Discussion and Analysis
The other day, I happened to see a television commercial for a casino based in Hammond, Indiana. The casino boasts about having the most slot machines in Chicagoland. My curiosity piqued, I looked at the website for this casino. One of the tag lines used on the website is the enticing and alluring “Risk is its own reward.” Intrigued, I decided to look at the website for the Illinois Lottery. It, too, encourages visitors to the site to “Play Now” and to “Share that Lucky Feeling.” Of course, in a small, muted, pale gray font is the cautionary admonition to “Play Responsibly.”
Last week, on July 10, 2013, the Securities and Exchange Commission approved new rules related to the Jumpstart Our Business Startups (JOBS) Act, which will enable hedge funds and other similar investment vehicles to advertise their funds to qualified investors. The lifting of the ban on “general solicitation” is something that many financial industry experts had long sought as a way of helping to modernize the nation’s securities laws and spur capital formation and job creation while maintaining and strengthening investor protection.
It is unlikely that we will be seeing television commercials advertising for hedge funds seeking new investors any time soon. Nonetheless, as articulated by the sole dissenting SEC Commissioner, Luis Aguilar, there are those who are very concerned that non-accredited, non-sophisticated “retail” investors will somehow find their way to invest in risky and unsuitable hedge funds or investment schemes. Really? Most hedge funds and other alternative investment vehicles have substantial minimum investment requirements. The managers of those funds generally make a conscious decision not to manage a mutual fund catering to a retail clientele, in favor of serving only institutional or high-net-worth investors. Will they now reverse course and begin trying to obtain small investments from consumers and the general public?
Just as there are undoubtedly those who sneak into a casino before their 21st birthday, or who fail to heed the admonition to “play responsibly,” it is inevitable that investors will emerge who misrepresent themselves as accredited and sophisticated in order to gain access to certain hedge funds, a decision that they later come to regret. Although laws often are intended to influence certain behavior, discourage or prohibit certain conduct or protect people from their own flaws and those who may seek to take advantage of them, it makes no more sense to continue to prohibit hedge funds from advertising than it does to prohibit ads for casinos or government-approved invitations to play the lottery.
At last week’s meeting, the SEC also issued proposed rules which, if adopted, would impose certain restrictions and conditions on those engaging in general solicitations. Perhaps all that is needed is two words: “Play Responsibly.” After all, if that is sufficient warning for the lottery, shouldn’t it be sufficient for those seeking to invest in hedge funds?
News from the Americas
Naked short selling. Compliance Week summarized the results of a study on naked short selling conducted by professors from the University of Texas San Antonio and Texas A&M University. The study found that the practice may be based on accounting fundamentals, rather than an abusive market action. Naked short selling.
Glass-Steagall reproposed. US Senators Elizabeth Warren, John McCain, Maria Cantwell and Angus King introduced a modern version of the Glass-Steagall Act. If passed, the “21st Century Glass-Steagall Act” would once again separate commercial banking from investment banking. (7/11/2013) Warren press release.
Canadian regulator’s three-year business plan. The Canadian Securities Administrators set forth priorities for the next three years. (7/9/2013) OSC press release.
Canada issues direct electronic access framework. The Canadian Securities Administrators issued amendments to “National Instrument 23-103 Electronic Trading (NI 23-103)” to establish a framework for the offer and use of direct electronic access (DEA) and to address the financial and regulatory risks associated with DEA. If approved, the amendments will be effective March 1, 2014. (7/4/2013) OSC press release.
US Labor Department extends pension plan comment period. The US Labor Department extended the comment period for its advance notice of proposed rulemaking concerning the lifetime income illustrations given to participants in defined contribution pension plans. Comments should be submitted on or before August 7, 2013. (6/27/2013) Labor Department press release.
FASB proposes insurance contract accounting amendments. The Financial Accounting Standard Board issued for public comment a proposal to improve financial reporting of insurance contracts, including measurement of insurance liabilities and the related effect on the statement of comprehensive income. Proposed Accounting Standards Update, Insurance Contracts (Topic 834), would apply to all contracts that meet the definition of an insurance contract, not just those written by insurance companies. Comments should be submitted on or before October 25, 2013. (6/27/2013) FASB press release.
OSC priorities. The Ontario Securities Commission published its “Notice of Statement of Priorities for Financial Year to End March 31, 2014.” (6/27/2013)
CSA extends comment period on mutual fund proposal. The Canadian Securities Administrators have extended to August 23, 2013, the comment period for proposed amendments to National Instrument 81-102 Mutual Funds(NI 81-102), which proposes changes to National Instrument 81-102CP and proposals related to National Instrument 81-104 Commodity Pools (NI 81-104) and securities lending, repurchases and reverse repurchases by investment funds. (6/25/2013) CSA staff notice.
