Subject: File No. S7-01-15
From: Keith P Bishop
Affiliation: Former California Commissioner of Corporations

April 26, 2015

I am writing to comment on the proposed rule amendments to implement Section 955 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1900 (July 21, 2010) (the Act). Among other things the Commission has proposed to add a new paragraph (i) to Item 407 of Regulation S-K. As proposed, this rule requires registrants to disclose whether the registrant permits any employees (including officers) or directors of the registrant, or any of their designees, to engage in specified hedging transactions in the registrants securities.

I am an attorney in private practice in Irvine, California. I am writing in my individual capacity and not on behalf of my law firm, the law school or any of my law firm's clients. I previously served as California's Commissioner of Corporations and in that capacity administered and enforced California's securities laws.

1. The proposed disclosure requirement is backwards.

The implicit and fundamental premise of Item 407(i) seems to be that employees, officers and directors may not engage in hedging transactions in their companies securities absent permission. However, the proposing release does not cite any state or federal law or regulation that prohibits hedging by employees, officers and directors in the absence of permission.

The relevant disclosure should be whether a registrant prohibits hedging transactions by employees, officers or directors. Mandating disclosure of whether a registrant permits hedging is fundamentally misleading because it implies that company permission is required for these transactions.

2. The term permits is ambiguous.

As proposed, the use of the term permits is ambiguous. The verb "permit" means to give assent to some action or event. This implies an affirmative action on the part of the registrant. Applying this definition, a registrant that has no policy on hedging would conclude that it does not permit hedging because it has never affirmatively assented to it. However, the verb "permit" also means to allow something to happen. Applying this passive definition, a registrant that has no policy on hedging would treat the absence of consent as permission.

3. The rule should not include designees unless the term is defined and a reason for the definition is provided.

The proposed rule includes designees but fails to provide any definition or rationale for its inclusion. The proposing release notes the term is not "otherwise defined in the rules under the Securities Act or the Exchange Act". In addition, the proposing release very unhelpfully includes the following statement, which amounts to a complete abdication on the part of the Securities and Exchange Commission: "Under the proposed disclosure requirement, whether someone is a designee would be determined by a company based on the particular facts and circumstances". Without a meaningful definition and rationale for that definition, it is simply meaningless to invoke facts and circumstances.