27 February 2024

New SEC rules target conflicts of interest among staff

The Securities and Exchange Commission (SEC) has approved amendments to its Supplemental Standards of Ethical Conduct for employees and members. The changes aim to strengthen conflict-of-interest rules and public trust in the agency.

Restrict Ownership of “Financial Industry Sector Funds”

The amendments bar employees from owning funds concentrating investments in SEC-regulated entities. This includes registered investment companies, bank common trusts, and exempt or pooled funds with policies focused on SEC-supervised organizations.

Ease Requirements for “Permissible Diversified Funds”

The SEC maintains that certain diversified assets pose fewer ethical issues. The changes would exempt permissible diversified funds from pre-clearance, reporting, and 30-day holding requirements.

Covered assets include:

  • Diversified mutual funds.
  • Money market funds per Rule 2a-7.
  • 529 college savings plans.
  • Diversified holdings in benefit/pension plans.

This eases administrative burdens for safer investments.

Allow Automated Reporting System

The amendments allow using an automated system for reporting securities transactions. Employees could authorize brokers/institutions to transfer data rather than manually filing it.

Supporters noted efficiency gains, while critics raised privacy and security concerns. In response, the automated system would now be voluntary vs. mandatory. Manual reporting requirements are kept for those not using the automated approach.

Apply IPO Rules to Direct Listings

When companies list shares directly on an exchange, direct listings can raise ethical questions like traditional IPOs. The new rules bar buying directly listed securities for seven days post-listing, just as with IPOs.

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