Apr. 1, 2023
April 1, 2023 March 31, 2023 Release No. 34-96768, Supplemental Standards of Ethical Conduct for Members and Employees of the Securities and Exchange Commission Dear SEC, My name is Leo Fox, an accountant currently working towards my CPA, and after reading your proposal I would like to lend my support to the amendments expressed in File No. S7-02-23. The four major sections that make up your proposal are all based in logic and the explanations you provide give an accurate depiction of how the proposed rules will add protections or remove redundancy to the current legislation. A. Prohibited Ownership of Financial Industry Sector Funds The Commission is proposing to amend 4401.102(c)(1) to explicitly prohibit employee ownership of certain Financial Industry Sector Funds by expanding the scope of entities directly regulated by the Commission to include registered investment companies, common investment trusts of a bank, companies exempt in part or in total from registration under the Investment Company Act of 1940, or other pooled investment vehicles that have a stated policy of concentrating their investments in entities directly regulated by the Commission. This amendment makes sense as it is covering a loophole that is not directly addressed by the code in its current configuration. You are absolutely right though, there is the same threat to independence if a SEC has a financial interest in SEC regulated business. Owning sector funds that specifically deal in entities that are regulated by the agency has the same financial attachment as owning securities in a SEC regulated company. Code is usually left a little broad to invite interpretation that will cover the situations not expressly discussed. However, when a loophole is discovered that can do the same damage as the action expressed in the code, it is not only reasonable to make amendments to fill the hole, its just the right thing to do. B. Eliminating Preclearance, Reporting, and Holding Requirements for Permissible Diversified Investment Funds OGE has already provided broad exemptions from criminal financial conflict of interest law, 18 U.S.C. 208, that permit employees to participate in particular matters that could affect the underlying holdings of such funds or the funds themselves. See 5 CFR 2640.201(a), (d). Other Permissible Diversified Investment Funds may pose little or no conflict-of-interest concerns, such as pre-paid college tuition plans authorized by States under section 529 of the Internal Revenue Code and collective investment trusts that are commonly held in defined contribution retirement plans. As a result, the SECs current pre-clearance and reporting requirements, as applied to Permissible Diversified Investment Funds, have proven disproportionately burdensome for both SEC employees and the SECs Office of the Ethics Counsel (OEC) staff, given the minimal risks such assets pose for most SEC employees. I also agree with this sentiment. I can appreciate having rules and procedure for the purchase of these relatively safe assets, but it may be overkill when they pose almost no risk for the member. The important thing to remember is that even if this proposal is accepted it is not immune to amendments later down the line. If a situation arises that requires more attention to be placed back on the purchasing of these Permissible Diversified Investment Funds that change can be made. If the current iteration seems to be placing undue burden on SEC members and the OEC staff then it only makes sense to reduce the amount of time and money that you are putting into the enforcement of that regulation. I do wish that the proposal could have been more specific on where the resources from this amendment would be redirected to, but I do understand that not having specific plans for the resources gives it more versatility. C. Automated Reporting of Purchases, Sales, Acquisitions, and Dispositions of Securities The Commission therefore proposes to amend paragraph (f) of the regulation to authorize OEC to collect covered securities transactions and holdings data directly from financial institutions through a third-party automated electronic system to satisfy the requirements to report securities holdings and transaction information. I support this amendment as well. It just eliminates a report that can be done either incorrectly or fraudulently. It definitely helps that you added the concessions for the people that would experience undue hardship. Its those sections that make it so much easier to adopt the proposed changes. The more possible situations the code accounts for the better the amendment. D. Prohibit Purchases of Direct Listed Assets Members and employees of the Commission are currently prohibited from purchasing a security in an initial public offering (IPO) for seven calendar days after the IPO is effective, except for IPOs of shares in a registered investment company or other publicly traded or publicly available collective investment fund. This restriction ensures that employees do not use, or appear to use, material, non-public information to their advantage in purchasing such securities. The Commission believes that securities that are directly listed on an exchange present the same appearance concerns and risks as securities offered in a traditional IPO, given that direct listings are typically accompanied by the filing of a registration statement, as in a traditional IPO. For that reason, the Commission proposes to expand the limitation found at paragraph (c)(2) of the regulation to prohibit a member or employee from purchasing securities that are directly listed to an exchange for seven calendar days aft er the direct listing effective date. I wholeheartedly agree with this amendment. The distinction in-between IPOs and direct listings was a thin line before and after the SEC adopted the amendments in (Release No. 34-96443 File No. SR-NASDAQ-2022-027) allowing companies to gain capital through their direct listing that line is almost indistinguishable. So, if the events of December 2022 have made the two indistinguishable than there is no point in treating them differently. If a SEC employee is barred from purchasing securities in an IPO for seven calendar days, it only makes sense to prohibit them from purchasing securities in a direct listing for seven calendar days. All issues and amendments proposed are logical and sound so it is my professional opinion that these amendments should be adopted by SEC. Thank you for taking these comments into consideration, Leo Fox