News from Asia and the Pacific
India relaxes foreign direct investment rules. India is relaxing its foreign direct investment rules, according to Reuters. Under the new rules, foreign firms will be allowed to invest in the telecom industry without a local partner. (7/16/2013) FDI.
China opens investment opportunities. The Xinhua News Agency reported that the China Securities Regulatory Commission has raised the investment quota of Qualified Foreign Institutional Investors (QFII) to US$150 billion. The decision significantly raises the amount of foreign investment permitted in Chinese financial markets. (7/12/2013) Investment expansion.
ASIC rules for trading and reporting derivatives. The Australian Securities & Investment Commission issued final rules on the trading and reporting obligations for over-the-counter derivatives. The rules establish which entities will need to report to trade repositories, what information will need to be reported, and when the reporting obligation will start for different classes of reporting entities and different instrument types. (7/11/2013) ASIC press release.
ASIC financial requirements for custodians. The Australian Securities & Investment Commission has published new financial requirements for custodians. The new rules also apply to asset holders for registered schemes or investor directed portfolio services. Beginning July 1, 2013, new licensees were required to comply with the new requirements. For existing licensees, there will be a one year transition period and compliance will be required from July 1, 2014. (6/28/2013) ASIC press release.
ASIC platforms guidance. The Australian Securities & Investment Commission has published new disclosure guidelines requiring platform operators to explain to consumers how they choose the products offered through their platforms. The revised requirements apply from July 1, 2013, to Australian financial services licensees that are licensed to operate a platform from that date. Existing operators have until July 1, 2014, to comply. (6/28/2013) ASIC press release.
Singapore consults on derivatives reporting. The Monetary Authority of Singapore published draft regulations concerning the reporting of derivatives contracts to trade repositories. Comments should be submitted on or before July 24, 2013. (6/26/2013)
ASIC information sheets on private litigation. The Australian Securities & Investments Commission released two information sheets that explain how it decides whether to become involved in private litigation and how it can assist private litigants by providing them with non-public information and documents. (6/25/2013) ASIC press release.
ASIC consultation on financial advice training. The Australian Securities & Investments Commission released a consultation paper proposing enhancements to the training standards for people who provide financial product advice. Comments should be submitted on or before September 30, 2013. (6/24/2013) ASIC press release.
Singapore issues technology risk guidelines. The Monetary Authority of Singapore issued the Technology Risk Management (TRM) Notice and Guidelines. The TRM Guidelines provides guidance to the financial industry on the establishment of sound technology risk management and security practices. (6/21/2013) MAS press release.
News from Europe
UK reports on the automatic renewal of fixed term bonds. The UK’s Financial Conduct Authority published a report on the automatic renewal of fixed term bonds. To conduct the review, the FCA asked 30 firms for details about their contracts and their practices regarding automatic renewal. The report outlines the FCA’s concerns and the firms’ responses. (7/15/2013) FCA press release.
ECB comparison of collateral eligibility rules. The European Central Bank published a report entitled “Collateral eligibility requirements: a comparative study across specific frameworks.” The report compares the collateral eligibility rules of different central banks (including European central banks, as well as the central banks of the United States and Japan), the regulatory frameworks in place and the practices of central counterparties. (7/15/2013) ECB press release.
ESMA discussion paper on clearing OTC derivatives. The European Securities and Markets Authority published a Discussion Paper to prepare the regulatory technical standards (RTS) which will implement provisions of the European Markets Infrastructure Regulation for the central clearing of over-the-counter derivatives. The consultation is aimed at assisting ESMA in developing its approach to determining which classes of OTC derivatives need to be centrally cleared and the phase-in periods for the counterparties concerned. Comments should be submitted on or before September 12, 2013. (7/12/2013) ESMA notice.
EBA consults on CCP capital. The European Banking Authority issued a consultation on draft Implementing Technical Standards on the reporting of the hypothetical capital of a central counterparty. Comments should be submitted on or before September 30, 2013. (7/12/2013) EBA press release.
UK FCA consultation on the client assets regime for investment business. The UK’s Financial Conduct Authority launched a consultation paper proposing changes to the client assets rules applicable to firms subject to the client assets sourcebook (CASS) because they hold client money, custody assets, collateral and/or mandates (or rely on exemptions contained within CASS) in relation to investment business. Comments to the consultation paper’s provisions regarding the European Market Infrastructure Regulation should be submitted on or before August 12, 2013. All other comments should be submitted on or before October 11, 2013. (7/12/2013) FCA press release.
EU warns UK. Bloomberg reported the comments of EU Commissioner Michel Barnier regarding the UK’s reluctance to accept EU financial markets oversight. Bloomberg quoted Barnier as saying that the UK will not be allowed to “pick and mix” selected regulations. Warning. (7/12/2013)
ESMA consultation on implementing credit rating agency regulation. The European Securities and Markets Authority published a discussion paper on the implementation of the CRA3 Regulation, which complements the existing regulatory framework for credit rating agencies (CRAs). The discussion paper addresses disclosure requirements on structured finance instruments; the European Rating Platform; and the periodic reporting on fees charged by CRAs. Comments should be submitted on or before October 10, 2013. (7/10/2013) ESMA notice.
