[Federal Register Volume 67, Number 154 (Friday, August 9, 2002)]
[Notices]
[Pages 51900-51902]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-20177]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46313; File No. S7-31-02]


Ownership Reports and Trading by Officers, Directors and 
Principal Security Holders

AGENCY: Securities and Exchange Commission.

ACTION: Notice of Supplemental Information on Section 16(a) and Related 
Rules.

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SUMMARY: The Commission today is issuing supplemental information 
regarding the filing of ownership reports by officers, directors and 
principal security holders under Section 16 of the Securities Exchange 
Act of 1934. The release addresses the amendments to Section 16(a) 
enacted by the Sarbanes-Oxley Act of 2002 and related final rules that 
the Commission will consider adopting no later than the August 29, 2002 
effective date of those amendments.

DATES: We welcome any comments on the implementation of the legislative 
provisions relating to Section 16(a). In light of the August 29, 2002 
effective date of the amendments to Section 16(a), comments should 
arrive at the Commission by August 15, 2002.

ADDRESSES: Comments should be submitted in triplicate to Jonathan G. 
Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, 
NW., Washington, DC 20549-0609. Comments also may be submitted 
electronically at the following electronic mail address: [email protected]. To help us process and review your comments more 
efficiently, comments should be sent by one method only. All comment 
letters should refer to File No. S7-31-02; this file number should be 
included in the subject line if electronic mail is used. Comment 
letters will be available for public inspection and copying in the 
Commission's Public Reference Room, 450 Fifth Street, NW., Washington, 
DC 20549. Electronically submitted comment letters will be posted on 
the Commission's Internet Web Site (http://www.sec.gov).\1\
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    \1\ We do not edit personal identifying information, such as 
names or electronic mail addresses, from electronic submissions. You 
should submit only information that you wish to make available 
publicly.

FOR FURTHER INFORMATION CONTACT: Anne M. Krauskopf, Special Counsel, 
David Lee, Special Counsel, or Carol McGee, Special Counsel at (202) 
942-2900, Division of Corporation Finance, U.S. Securities and Exchange 
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Commission, 450 Fifth Street, NW., Washington, DC 20549-0402.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 16 \2\ applies to every person who is the beneficial owner 
of more than 10% of any class of equity security registered under 
Section 12 of the Exchange Act,\3\ and each officer and director 
(collectively, ``insiders'') of the issuer of such security. Upon 
becoming an insider, or upon the Section 12 registration of that 
security, Section

[[Page 51901]]

16(a) \4\ requires an insider to file an initial report with the 
Commission disclosing his or her beneficial ownership of all equity 
securities of the issuer. To keep this information current, Section 
16(a) also requires insiders to report changes in such ownership, or 
the purchase or sale of a security-based swap agreement \5\ involving 
such equity security. As currently in effect, Section 16(a) provides 
for such transactions to be reported on a monthly basis within 10 days 
after the close of each calendar month in which such a change in 
ownership or purchase or sale of a security-based swap agreement 
occurs.
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    \2\ 15 U.S.C. 78p.
    \3\ 15 U.S.C. 78l.
    \4\ 15 U.S.C. 78p(a).
    \5\ As defined in Section 206(b) of the Gramm-Leach-Bliley Act 
(15 U.S.C. 78c).
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    On July 30, 2002, the Sarbanes-Oxley Act of 2002 (the ``Act'') \6\ 
was enacted. Section 403(a) of the Act amends Section 16(a) to require 
insiders to report such a change in ownership or purchase or sale of a 
security-based swap agreement ``before the end of the second business 
day following the day on which the subject transaction has been 
executed, or at such other time as the Commission shall establish, by 
rule, in any case in which the Commission determines that such 2-day 
period is not feasible.'' \7\
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    \6\ Pub. L. 107-204, 116 Stat. 745.
    \7\ Section 16(a)(2)(C) (15 U.S.C. 78p(a)(2)(C)), as amended by 
the Act. Section 30(h) of the Investment Company Act of 1940 (15 
U.S.C. 80a-29(h)) provides that ``Every person who is directly or 
indirectly the beneficial owner of more than 10 per centum of any 
class of outstanding securities (other than short-term paper) of 
which a registered closed-end company is the issuer or who is an 
officer, director, member of an advisory board, investment adviser, 
or affiliated person of an investment adviser of such a company 
shall in respect of his transactions in any securities of such 
company (other than short-term paper) be subject to the same duties 
and liabilities as those imposed by section 16 of the Securities 
Exchange Act of 1934 upon certain beneficial owners, directors, and 
officers in respect of their transactions in certain equity 
securities.'' Accordingly, the Act's amendments also accelerate the 
deadline for change of beneficial ownership reports required 
pursuant to Section 30(h).
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    Section 403(b) of the Act provides that this amendment becomes 
effective 30 days after the date of enactment. That effective date is 
August 29, 2002. Thus, all transactions subject to Section 16(a) 
executed on or after August 29, 2002 will be reportable by insiders on 
Form 4 \8\ in accordance with the amended two-business day deadline, 
except where the rules under Section 16(a) provide otherwise.
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    \8\ 17 CFR 249.104.
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    The Act also amends Section 16(a) to require, not later than one 
year following enactment, electronic filing of change of beneficial 
ownership reports, and website posting of such reports by both the 
Commission and issuers.\9\ We have announced our intention to begin 
rulemaking to make the filing of Section 16(a) reports on EDGAR 
mandatory,\10\ and will proceed expeditiously with that rulemaking and 
related system programming to assure adoption within the one-year 
period mandated by the Act. Meanwhile, we encourage insiders and 
companies filing Section 16(a) reports on their behalf to make these 
filings electronically. To facilitate EDGAR conversion under the 
current filing system, we will accept electronically-filed Section 
16(a) reports that are not presented in the standard box format and 
omit the horizontal and vertical lines separating information items, so 
long as all required information is presented in the proper order.
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    \9\ Section 16(a)(4), as amended by the Act.
    \10\ Securities Act Release No. 7803 (Feb. 25, 2000) [65 FR 
11507].
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II. Rulemaking To Implement Amended Section 16(a)

