SEC to strengthen ethics rules on personnel trading and data collection

The regulator is proposing to expand holding restrictions and implement automatic data imports.

The Commission is looking to toughen and modernize its ethics compliance program by proposing amendments with new requirements and prohibitions to its ethics rules.

The proposed changes would update the SEC’s Supplemental Ethics Rules, 5 CFR Part 4401.102, Supplemental Standards of Conduct for Members and Employees Securities and Exchange Commission on these topics:

  1. Prohibitions against financial industry sector funds;
  2. Enhancements to data collection through an automated electronic system; and
  3. Optimizing efficient and effective use of agency resources.

If changes are adopted, the first amendment would expand the existing prohibited holding restrictions, which ban employees from investing in stocks of broker dealers and investment advisers that are directly regulated by the Commission. The change would also prohibit investing in financial industry sector funds. The Commission believes that “employee ownership of financial industry sector funds poses similar risks of conflicts of interest and appearance concerns”.

The second proposed amendment would give the SEC the green light to collect data on employees’ covered securities transactions and holdings from financial institutions automatically. By automating the collection of this type of data, the Commission could more easily detect and remediate violations in real time, reduce manual processes for transaction confirmations and reporting, and provide an independent source for compliance monitoring and testing.

“Employee ownership of financial industry sector funds poses similar risks of conflicts of interest and appearance concerns.”


“I was pleased to support today’s proposal to strengthen, modernize, and optimize the SEC’s ethics requirements,” said SEC Chair Gary Gensler.

“We at the Securities and Exchange Commission are entrusted by the public to oversee the US capital markets. These amendments, if adopted, would help ensure that the SEC honors the trust that the public has placed in us.”

Optimise resources

The last proposed rule amendment would optimize the use of resources to monitor compliance of securities investments and transactions that involve significant ethics risks.

“Because diversified mutual funds generally pose a low risk of conflicts of interest, misuse of nonpublic information for personal gain, or appearance problems, as compared to other types of securities, the proposed amendments would exempt diversified mutual funds from the Supplemental Ethics Rule’s requirements,” said the SEC.

Mutual funds that concentrate investments in a particular sector, industry, business, state, or country other than the US would remain subject to the rules.

Regardless of the amendments, the SEC is already running a strict program, in which employees are required to pre-clear securities transactions and to follow minimum holding periods. They are also prohibited from participating in events such as transacting in securities of companies that the agency is investigating, engaging in short selling or in derivatives, participating in initial public offerings for seven calendar days, or purchasing or carrying securities on margin. Even the employees’ spouses and children are affected by the ethics requirements.