Feb. 23, 2023
On proposal #2 (Permissible Diversified Investment Funds): I SUPPORT this item in the proposal, but believe the term "Permissible Diversified Investment Funds" is ambiguous and should be clarified. Specifically, the term should be amended to explicitly include products that are substantially similar to mutual funds and unit investment trusts. Specifically, Rule 102(g)(vi)(A)(l) should be amended as follows (underlined text is new): Mutual funds and unit investment trusts, as those terms are defined in 5 CFR 2640.102(k) and (u), and similar securities that are listed on a national securities exchange, that are diversified as that term is defined in 5 CFR 2640.102(a); In addition, the adopting release should clarify that a Permissible Diversified Investment Fund includes all diversified "exchange-traded funds" and "exchange-traded products", as those terms are commonly understood. That includes, but is not limited to, trusts, funds, depository receipts, and managed fund shares. On proposal #3 (automated reporting): I OPPOSE this item because: 1. It is unclear. The proposal is unclear as it does not describe what a "third-party automated compliance system" means. Will the system obtain drop copies of trade confirmations? Order tickets (cancelled orders, too, or only filled orders)? Will it obtain monthly brokerage statements? Consolidated 1099s? Precisely what information will the "third-party automated compliance system" collect, will it retain the information or only transmit it to OEC, and when will it transmit it to OEC? 2. It is insufficient to serve as employee's agent. As the proposal makes clear, "the broker is acting as an agent of the member or employee in transmitting the information, and the ultimate responsibility for complying with the reporting requirement is that of the employee". The proposal provides no detail on how an employee would be able to audit the "third-party automated compliance system" or view what information it provides to OEC. Without that ability or assurance, an employee would not be able to reasonably rely on the third-party system to fulfill the employee's reporting obligation. 3. It should not be mandatory. Without more detail to understand the proposal, I oppose making this mandatory. If it is implemented, employees should be able to opt-in to this system, but should not be compelled to utilize it. Requiring this feature may limit the universe of brokers or financial institutions willing to hold accounts of SEC employees if those brokers or financial institutions do not permit or accommodate access by the third-party automated compliance system(s) selected by the SEC. The proposal for exceptions from the DAEO is unclear and insufficient to address this concern. Is it a one-time exception, or does it need to be reconsidered annually? What are examples of the types of relevant "exceptional circumstances"? Is the DAEO obligated to respond within a certain period? Can the employee appeal the decision to an independent third party? 4. As an alternative, a system to collect holdings and transaction information directly should: a. Be push, not pull: The employee should be able to tell its broker or financial institution what to send and when to send it, since the reporting obligation is that of the employee. b. Auditable: The system should retain a complete record of what it sent (without retaining the item itself), where it sent it, and when it sent it, and this record should be accessible and downloadable by the employee. c. No retention or use: The system should not be able to retain or be able to use for other purposes the information it collects from employees. d. Breach: The system should be contractually obligated to promptly inform OEC and the specific employee when unauthorized internal or external access to the employee's data occurs. e. Damages: The system should be contractually obligated to pay for 10 years of identity theft protection (comparable to Norton LifeLock) in the event of an internal or external breach. f. Reimbursement: OEC should be required to reimburse the employee for any associated costs assessed by the broker or financial institution for transmitting this information.