Date of Adoption: April 26, 2002.

     Purpose: Federal judicial opinions construing Section 10(b) and SEC Rule 10b-5, which is substantially identical to RCW 21.20.010, have found section 10(b) liability when a person purchases or sells a security on the basis of material nonpublic information concerning the security or issuer. Rule 10b5-1(c) sets forth affirmative defenses under which a person's purchase or sale of securities will not be deemed to have been made on the basis material nonpublic information. There is a concern among securities law practitioners that absent a rule, there may be liability under RCW 21.20.010 for transactions that comply with Rule 10b5-1(c). The proposed rule would clarify that a purchase or sale that complies with Rule 10b5-1(c) would also be protected from liability under RCW 21.20.010.

     Statutory Authority for Adoption: RCW 21.20.450.

      Adopted under notice filed as WSR 02-07-027 on March 12, 2002.

     Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 0, Amended 0, Repealed 0.

     Number of Sections Adopted at Request of a Nongovernmental Entity: New 1, Amended 0, Repealed 0.

     Number of Sections Adopted on the Agency's Own Initiative: New 1, Amended 0, Repealed 0.

     Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, Amended 0, Repealed 0.

     Number of Sections Adopted Using Negotiated Rule Making: New 0, Amended 0, Repealed 0;      Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 0, Amended 0, Repealed 0.

     Other Findings Required by Other Provisions of Law as Precondition to Adoption or Effectiveness of Rule: No rule may be made unless the director of the Department of Financial Institutions finds that the action is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of chapter 21.20 RCW. The director hereby makes such a finding with respect to this proposal.
     Effective Date of Rule: Thirty-one days after filing.

April 29, 2002

Mark Thomson

Acting Director

OTS-5356.1

NEW SECTION
WAC 460-12A-010   Certain insider trading deemed not to violate RCW 21.20.010.   The purchase or sale of a security of any issuer on the basis of material nonpublic information about that security or issuer in breach of a duty of trust or confidence that is owed directly, indirectly, or derivatively, to the issuer of that security or the shareholders of that issuer, or to any other person who is the source of the material nonpublic information, will be deemed not to violate RCW 21.20.010 if the person making the purchase or sale complies with Rule 10b5-1(c) of the Securities Exchange Act of 1934.

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