Subject of Possible Rule Making: Creating a safe harbor from insider trading liability under RCW 21.20.010 for transactions that comply with SEC Rule 10b5-1(c), which provides similar relief from Section 10(b) under the federal Securities Exchange Act of 1934.

     Statutes Authorizing the Agency to Adopt Rules on this Subject: RCW 21.20.450, 21.20.900.

     Reasons Why Rules on this Subject may be Needed and What They Might Accomplish: Federal judicial opinions construing Section 10(b) and SEC Rule 10b-5, which is substantially identical to RCW 21.20.010, have found Section 10(b) liability when a person purchases or sells a security on the basis material nonpublic information concerning the security or issuer. Rule 10b5-1(c) sets forth affirmative defenses under which a person's purchase or sale of securities will not be deemed to have made on the basis material nonpublic information. There is a concern among securities law practitioners that absent a rule; there may be liability under RCW 21.20.010 for transactions that comply with Rule 10b5-1(c). The proposed rule would clarify that a purchase or sale that complies with Rule 10b5-1(c) would also be protected from liability under RCW 21.20.010.

     Other Federal and State Agencies that Regulate this Subject and the Process Coordinating the Rule with These Agencies: No other state agency regulates this area. As noted above, the proposed rule will be drafted in recognition of existing federal rule, SEC Rule 10b5-1.

     Process for Developing New Rule: The rule will be developed based on an analysis of SEC Rule 10b5-1 and with the input of the Securities Committee of the Washington Bar Association.

     Interested parties can participate in the decision to adopt the new rule and formulation of the proposed rule before publication by sending comments to Bill Beatty, Securities Division, P.O. Box 9033, Olympia, WA 98507-9033, voice (360) 902-8723, fax (360) 704-6928, e-mail bbeatty@dfi.wa.gov.

October 29, 2001

Deborah R. Bortner

Director of Securities

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