Wednesday, July 15, 2009

A CCO for the SEC

As part of Chairman Mary Schapiro's revitalization of the SEC, the organization has announced it will create a Chief Compliance Officer position whose job it will be to police the organization's compliance with its own rules and policies, including the rules governing the trading by SEC employees. To strengthen the controls around SEC employee trading, the Commission has proposed new rules expanding the organization's existing Rule 5 to:
  • Require the pre-clearance of all trades.

  • Prohibit all trading in the securities of a company under SEC investigation, regardless of whether the employee is aware of the investigation.

  • Require all employees to authorize their brokers to provide duplicate trade confirmation statements to the agency.

  • Prohibit the ownership of securities in publicly-traded exchanges and transfer agents, in addition to existing prohibitions against owning securities in other firms directly regulated by the Commission.

  • Require employees to certify that they do not have any non-public information about the company whose securities they are trading.

  • Require supervisors to conduct periodic reviews of employee securities transactions and compare any transactions to the employee’s work projects.
The Commission also plans to implement an updated computerized system of tracking and verifying employee trading.

The SEC's CCO position has not yet been filled, but the response to the job posting apparently was well received, and interviews already have begun. This set of compliance related actions was prompted by the recent report of the Inspector General criticizing the agency on many counts. Also, recent news reports about several SEC employees who allegedly traded improperly have driven the Commission to address employee trading controls. The Commission's statement indicates that two of the employees identified as having traded in apparent violation of the SEC's internal rules have not yet been disciplined pending criminal inquiry by the U.S. Attorney's Office.

The full text of the Commission's statement for the record to the House Subcommittee on Oversight and Investigations is available at:

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