SEC Adopts Fund Disclosure Rules and Foreign Bank Loan Exemption; Proposes Shell Company Rules

The SEC has voted to exempt foreign banks from insider lending prohibitions; propose new rules for shell companies; and adopt disclosure requirements for investment companies on market timing, fair valuation and portfolio disclosure.

The US Securities and Exchange Commission (SEC) has voted to adopt a rule that would exempt foreign banks from the insider lending prohibition of Exchange Act Section 13(k), as added by Section 402 of the Sarbanes-Oxley Act. This Section prohibits both domestic and foreign issuers from making or arranging for loans to their directors and executive officers unless the loans fall within the scope of specified exemptions. One of these exemptions permits certain insider lending by a bank or other depository institution that is insured under the Federal Deposit Insurance Act. Rule 13k-1 will establish a more level playing field for foreign and domestic banks regarding insider lending while remaining consistent with the goals of the Sarbanes-Oxley Act.

The SEC has also voted to publish for comment proposed rule and form amendments relating to public shell companies. The Commission proposed the amendments to assure that investors in shell companies that acquire operations or assets have access on a timely basis to the same kind of information as is available to investors in public companies with continuing operations. The proposals are intended to protect investors by deterring fraud and abuse in the securities markets through the use of shell companies. The proposals would define the term "shell company" to mean a company with no or nominal operations and with no or nominal assets or assets consisting solely of cash and cash equivalents.

Furthermore the SEC has voted to adopt amendments that are designed to improve transparency of policies and procedures of mutual funds and variable insurance products with respect to market timing. The amendments will also require mutual funds and insurance company managed separate accounts that offer variable annuities to disclose the circumstances under which they will use fair value pricing and to disclose their policies and procedures regarding disclosure of portfolio holdings.

The full text of detailed releases concerning each of these items will be posted to the SEC Web site as soon as possible.