    To implement the new accelerated reporting deadline, we anticipate 
adopting final rules that will become effective no later than the 
August 29, 2002 effective date of the Section 16(a) amendments. We 
anticipate that these final rules will accomplish the following:
    1. Adopt amendments to Form 4 to conform all references to the 
applicable filing deadline to the amended statutory filing deadline and 
to reflect that Form 4 is no longer a monthly form.
    2. Adopt amendments to Rule 16a-3(f) \11\ so that transactions 
between officers or directors and the issuer exempted from Section 
16(b) \12\ short-swing profit recovery by Rule 16b-3 \13\ that 
currently may be reported within 45 days after the issuer's fiscal year 
end on Form 5 \14\ will be required to be reported within two business 
days on Form 4.
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    \11\ 17 CFR 240.16a-3(f).
    \12\ 15 U.S.C. 78p(b).
    \13\ 17 CFR 240.16b-3.
    \14\ 17 CFR 249.105.
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    3. Adopt one or more new rules under Section 16(a) that will 
provide different Form 4 due dates for narrowly defined specified 
transactions, if any, as to which we determine that the two-business 
day reporting period is not feasible.
    Accelerated reporting of officers' and directors' reportable 
transactions with an issuer exempted by Rule 16b-3 is necessary to 
satisfy the Act's purpose to require immediate disclosure of insider 
transactions. We previously solicited comment on this regulatory 
action.\15\ In light of the Section 16(a) amendments enacted by Section 
403 of the Act, we do not intend to consider further our proposed 
amendments discussed in that release to require companies to report 
directors' and executive officers' transactions in company equity 
securities. We continue to consider the other amendments proposed in 
that Release that would require companies to disclose information about 
(1) directors' and executive officers' arrangements intended to satisfy 
the affirmative defense conditions of Exchange Act Rule 10b5-1(c) \16\ 
and (2) company loans and loan guarantees to directors and executive 
officers that are not prohibited by Section 402 of the Act.
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    \15\ ``Form 8-K Disclosure of Certain Management Transactions,'' 
Securities Act Release No. 8090, Exchange Act Release No. 45742 
(Apr. 12, 2002) [67 FR 19914, at 19920].
    \16\ 17 CFR 240.10b5-1(c).
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    Rule 16a-3(f) as amended would subject to two-business day 
reporting on Form 4 all reportable transactions with the issuer 
exempted by Rule 16b-3, including transactions in issuer equity 
securities and derivative securities. Derivative securities 
transactions so reportable under the amended rule would include, 
without limitation, issuances, exercises,\17\ and cancellations and 
regrants of stock options, including repricings.
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    \17\ The current requirements of Rule 16a-3(f)(1)(i)(A) to 
report on Form 4 exercises and conversions of derivative securities 
that are exempt from Section 16(b) short-swing profit recovery under 
either Rule 16b-3 or Rule 16b-6(b) [17 CFR 240.16b-6(b)] will 
continue.
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    We currently do not intend to consider rules providing exemptions 
from the two-business day reporting deadline for Form 4 based on non-
feasibility for transactions categorized by type of issuer, type of 
insider, or size of transaction. We are reviewing the deadlines only 
for narrowly specified types of transactions where objective criteria 
prevent the insider from controlling (and in many cases from knowing) 
the timing of transaction execution and where we have concluded that 
satisfying the two-business day period would not be feasible. The 
deadlines we will consider for these transactions will reflect the 
Act's purpose to require immediate disclosure of insider transactions. 
The types of transactions for which we are considering calculating the 
deadlines differently may include:
     A transaction pursuant to a single market order that is 
executed over more than one day, but not to exceed a specified number 
of days;
     A transaction involving a pre-existing arrangement the 
timing of

[[Page 51902]]

which is outside the knowledge of the insider before a confirmation or 
other notice of the transaction is sent to the insider, with a delay 
not to exceed a specified number of days; and
     A discretionary transaction involving an employee benefit 
plan,\18\ whether or not exempted by Rule 16b-3, where the delay would 
again be tied to notice of the transaction.
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    \18\ Such a ``discretionary transaction'' is defined in Rule 
16b-3(b)(1).

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    By the Commission.

    Dated: August 6, 2002.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-20177 Filed 8-8-02; 8:45 am]
BILLING CODE 8010-01-P