June 30, 1995
TO: CLOSED-END FUND COMMITTEE No. 32-95
COMPLIANCE COMMITTEE No. 29-95
SEC RULES COMMITTEE No. 79-95
CREDITOR'S RIGHTS ADVISORY COMMITTEE
RE: INSTITUTE MEMORANDUM ON POLICIES CONCERNING TRADING IN
TROUBLED DEBT SECURITIES
______________________________________________________________________________
In recent years renewed interest has been paid to potential misuse of material, nonpublic
information in the troubled debt market. The Institute recommends that each member carefully assess its
policies and procedures related to troubled debt to determine whether, given the memberGs specific
business activities, those policies and procedures are reasonably designed to prevent insider trading.
The Institute is pleased to provide the enclosed memorandum to assist members in conducting
this assessment. The memorandum, which was prepared by Institute counsel, suggests situations in
which Institute members might receive material, nonpublic information regarding troubled debt, such as
situations connected with their service on a bankruptcy creditorsG committee or on a pre-bankruptcy “ad
hoc” creditorsG committee. The memorandum then addresses four possible means to avoid the misuse
such information: information-blocking and conduct-blocking devices; trading with similarly situated
participants; unsolicited transactions; and explicit notification of nondisclosure of nonpublic information
known by the member.
The memorandum also provides sample letters with clauses a member might find appropriate in
memorializing an agreement to serve on a creditorGs committee, to trade with a similarly situated party,
or to acknowledge unsolicited trades or trades based on an explicit notification of nondisclosure of
nonpublic information. Due to the diversity of organizations and business operations among member
firms, these sample letters are not intended to be models. Rather, they are intended to assist members in
considering a number of issues when preparing such letters.
While, of course, this memorandum cannot be relied upon as a substitute for appropriate
professional advice, the Institute believes that it will be informative and useful to members as they
reassess their policies and procedures concerning trading in troubled debt. Please feel free to contact the
undersigned (at 202/326-5819) if you have any questions or comments concerning this memorandum.
Thomas Selman
Associate Counsel
Attachment