April 25, 2000
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
|Re:|| File No. S7-31-99|
Release Nos. 33-7787, 34-42259, IC-24209
Proposed Rule: Selective Disclosure and Insider Trading
Ladies and Gentlemen:
This letter is submitted by Intel Corporation ("Intel") in response to the request of the Securities and Exchange Commission ("Commission") for comments on proposed Regulation FD, which addresses concerns about selective disclosure of material nonpublic information, and proposed Rule 10b5-1, which addresses the circumstances under which insider trading liability may arise, as well as exceptions to such liability.
Intel Investor Relations and Disclosure Process
Intel's investor relations program includes issuance of quarterly earnings releases shortly following the end of the quarter. These releases include historical information, as well as certain forward-looking projections for the succeeding quarter and the year. The earnings release is published via the Business Wire after the close of regular trading. Approximately ninety minutes later, we hold a conference call where the speakers include, on a regular basis, our chief financial officer and the executive vice-president for our largest operating segment. The earnings release is posted on our website and the conference call is accessible to anyone through various media. Securities analysts are on the conference call and have the opportunity to ask questions. Other persons may listen through streaming audio via the Internet, and, following the conference call, a recording is available on the Internet for several days.
Our investor relations program also includes two analyst conferences per year. One conference is typically held in New York in April and the other conference is held in Santa Clara, California in the fall. Live attendance at the conferences is limited to securities analysts and members of the press, but, through the Internet, anyone else may see and hear the speakers in real time and review the presentation material. In 1999, the Santa Clara analyst conference was done entirely as a webcast with questions submitted by analysts via email. Both conferences are archived on our website for later viewing.
Any material information discussed in our analyst conference calls or analyst conferences has been publicly disseminated prior to the calls or conferences via our earnings release or other press releases. We do not disclose additional material non-public information during analyst conference calls or conferences.
We believe that changes should be made both in the text of Regulation FD and in the adopting release to clarify that providing website access to analyst conference calls and conferences is deemed to be acceptable broad based dissemination. Issuers must be able to take advantage of, to quote the Proposing Release, the "revolutions in communications and information technologies [that] have made it much easier for issuers today to disseminate important information broadly and swiftly." Our specific suggestions are set forth below.
As proposed, Rule 101(e)(2) exempts an issuer from the requirement to file a Form 8-K to publicly disclosure material information if it instead:
Disseminates the information through any other method of disclosure that is reasonably designed to provide broad public access to the information and does not exclude any members of the public from access, such as announcement at a press conference to which the public is granted access (e.g. by personal attendance or by telephone or other electronic transmission). [emphasis supplied]
The Proposing Release similarly recognizes that "current technology provides various means issuers can use to transmit announcements and press conferences to the public." Thus, it would appear that Intel's practice, as described above, of making information available via a webcast available to anyone with Internet access should constitute public disclosure under the rule. The adopting release should make this clear. As Comissioner Laura Unger stated in a January 27, 2000 speech at the San Diego Securities Regulation Institute, "this [practice] should put an end to selective disclosure," referring to Internet access to conference calls.
The proposed requirement that there may not be "any" member of the public excluded from access to "any" method of disclosure used could be read as requiring that each method of disclosure be open to all persons-which could be prohibitively expensive for analyst conference calls, for example. A more appropriate formulation would provide that dissemination must be made "by a method or combination of methods that makes information reasonably available to all interested members of the public at essentially the same time." This would permit, for example, the combination of an analyst conference call, webcast and a press release to the wire services without requiring that each method selected be accessible to every member of the public.
The Proposing Release also states that an issuer "must provide notice of the disclosure in a form that is reasonably available to investors." This requirement is not included in the text of the Rule, and there is no amplification as to how this notice is to be provided. Posting a notice in a prominent position on an issuer's website of the webcast conference call to occur at a specific date and time in the future clearly should be sufficient. However, the Proposing Release further states that "the proposed Rule would not consider a website posting by itself to be a sufficient means of public disclosure." The Commission should rethink this proposition. As Commissioner Unger also stated in her San Diego speech: "can the Commission say that opening up analyst calls to all investors-through the Internet-would avoid selective disclosure but that an issuer cannot cure a selective disclosure by posting the information on its website?" We wholeheartedly agree-a website posting should constitute adequate public dissemination for purposes of Regulation FD. Similarly any adopting release should make clear that posting the availability of a webcast conference call on an issuer's website is sufficent notice for purposes of Regulation FD. Such a posting will be accessible to the millions of investors with Internet access, a far greater number than are likely to actually see a notice issued via a press release, for example.
According to the proposing release, Proposed Rule 10b5-1 is intended to address only the use/possession issue in insider trading cases. The proposal provides that it is illegal to trade a security "on the basis of material nonpublic information...." and a trade is on the basis of such information if the trader "was aware of" the information when he or she made the purchase or sale. The proposed rule also contains several specific affirmative defenses against liability. It is these specific defenses that are of most interest to us in light of the securities trading in which Intel and its directors, officers and other employees engage. Set forth below is a brief description of Intel's securities trading activities and our suggestions with respect to proposed Rule 10b5-1.
