Imposes trading restrictions on directors and executive officers during pension fund blackout periods

• Requires issuers to give specified notices
  about blackout periods
• Imposes § 16-like liability on directors/executive officers
  for improper trading

Adopted per SOX Act § 306

• "To address the apparent unfairness of an issuer's directors and executive officers being able to sell their equity securities when the issuer's employees cannot"
• Because blackout periods can lock plan participants into existing investment choices for an extended period of time

Final release summary

Conforming amendment to Regulation BTR

• Necessitated by changes to S-K 404
• Final release commentary  Rel 33-8732 § V.F.1

Final release 34-47225 2003

• Proposal release 34-46778 2002
• Comment letters

Final release commentary

Defined by SOX Act § 306(a)(4):

• must last more than three business days, and
• apply to more than 50% of plan participants/beneficiaries

Definition clarified by BTR 100(b):

• individual account plan defined by reference to ERISA
• e.g., 401(k), profit-sharing, stock bonus and
  money purchase pension plans
• excludes plans outside US primarily for nonresident aliens
• rules provided to determine number of plan participants
  different rule for foreign private issuers

Certain temporary trading suspensions exempt - BTR 102

• per SOX Act § 306(a)(4)
• excluded from definition of blackout period
• if regularly scheduled, included in plan and timely disclosed
• if imposed solely to effect an M&A transaction

Note: SEC views attempts to structure blackouts of less than three days as potential violations of Regulation BTR

Final release commentary

Issuer defined, includes:

• Domestic SEC reporting companies
• Foreign private issuers
• Small business issuers
• IPO filers
• Investment companies (rarely)

Final release commentary

Directors

Executive officers

• Different definition for directors / executive officers of foreign private issuers

Final release commentary

Equity security

Equity security of the issuer

• Includes derivatives, whether or not issued by the issuer

Derivative security

Final release commentary

• Applies only to equity securities acquired
  "in connection with service or employment as a director or executive officer"

• See Rule 100(a)

• Covers acquisitions and dispositions of such securities,
  if a pecuniary interest

• as defined by reference to Rule 16a-1(a)(2) -- BTR 100(l)

• Rebuttable presumption that any such securities are the ones being sold

• burden on director/executive to "trace" those not acquired "in connection with" from those that were
• An irrebuttable presumption had been proposed
• Note: rule has a purposefully broad reach to avoid circumvention
• See detail included in BTR 100(a)

• See "Transitional situations"

Rule 104

Final release commentary

• Content of notice
• Notice to directors and executive officers
• Form 8-K

Secretary of Labor requires plan administrators to give notice to issuers;
SEC requires issuers to give notice:

• To directors and executive officers:
  within five business days of notice from plan administrators;
  else, at least 15 days before blackout period begins
• Lack of notice can't be used by director/executive officer as a defense

Filed on Form 8-K filed with SEC (Item 5.04)

• Filed on the same day as notice
  to directors/executive officers
• Any subsequent changes in blackout period
  must also be on Form 8-K
• Foreign private issuers to file as exhibit
  to Form 20-F / Form 40-F
• Form 8-K (Item 5.04)

Dept of Labor final rule 2003

• 29 CFR § 2520.101-3
  Notice of blackout periods under individual account plans
• Final release 1.24.03
• DOL press release 1.23.03
• Requires 30-day advance notice of a blackout period
  from plan administrator
• Including to corporate issuer
  so that corporate insiders can be made aware

Sample disclosure / Corporate practices

PeopleSoft, Inc. 2003

Greenpoint Financial 2004

Wachovia  2004

Form 8-K (Item 5.04)

Insider Trading Restrictions