[Federal Register Volume 69, Number 76 (Tuesday, April 20, 2004)]
[Rules and Regulations]
[Pages 21057-21058]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-8890]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 200

[Release No. 34-49562]


Revision of Rule Concerning Holding Period and Disclosure 
Requirements for Members' and Employees' Investment Company 
Transactions

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission is amending its rule 
covering member and employee securities transactions. The amended rule 
updates the definition of money market fund; removes the exception to 
the six-month holding period for shares of a unit investment trust 
having a term of less than six months; requires Commission members and 
employees to hold investment company shares for a minimum of 30 days 
before they are permitted to transfer those assets to another 
registered investment company within the same family of registered 
investment companies; and requires Commission members and employees to 
report every purchase or sale of investment company shares, other than 
money market fund shares.

DATES: Effective Date: May 20, 2004.

FOR FURTHER INFORMATION CONTACT: William Lenox, Assistant Ethics 
Counsel, or Richard Connor, Assistant Ethics Counsel, Office of the 
General Counsel, at (202) 942-0970, 450 Fifth Street, NW., Washington, 
DC 20549-0303.

SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission 
(``Commission'') is amending 17 CFR 200.735-5, its rule covering 
members' and employees' securities transactions. This rule was adopted 
as part of the Commission's Conduct Regulation in 1953. Until 1980, the 
rule prohibited Commissioners and all employees from purchasing 
securities of registered investment companies. In 1980, the rule was 
revised to permit employees, other than Commissioners and SES members 
in the Division of Investment Management, to purchase such securities. 
The rule was further revised in 1988 to allow employees to transfer 
funds within a family of registered investment companies without regard 
to the holding period previously established by the rule. In 1995, the 
rule was again amended to allow Commissioners and SES members in the 
Division of Investment Management and the Office of Compliance 
Inspections and Examinations to purchase diversified mutual funds. In 
light of recent developments regarding trading practices in the 
investment company industry, and in furtherance of the Commission's 
tradition of imposing stringent trading limitations on its employees, 
the Commission is amending the rule to ensure that its employees' 
trading practices continue to adhere to the highest possible standards 
of ethical conduct.
    First, the Commission is updating the definition of money market 
fund \1\ to comport with the language used by the Division of 
Investment Management in other contexts.
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    \1\ Footenote 17 following 17 CFR 200.735-5(b)(1)(ii).
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    Second, the Commission is modifying current exceptions to its six-
month holding period for certain types of securities. The Commission's 
rule provides that ``no member or employee shall effect or cause to be 
effected any transaction in a security except for bona fide investment 
purposes. Therefore, all securities purchased by a member or employee 
must be held for a minimum of six months.'' \2\ The rule contains six 
exceptions to the six-month holding period requirement. One of the 
exceptions provides that the holding period is not applicable to 
``shares of a unit investment trust having a term of less than six 
months.'' \3\ The Commission is removing this exception from the rule.
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    \2\ 17 CFR 200.735-5(b)(1).
    \3\ 17 CFR 200.735-5(b)(1)(v).
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    Another exception provides that the six-month holding period is not 
applicable to ``the transferring of funds within a family of registered 
investment companies.'' \4\ The Commission is amending this exception 
to provide that the six-month holding period is not applicable to the 
transferring of funds that have been held as shares in a registered 
investment company for a minimum of 30 days to another registered 
company within the same family of registered investment companies. This 
30-day holding period will not apply to money market fund shares, which 
are already fully exempted from the six-month holding period.
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    \4\ 17 CFR 200.735-5(b)(1)(vi).
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    Third, the Commission is increasing its reporting requirements for 
members and employees. The Commission's rule currently requires, with 
limited exceptions, that members and employees report every acquisition 
or sale of any security.\5\ One of the exceptions applies to mutual 
fund transactions occurring after the initial purchase has been 
reported.\6\ The Commission is amending this exception to require 
members and employees to report every purchase or sale of investment 
company shares, other than money market fund shares. With respect to 
money market fund shares, Commission members and employees will be 
required to report the initial purchase and final sale of such shares.
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    \5\ 17 CFR 200.735-5(m)(2).
    \6\ 17 CFR 200.735-5(m)(3).
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    The Commission has determined that these amendments to its rule 
regulating member and employee securities holdings and transactions 
relate solely to the agency's organization, procedure or practice. 
Therefore, the provisions of the Administrative Procedure Act regarding 
notice and comment are not applicable.\7\ It follows that the 
requirements of the Regulatory Flexibility Act do not apply.\8\ These 
rule amendments also impose no new collection of information under the 
Paperwork Reduction Act.\9\
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    \7\ 5 U.S.C. 553(b).
    \8\ 5 U.S.C. 601-612.
    \9\ 44 U.S.C. 3501-3520.
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Statutory Basis

    The amendments to the Commission's rule are adopted pursuant to 
section 23(a) of the Securities Exchange Act of 1934, 15 U.S.C. 78w(a); 
section 19(a) of the Securities Act of 1933, 15 U.S.C. 77s(a); section 
20(a) of the Public Utility Holding Company Act of 1935, 15 U.S.C. 
79t(a); section 319 of the Trust Indenture Act of 1939, 15 U.S.C. 
77sss(a); section 38(a) of the Investment Company Act of 1940, 15 
U.S.C. 80a-37(a); and section 211(a) of the Investment Advisers Act of 
1940, 15 U.S.C. 80b-11(a).

List of Subjects in 17 CFR Part 200

    Conflict of interests.


0
In accordance with the foregoing, Title 17 Chapter II of the Code of 
Federal Regulations is amended as follows:

[[Page 21058]]

PART 200--ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND 
REQUESTS

Subpart M--Regulation Concerning Conduct of Members and Employees 
and Former Members and Employees of the Commission

0
1. The authority citation for 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.

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2. Section 200.735-5 is amended by:
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a. Revising footnote 17 appearing in paragraph (b)(1)(ii);
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b. Adding at the end of paragraph (b)(1)(iv) the word ``or'';
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c. Removing paragraph (b)(1)(v);
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d. Redesignating paragraph (b)(1)(vi) as paragraph (b)(1)(v);
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e. Revising newly redesignated paragraph (b)(1)(v); and
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f. Revising paragraph (m)(3).
    The revisions read as follows.


Sec.  200.735-5  Securities transactions.

* * * * *
    (b)(1) * * *
    (ii) * * *

    \17\ For purposes of this section a money market fund is defined 
as a registered open-end fund that complies with Sec.  270.2a-7 of 
this chapter.
* * * * *
    (v) The transferring of funds that have been held as shares in a 
registered investment company for a minimum of 30 days to another 
registered investment company within the same family of registered 
investment companies. This 30-day holding period does not apply to 
money market fund shares, which are exempted from the six-month holding 
period by paragraph (b)(1)(ii) of this section.
* * * * *
    (m)(1) * * *
    (3) Members and employees shall report only the initial purchase 
and final sale of shares in a money market fund.
* * * * *

    Dated: April 14, 2004.
    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-8890 Filed 4-19-04; 8:45 am]
BILLING CODE 8010-01-P