Securities Trading Activities
Through Intel's strategic investment program, Intel makes equity investments in other companies to establish innovative technologies, develop industry standard solutions, drive Internet growth and advance the computing platform in support of Intel's strategic interests. As the strategic objectives of various investments are achieved, Intel often sells these investments to realize financial returns and redeploy the assets to other investments and uses. Intel also purchases stocks of the issuers listed in the S&P 500 index, which includes Intel stock, in connection with managing funds in our pension and profit-sharing plans and hedging our obligations under our deferred compensation plans. In addition, Intel maintains an ongoing common stock repurchase program in accord with Rule 10b-18 under the Securities Exchange Act of 1934. Intel's directors, officers and employees also purchase and sell its securities, subject to Intel's insider trading policies, which include trading windowguidelines and other restrictions.
In light of the activities described above, we offer the following specific suggestions for either changes to Rule 10b5-1 or clarifications in any adopting release.
With respect to Intel's own trading activities, the defense provided by paragraph (c)(2) of proposed Rule 10b5-1 for persons other than natural persons is of most interest. That proposal requires that the individual making the investment decision not be aware of the material nonpublic information and that the person have "implemented reasonable policies and procedures, taking into consideration the nature of the person's business, to ensure that individuals making investment decisions would not violate the laws..." (emphasis added). This emphasized language is particularly important to us, because, unlike investment banks or other financial institutions, it would be impracticable in many cases for Intel to establish an absolute "Chinese Wall" between the people who make common stock repurchases and other securities trading decisions and the operations of the company. For example, our chief financial officer, general counsel, and treasurer, among others, are involved in decisions relating to common stock repurchases and the equity portfolios. At the same time, these persons are also routinely engaged in many other corporate activities that could make them aware of material nonpublic information relating to Intel and/or some of the issuers whose shares are held in the equity portfolios.
To guard against the possible misuse of material nonpublic information concerning the securities transactions, we currently have in place solid business processes which are tailored to the particular transactions at hand. We assume that these policies and procedures would meet the requirements of the proposed rule, but believe it would be helpful if any adopting release were to make clear that measures different from those used in the securities industry (such as Chinese Walls and restricted lists as referred to in the proposing release), may satisfy the requirements of the defense. Specific measures might include diligence procedures and training programs.
Similarly, our investment and hedging activities using securities of issuers in the S&P 500 index may be able to utilize paragraph (c)(1)(D) of proposed Rule 10b5-1. That provision contains an affirmative defense for persons who "had adopted, and had previously adhered to, a written plan for trading securities that is designed to track or correspond to a market index...and the amounts, pricing, timing of the purchases or sales actually made were the result of following the previously adopted plan." We believe that any adopting release should make clear that this defense is available to an issuer of securities which are included in the index. More specifically, the rule or release should make clear that the "previously adopted plan" is not required to set forth the specific amounts, pricing, etc. but may refer to a formula or fixed price for determining such parameters. For example, some adjustments to rebalance an index may be deferred until the trade is of a sufficient size to justify paying commissions. It should be sufficient for the plan to provided the parameters around which trades may be deferred by reference to a dollar amount or number of shares. In addition, the reference to "had previously adhered to" the plan should be clarified with respect to its meaning when a plan is first adopted or subsequently amended.
Intel also is interested in the other affirmative defenses in the proposed rule, because it regularly provides guidance and training to its directors, officers and employees in connection with their acquisitions and dispositions of Intel securities. In this regard, it is unclear to us as to whether some of the affirmative defenses require irrevocable investment decisions on the part of the individual involved. For example, paragraph (c)(1)(A) refers to a "binding" contract, but paragraph (c)(1)(B) refers to "providing instructions." Further clarification in the rule and adopting release as to the distinction between these two situations would be helpful. In addition, it would be helpful for any adopting release to address insider participation in other arrangements such as exchange funds pursuant to which holders of Intel stock exchange such stock on a private basis for participation in an investment fund consisting of many different securities established and operated by an independent third party. In such funds, the dates for acceptance of a contribution of the shares and closing generally is controlled by the third party fund manager.
Thank you for consideration of our comments. Should you have any questions or need additional information, please contact the undersigned at (408) 765-1215.
Very truly yours,
Cary I. Klafter
Director of Corporate Affairs
|cc|| Chairman Arthur Levitt|
Commissioner Norman S. Johnson
Commissioner Isaac C. Hunt Jr.
Commissioner Paul R. Carey
Commissioner Laura S. Unger
David M. Becker, General Counsel
David B.H. Martin, Director, Division of Corporation Finance
Richard H. Walker, Director, Division of Enforcement