On January 30th, the SEC, in conjunction with the Office of Government Ethics, proposed amendments to the SEC’s ethics rules to enhance, revise and improve the overall efficacy of the agency’s ethics compliance program. More specifically, the proposed amendments would add new requirements and prohibitions to the existing program, which includes particularly strict ethics requirements within the executive branch for all SEC employees and their immediate families.
SEC employees currently are required to obtain prior approval for securities transactions and adhere to guidelines regarding minimum holding periods. Employees may not participate in activities including transacting in securities of companies the SEC is investigating, participating in initial public offerings for seven calendar days, engaging in short selling, executing derivatives, or purchasing or carrying securities on margin.
Should the proposed rules be adopted, they would:
broaden the existing prohibited holdings restrictions to bar employees from investing in financial industry sector funds, as this poses the risk of conflicts of interest
authorize the SEC to collect data on employees’ covered securities transactions and holdings directly from financial institutions through an automated electronic system.
enhance internal compliance controls by:
aiding in the detection and remediation of violations in real time
decreasing difficult manual processes for transaction confirmations and reporting
providing an independently verifiable source for compliance monitoring and testing
exempt diversified mutual funds from the Supplemental Ethics Rule’s requirements if they generally present a low risk of conflicts of interest, improper use of non-public information for self interest, 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).
The public may submit comment related to the proposed rule on or before 30 days after the proposal’s publication in the Federal Register or March 31, 2023, whichever is later. For more information, including instruction on how to provide feedback, see the proposed rule on the SEC’s website.