WASHINGTON MUTUAL, INC.
1201 Third Avenue, WMT 1501
Seattle, WA 98101
June 24, 2002
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549
Re: Form 8-K Disclosure of Certain Management Transactions (Release No. 33-8090, 34-45742; File No. S7-09-02)
Dear Mr. Katz:
We submit this letter in response to a request for comment by the Securities and Exchange Commission (the "Commission") regarding the Commission's proposal to amend Form 8-K under the Securities Exchange Act of 1934 (the "Exchange Act") to include a new Item 10 which would require companies to report certain information about directors' and executive officers' transactions in company equity securities, arrangements for the purchase or sale of company equity securities and loans of money made or guaranteed by the company or an affiliate.
These comments relate to (1) the proposed reporting deadlines for such reports and (2) the interrelationship between the proposed Item 10 reports and Section 16 reports.
Washington Mutual supports the Commission's efforts to improve public disclosure and we also recognize that advances in the trading markets and in technology can facilitate our ability to disclose certain information earlier than is currently required under the Exchange Act.
The Commission argues in its release that current reports of information regarding directors' and executive officers' transactions in company equity securities would provide public investors timely disclosure of potentially useful information as to management's view of the performance or prospects of the company. The Commission further states that timely disclosure of these transactions is necessary for investors to make informed investment decisions.
As the Commission is aware, many company insiders receive a portion of their compensation in company securities and therefore, they may engage in transactions in company securities for a variety of reasons. For example, Washington Mutual insiders may sell shares to diversify their portfolios, to pay taxes or for other personal reasons. At the same time, Washington Mutual insiders are subject to our insider trading policy that imposes strict trading guidelines on our insiders, including trading blackout periods tied to disclosure of our financial results.
We respectfully disagree with the Commission that disclosure about Washington Mutual insiders' transactions in our company stock is a reliable indicator of company performance or prospects. Furthermore, we disagree with the Commission that the proposed reports of insiders' transactions in equity securities, contracts for the purchase or sale of stock and loan arrangements with the company provide information that is any more material than information that is currently provided under Section 16 reports.
We recommend, therefore, that instead of implementing a wholly new disclosure regime, the Commission (1) require that all such reports be filed by the first business day of the second week following the week in which the event occurred, without regard to dollar amount and (2) make the Item 10 reporting format and requirements as consistent as possible with the current Section16 reporting scheme.
A. Reporting Deadlines
The Commission argues in its proposal that the type of information to be covered by Item 10 of Form 8-K is significant and should be provided to investors as soon as two days following an insider transaction (including loans) with a value or $100,000 or more and on the second business day of the week following the transaction for transactions of more than $10,000 or for any Rule 10b5-1 arrangement. The Commission further states that advances in communications and information technology should facilitate the ability to file such reports earlier than is currently required under the Exchange Act. While we agree with the Commission's general principle of full and fair disclosure for investors, we believe that the proposed accelerated timeframe for filing so-called Item 10 reports is too aggressive.
Currently, most Section 16 reports are due on the 10th day of the month following a reportable transaction. Our filing of such reports involves a myriad of communications with directors and executive officers, brokers, employee benefits department personnel and plan administrators. Such interactions are time-consuming and we are also impeded by the limitations of brokers' and plan administrators' internal reporting systems. For example, brokerage firms do not even settle a trade until the third business day after the trade date ("T+3") and plan administrators often cannot generate information on a particular account in an abbreviated timeframe.
We do not believe it is feasible to obtain all of the necessary details about each transaction and file a Form 8-K within the timeframes set out in the Commission's proposal. To comply with the accelerated filing timeframe proposed by the Commission, Washington Mutual would need additional staff and would incur additional costs to solicit the necessary information from the various parties involved in such filings. We recommend, instead, that the Commission require that all such reports be filed by the first business day of the second week following the transaction, without regard to the dollar value of the transaction.
B. Use of Section 16(a) Reporting Scheme
The Commission proposes filing reports of certain enumerated transactions pursuant to a new Item 10 to Form 8-K. We recommend that the Commission make the Item 10 disclosure mirror the disclosure required by Section 16(a). Like many other public companies, Washington Mutual already assists its insiders with filing all necessary Section 16 reports. We have developed practices and procedures for tracking all trading in company stock by our insiders and reporting such activity on Forms 3, 4 and 5 under Section 16(a). For example, our insider trading policy imposes pre-clearance obligations on all insiders; we send monthly reminders and requests for information to each insider; we track insiders' stockholdings in company plans through our employee benefits department; and we file Section 16 reports on behalf of most of our insiders.
We believe that companies, insiders and investors are already familiar with the specific disclosure required by Section 16 and have systems in place to gather that information. We believe that the Section 16 reporting scheme already provides good disclosure for the investing public. We believe that by making the requirements of the two systems the same, the reporting requirements will be simplified and companies will be able to rely to a certain extent on their existing procedures.
We understand that this proposal is in keeping with the Commission's recent actions to promote full and fair disclosure for all investors. We believe, however, that it would be extremely difficult for companies such as Washington Mutual to comply with the Commission's proposed filing timeframe. Furthermore, we believe the current Section 16 reporting system works well and should be utilized to the extent possible to accomplish the Commission's goals. Accordingly, we respectfully request the Commission to reconsider its proposal.
We hope that the Commission will find these comments useful and would be pleased to discuss our views with members of the Commission's Staff at their convenience.
Very truly yours,
/s/ Fay L. Chapman
Fay L. Chapman
Senior Executive Vice President and