WSR 02-07-027

PROPOSED RULES

DEPARTMENT OF

FINANCIAL INSTITUTIONS

[ Filed March 12, 2002, 2:07 p.m. ]

Original Notice.

Preproposal statement of inquiry was filed as WSR 01-22-048.

Title of Rule: Safe harbor from insider trading liability.

Purpose: The proposed rule would clarify that a purchase or sale of securities that complies with safe harbors set forth Rule 10b5-1(c) of the federal Securities Act of 1934 would also be protected from liability under RCW 21.20.010.

Other Identifying Information: WAC 460-12A-010.

Statutory Authority for Adoption: RCW 21.20.450, 21.20.900.

Statute Being Implemented: RCW 21.20.010.

Summary: 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.

Reasons Supporting Proposal: See above.

Name of Agency Personnel Responsible for Drafting: William M. Beatty, 210 11th Avenue S.W., Olympia, WA 98504, (360) 902-8760; Implementation: Mark Thomson, 210 11th Avenue S.W., Olympia, WA 98504, (360) 902-8760; Enforcement: Deborah R. Bortner, 210 11th Avenue S.W., Olympia, WA 98504, (360) 902-8760.

Name of Proponent: Department of Financial Institutions, Securities Division, governmental.

Rule is not necessitated by federal law, federal or state court decision.

Explanation of Rule, its Purpose, and Anticipated Effects: 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.

Proposal does not change existing rules.

No small business economic impact statement has been prepared under chapter 19.85 RCW. The proposal does not impose additional costs on business.

RCW 34.05.328 does not apply to this rule adoption. The Department of Financial Institutions is not one of the agencies listed in RCW 34.05.328.

Hearing Location: Department of Financial Institutions, Securities Division, Executive Conference Room, 210 11th Avenue S.W., Suite 300, Olympia, WA 98504, on April 26, 2002, at 10:00 a.m.

Assistance for Persons with Disabilities: Contact Darlene Christianson by April 24, 2002, TDD (360) 664-8126, or (360) 902-8760.

Submit Written Comments to: William M. Beatty, Securities Division, P.O. Box 9033, Olympia, WA 98507-9033, fax (360) 704-6923, e-mail bbeatty@dfi.wa.gov, by April 25, 2002.

Date of Intended Adoption: April 26, 2002.

March 11, 2002

Mark Thomson

Acting Director

OTS-5356.1


NEW SECTION
WAC 460-12A-010   Certain insider trading deemed not to violate RCW 21.20.010.   The purchase or sale of a security of any issuer on the basis of material nonpublic information about that security or issuer in breach of a duty of trust or confidence that is owed directly, indirectly, or derivatively, to the issuer of that security or the shareholders of that issuer, or to any other person who is the source of the material nonpublic information, will be deemed not to violate RCW 21.20.010 if the person making the purchase or sale complies with Rule 10b5-1(c) of the Securities Exchange Act of 1934.

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Washington State Code Reviser's Office