registered under the Investment
Company Act of 1940, 15 U.S.C. 80a et seq., provided that the
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registered investment company is diversified pursuant to section
5(b)(1) of the Investment Company Act of 1940, 15 U.S.C. 80a-5(b)(1).
The Directors of the Division of Investment Management and the Office
of Compliance Inspections and Examinations, in consultation with the
Office of the General Counsel, shall determine in writing whether
Senior Executive Service positions in their respective Division or
Office whose duties do not include fund matters also may invest in
nondiversified registered investment companies.
* * * * *
By the Commission.
Dated: September 29, 1995.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-24795 Filed 10-6-95; 8:45 am]
BILLING CODE 8010-01-P