(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

Rulemaking Anticipated in Light of Section 16(a) Changes

The SEC issued supplemental information regarding the filing of ownership reports by officers, directors and principal security holders under Exchange Act Section 16 to reflect amendments to Section 16(a) enacted by the Sarbanes-Oxley Act of 2002. These statutory amendments are effective August 29, 2002.

Section 16 applies to beneficial owners of more than 10 percent of any class of equity security registered under Exchange Act Section 12, as well as to the issuers' officers and directors. These persons must file an initial report with the SEC disclosing their beneficial ownership of all equity securities of the issuer. To keep this information current, Section 16(a) also presently requires insiders to report changes in such ownership or the purchase or sale of a security-based swap agreement involving such equity security.

As currently in effect, Section 16(a) provides for such transactions to be reported on a monthly basis within 10 days after the close of each calendar month in which such a change in ownership or purchase or sale of a security-based swap agreement occurs. Section 403(a) of the Sarbanes-Oxley Act, however, amends Section 16(a) to require insiders to report such a change in ownership or purchase or sale of a security-based swap agreement "before the end of the second business day following the day on which the subject transaction has been executed, or at such other time as the Commission shall establish, by rule, in any case in which the Commission determines that such two-day period is not feasible." The act also amends Section 16(a) to require, not later than one year following enactment, electronic filing of change of beneficial ownership reports, and Web site posting of such reports by both the SEC and by issuers.

EDGAR Filings

According to the SEC, it intends to initiate rulemaking to make the filing of Section 16(a) reports on EDGAR mandatory and anticipates that such rules will be adopted within the one-year statutory timeline. The agency stated that it encourages corporate insiders and companies to file their Section 16(a) electronically. To facilitate EDGAR conversion under the current filing system, the SEC stated that it will accept electronically-filed Section 16(a) reports that are not presented in the standard box format and omit the horizontal and vertical lines separating information items if all required information is presented in the proper order.

Rulemaking Proposals

The agency anticipates that several rule changes will be implemented by the August 29, 2002, effective date of the Section 16(a) amendments. According to the SEC, these rules will 1) conform all Form 4 references to the applicable filing deadline to the amended statutory filing deadline and to reflect that Form 4 is no longer a monthly form, 2) provide that transactions between officers or directors and the issuer exempted from Section 16(b) short-swing profit recovery by Rule 16b-3 that currently may be reported within 45 days after the issuer's fiscal year end on Form 5 will be required to be reported within two business days on Form 4, and 3) provide different Form 4 due dates for narrowly defined specified transactions, if any, as to which the SEC determines that the two-business day reporting period is not feasible.

Accelerated reporting of officers' and directors' reportable transactions with an issuer exempted by Rule 16b-3 will also be necessary to satisfy the act's immediate insider transaction disclosure requirements. In light of the Section 16(a) amendments enacted by Section 403 of the act, the SEC stated that it will not consider further its proposed amendments (Release No. 33-8090, 2001-02 CCH Dec.¶86,625) to require companies to report directors' and executive officers' transactions in company equity securities. The SEC will, however, continue to consider other amendments proposed in that release that would require companies to disclose information about 1) directors' and executive officers' arrangements intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c) and 2) company loans and loan guarantees to directors and executive officers that are not prohibited by Section 402 of the act

Exchange Act Rule 16a-3(f) as amended would subject to two-business day reporting on Form 4 all reportable transactions with the issuer exempted by Rule 16b-3, including transactions in issuer equity securities and derivative securities. Derivative securities transactions reportable under the amended rule would include, without limitation, issuances, exercises, cancellations and re-grants of stock options, including re-pricings.

Exemptive Rulemaking

The SEC does not presently intend to consider rules providing exemptions from the two-business day reporting deadline for Form 4 based on non-feasibility for transactions categorized by type of issuer, type of insider or size of transaction. The agency stated that it is reviewing the deadlines only for "narrowly specified types of transactions where objective criteria prevent the insider from controlling, and in many cases from knowing, the timing of transaction execution and where the two-business day period would not be feasible." These deadlines will be intended to reflect the act's purpose to require immediate disclosure of insider transactions.

Transactions for which alternate deadlines may be considered are 1) transactions pursuant to a single market order that is executed over more than one day but not to exceed a specified number of days, 2) transactions involving a pre-existing arrangement the timing of which is outside the knowledge of the insider before a confirmation or other notice of the transaction is sent to the insider, with a delay not to exceed a specified number of days, and 3) discretionary transactions involving an employee benefit plan, whether or not exempted by Rule 16b-3, where the delay would be tied to notice of the transaction.

Due to the August 29, 2002, effective date of the Section 16(a) amendments, the SEC requested that any comments should be submitted by August 16, 2002.

Release No. 34-46313 is reported at ¶86,717.