SEC Interpretation:
Calculation of Average Weekly Trading Volume under Rule 144 and Termination of a Rule 10b5-1 Trading Plan
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 211, 231 and 241
[Release Nos. 33-8005A; 34-44820A; FR-58A]
Calculation of Average Weekly Trading Volume under Rule 144 and
Termination of a Rule 10b5-1 Trading Plan
AGENCY: Securities and Exchange Commission
ACTION: Interpretation
SUMMARY: This release expresses the Commission's view on how to calculate the average weekly reported volume of trading in securities under Rule 144(e), given the lack of trading during the week of September 10, 2001. This release also expresses the Commission's view that termination of a Rule 10b5-1 trading plan during the period between September 11, 2001 and September 28, 2001, inclusive, does not, by itself, suggest that the plan was not "entered into in good faith and not as part of a plan or scheme to evade" the insider trading rules within the meaning of Rule 10b5-1(c).
EFFECTIVE DATE: September 21, 2001
FOR FURTHER INFORMATION CONTACT: Robert Plesnarski, Special Counsel, or Paula Dubberly, Chief Counsel, Office of the Chief Counsel, Division of Corporation Finance, at (202) 942-2900, U.S. Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0402.
SUPPLEMENTARY INFORMATION
I. Introduction and Summary
In light of the emergency closure of the U.S. equity and options markets from September 11, 2001 through September 14, 2001, law firms and registrants have asked the Commission how to calculate the average weekly reported volume of trading in an issuer's securities for purposes of Rule 1441 under the Securities Act of 1933.2 Because the markets were open for only one day during the week beginning on September 10, 2001, the Commission believes that it is appropriate to use weeks preceding and subsequent to the week of September 10, 2001, but to not include that calendar week, in determining the average weekly reported volume of trading under Rule 144(e).
The Commission also believes that termination of a written Rule 10b5-13 plan between September 11, 2001 and September 28, 2001, inclusive, will not, by itself, call into question whether the plan was "entered into in good faith and not as part of a plan or scheme to evade" the insider trading rules.
II. Discussion
A. Average Weekly Reported Volume of Trading for Rule 144
Rule 144 defines specific circumstances in which a person will be deemed not to be engaged in a distribution and, therefore, not to be an underwriter as defined in Section 2(a)(11) of the Securities Act.4 The amount of securities that may be sold under this safe harbor is limited to a percentage of the shares outstanding or a percentage of the average weekly trading volume of an issuer's securities. Rule 144(e) prescribes that the average weekly trading volume for a class of securities will be calculated using the average weekly reported volume of trading in such securities on all national securities exchanges and/or reported through the automated quotation system of a registered securities association during the four calendar weeks preceding the dates outlined in Rule 144(e). The markets were open for only one day during the week beginning on September 10, 2001. Accordingly, that week will not provide a representative trading volume. Therefore, the Commission believes that the week of September 10, 2001 should be excluded from the calculation of the average weekly reported volume of trading in an issuer's securities under Rule 144(e) during a four calendar week period, and an additional prior week should be included, for a total of four calendar weeks.
B. Rule 10b5-1 Plans
In May 2001, the Commission staff issued interpretations regarding the termination of a written plan for trading securities that satisfies the affirmative defense conditions of Rule 10b5-1(c).5 The affirmative defense is available only for plans that are "entered into in good faith and not as part of a plan or a scheme to evade" the insider trading rules. Questions 15(b) and 15(c) of the staff's interpretations make clear that a written plan may be terminated through either the affirmative termination of the plan itself or the deemed termination of the plan through the cancellation of one or more plan transactions. Therefore, for example, if a plan previously had specified that sales be made during the week of September 17, 2001, a security holder would be terminating the plan if he or she cancelled that sale in order to continue to hold the securities. The interpretations also state that termination of a plan could affect the availability of the Rule 10b5-1(c) defense for prior plan transactions if the termination calls into question whether the plan was "entered into in good faith and not as part of a plan or scheme to evade" the insider trading rules within the meaning of Rule 10b5-1(c)(1)(ii). The absence of good faith or presence of a scheme to evade would eliminate the Rule 10b5-1(c) defense for prior transactions under the plan.
Due to the tragic events of September 11, 2001 and the subsequent closure of the U.S. equity and options markets, the Commission believes that termination of a written plan established prior to September 11, 2001 will not, by itself, call into question whether the plan was "entered into in good faith and not as part of a plan or scheme to evade" the insider trading rules within the meaning of Rule 10b5-1(c)(1)(ii) if the plan is terminated between September 11, 2001 and September 28, 2001, inclusive. Thus, the Commission believes that availability of the Rule 10b5-1(c) defense for transactions under the written plan would not be affected solely by termination of that plan between September 11, 2001 and September 28, 2001.
List of Subjects in 17 CFR Parts 211, 231 and 241.
Securities
Amendment of the Code of Federal Regulations
For the reasons set forth in the preamble, we are amending title 17, chapter II of the Code of Federal Regulations as follows:
PART 211 - INTERPRETATIONS RELATING TO FINANCIAL REPORTING MATTERS
1. Part 211, Subpart A, is amended by adding Release No. FR-58A and the release date of September 21, 2001 to the list of interpretive releases.
PART 231 - INTERPRETIVE RELEASES RELATING TO THE SECURITIES ACT OF 1933 AND GENERAL RULES AND REGULATIONS THEREUNDER
2. Part 231, is amended by adding Release No. 33-8005A and the release date of September 21, 2001, to the list of interpretive releases.
PART 241 - INTERPRETIVE RELEASES RELATING TO THE SECURITIES EXCHANGE ACT OF 1934 AND GENERAL RULES AND REGULATIONS THEREUNDER
3. Part 241, is amended by adding Release No. 34-44820A and the release date of September 21, 2001, to the list of interpretive releases.
By the Commission.
Jonathan G. Katz
Secretary
September 21, 2001
Endnotes
1 17 CFR 230.144.
2 15 U.S.C. 77b(a) et seq.
3 17 CFR 240.10b5-1.
4 15 U.S.C. 77b(a)(11).
5 See, Division of Corporation Finance: Manual of Publicly Available Telephone Interpretations, Fourth Supplement (May 30, 2001). These interpretations are available at www.sec.gov/interps/telephone/phonesupplement4.htm.
http://www.sec.gov/rules/interp/33-8005a.htm
