Christine A. Edwards
Executive Vice President
Chief Legal Officer &
| BANK ONE CORPORATION
Mail Code IL1-0276
1 Bank One Plaza
Chicago, IL 60670-0276
| tel 312 732 3551|
fax 312 732 7677
August 15, 2002
Via E-mail: firstname.lastname@example.org
Jonathan G. Katz, Secretary
United States Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609
RE: File No. S7-31-02
Comments on Release No. 34-46313
Dear Mr. Katz:
On behalf of Bank One Corporation, I am submitting this comment letter on the Commission's Notice of Supplemental Information on Section 16(a) and Related Rules, which the Commission issued on August 6, 2002 to address the amendments to Section 16(a) of the Securities Exchange Act of 1934 enacted by the Sarbanes-Oxley Act of 2002 (the "Act").
Bank One strongly supports the Act's goal of providing investors with prompt disclosure of certain transactions by the directors, officers and principal stockholders ("insiders") of public companies. We do, however, have some serious concerns about the ability of an insider (and the company, which in many cases would assist its directors and officers in complying) to provide accurate disclosure of some transactions within the mandated two business day time frame, and we have some recommendations to deal with these concerns.
The Act authorizes the Commission to establish different filing deadlines for transactions in which the Commission determines that a two day period is not feasible. In assessing feasibility, the Commission should take into account that there are some transactions that are not of sufficient significance to investors to warrant two day disclosure. In that regard, we contend that the need of the investor for timely, relevant information about insider transactions, and the need of the insider to have sufficient time to gather and accurately report required information, can both be served by a rule which recognizes the difference between (1) transactions directly initiated and controlled by the insider, which tend to reflect the insider's view of company prospects, and (2) transactions over which the insider has little or no control, or are primarily motivated by non-investment purposes, and thus tend not to reflect the insider's view of company prospects. As explained below, we suggest that, for the latter, a reporting deadline of ten business days after execution of the transaction would be appropriate.
A. Two business day deadline.
The following are transactions directly initiated by the insider, which generally reflect his or her views of company prospects and over which the insider has the ability to exercise control:
These are the types of transactions for which a two business day reporting deadline may be most appropriate. While we have previously noted that compliance with a two business day deadline for reporting these transactions would be extremely difficult and costly (see our June 24, 2002 comment letter in response to the Commission's Release No. 33-8090 (File No. S7-09-02), in which we suggested a five business day time frame), we recognize that disclosure of these types of transactions is of significant value to investors and a relatively short reporting time frame is necessary to provide investors with timely information. However, the Commission should permit disclosure of certain transaction information of less significance to investors to be delayed.
B. Ten business day deadline.
There are a number of types of transactions that can be distinguished from those directly initiated by the insider. As more fully described below, not only is a two day reporting deadline not feasible, but accelerated reporting of these transactions provides little if any additional benefit to investors. Such transactions do not reflect investment decisions by insiders. Rather, they reflect such things as compensation decisions of the issuer with respect to its employees, automatic execution of pre-existing investment arrangements or plan provisions, or personal tax, cash-flow or family considerations. Reports on these types of transactions are of less immediate benefit to investors, although knowledge of them certainly is useful in providing a full picture of an insider's interest in a public company. But the Commission should facilitate the reporting of accurate information about such transactions, and a ten business day reporting deadline could help ensure that accurate information can be gathered and reported.
1. Changes of ownership that are a result of no volitional act by the insider.
Delayed reporting should be permitted for the following types of transactions, which an insider has little or no ability to control:
In these cases, many transactions, including those of insiders, would be in process simultaneously. Gathering and reporting accurate information within two days on insiders' transactions may be impossible without prioritizing their transactions over others' or manually intervening in established automated processes, potentially causing delays in the processing of transactions for non-reporting persons. Given the non-volitional nature of these transactions, we believe the costs of isolating insiders' transactions outweigh the benefits to investors of two day reporting.
2. Changes of ownership that result from participation in broadly based plans.
Delayed reporting should be permitted for changes of ownership that result from participation by insiders in broadly based plans that other employees of the company are eligible to participate in, particularly those with recurring investments that are tied to payroll dates or other periodic intervals. This delay in reporting is warranted because these types of transactions are not necessarily indicative of the views by insiders of a company's prospects, and the cost necessary to isolate the required information for a small number of individuals out of thousands of employees would be excessive. The types of transactions under this category are:
3. Directors' fees paid in stock.
A number of companies have adopted stockholder-approved plans that provide for directors' fees to be paid periodically in either shares of company stock or in stock units, with the shares or units receiving reinvested dividends or dividend equivalent units. Because these plans operate automatically and therefore purchases do not reflect a director's view of the company's prospects, delayed reporting should be acceptable.
4. Payment of stock option exercise price and withholding taxes.
Many equity-based plans permit the exercise price of a stock option and the withholding tax payable when compensation is recognized upon restricted share vesting or option exercise to be "paid" in company stock through a transaction with the issuer. These transactions are primarily motivated by personal cash flow considerations and do not necessarily reflect the insider's views of the company's prospects. In addition, the mathematical calculation of the number of shares required to meet the tax obligation is complex, taking into account variables such as marginal tax rate and price of the stock, and are not readily available for a two business day reporting deadline. For these reasons, we believe that delayed reporting is necessary and appropriate.
5. De minimis acquisitions.
The Commission should also continue to recognize that accelerated reporting of small acquisition transactions is not warranted. The value to investors of two business day reporting of small acquisitions of shares is outweighed by the burden that such reporting would impose. The Commission has previously proposed aggregating small transactions upon reaching a $100,000 threshold. Although we believe this amount should be increased, we would support the concept of delayed reporting of stock acquisitions of less than $100,000 in value.
6. Changes in form of ownership.
Delayed reporting should also be available for changes in the form of ownership, such as transfers of stock by the insider to a trust for the benefit of his or her children. These transfers from direct to indirect beneficial ownership are primarily motivated by personal or family considerations, and do not provide investors with meaningful information, since the insider's total beneficial ownership remains unchanged.
I hope that the views we have shared in this letter will be helpful to the Commission as it makes its final decisions with respect to alternate filing deadlines. Thank you for considering our views. If you need further information, please do not hesitate to contact me at (312) 732-3551.
/s/ Christine A. Edwards