EC proposes single resolution mechanism for banks. The European Commission proposed a Single Resolution Mechanism for the Banking Union. The mechanism would complement the Single Supervisory Mechanism (SSM) which, once operational in late 2014, will provide the European Central Bank with direct supervision over banks in the euro area and in other Member States that join the Banking Union. (7/10/2013) EC press release.
UK FCA consultation on Retail Distribution Review rules. The UK’s Financial Conduct Authority published a consultation paper on the application of its Retail Distribution Review rules. Comments should be submitted on or before October 4, 2013 (7/4/2013) FCA notice.
ESMA report on retailization. The European Securities and Markets Authority published a research report on retailization in the EU, which examines the growth in the sale of complex financial products to consumers. ESMA’s research focused on two specific types of complex products, alternative UCITS and structured retail products. (7/3/2013) ESMA press release.
UK FCA reports on banks’ control of financial crimes risk. In a report published by the UK’s Financial Conduct Authority, the regulator describes how banks in the UK control money laundering, terrorist financing and sanctions risks. Among other things, the report found that the majority of banks surveyed, including major UK banks, are not taking adequate measures to protect against the risk of money laundering and terrorist financing in their business. (7/1/2013) FCA thematic review notice. Separately, the FCA issued best practices guidance aimed at strengthening banks’ financial crime systems and controls in trade finance. (7/2/2013) FCA guidance notice.
UK publishes AIFMD rules. The UK’s Financial Conduct Authority published its rules implementing the Alternative Investment Fund Managers Directive. The rules are effective July 22, 2013, although some transitional relief is included. (6/28/2013) FCA policy statement.
UK deferred prosecution agreements. The Director of the UK’s Serious Fraud Office and the UK Director of Public Prosecutions published a draft Code of Practice setting out their approach to the use of Deferred Prosecution Agreements. Comments should be submitted on or before September 20, 2013. (6/27/2013) SFO press release.
UK FCA guidance on filing an information. The UK Financial Conduct Authority published guidance on how designated consumer bodies and regulated persons should bring an information to the attention of the FCA. (6/25/2013) FCA Notice.
EBA consults on technical standards on closely correlated currencies and on diversified indices. The European Banking Authority published two consultation papers on draft Implementing Technical Standards to identify (i) a list of relevant closely correlated currencies for the purposes of calculating the capital requirements for foreign-exchange risk; and (ii) a list of relevant appropriately diversified indices for the purposes of calculating the capital requirements for equity risk. Comments on either should be submitted on or before September 8, 2013. (6/25/2013) EBA press release.
ESMA market making compliance table. The European Securities and Markets Authority published a Compliance Table for its Guidelines on Exemption for market making activities and primary market operations under the Short Selling Regulation. The table indicates which national competent authorities have declared that they comply or intend to comply with the Guidelines and which do not comply. (6/19/2013) ESMA notice.
EC rules for CRAs are effective. As of June 20, 2013, credit rating agencies (CRAs) operating within the European Union will have to follow new rules meant to reduce over-reliance on credit ratings and improving the quality of the rating process. (6/18/2013) EC press release.
IOSCO and WFE publish paper on cybercrime. The Research Department of the International Organization of Securities Commissions and the World Federation of Exchanges published a joint working paper on the evolving nature of cybercrime in securities markets and the threat it poses to the fair and efficient functioning of markets. (7/16/2013) IOSCO press release.
Basel Committee discussion paper on capital standards. The Basel Committee on Banking Supervision released a discussion paper on the balance between risk sensitivity, simplicity and comparability within the Basel capital standards. The paper outlines the potential benefits and costs from a more risk sensitive methodology. Comments should be submitted on or before October 11, 2013. (7/8/2013) BIS press release.
Basel Committee proposal on the treatment of bank investments in funds. The Basel Committee on Banking Supervision published proposed revisions to the prudential treatment of banks’ equity investments in funds. Comments should be submitted on or before October 4, 2013. (7/5/2013) BIS press release.
Basel Committee G-SIB updated assessment. The Basel Committee on Banking Supervision issued an updated assessment methodology for identifying global systemically important banks (G-SIBs), described the additional loss absorbency requirements that will apply to G-SIBs, the phase-in arrangements for these requirements and the required disclosures for banks above a certain size. (7/3/2013) BIS press release.
Basel Committee issues two derivatives-related proposals. The Basel Committee released two consultative papers on the treatment of derivatives-related transactions under the capital adequacy framework: “The non-internal model method for capitalizing counterparty credit risk exposures” and “Capital treatment of bank exposures to central counterparties.” Comments on either should be submitted on or before September 27, 2013. (6/28/2013) BIS press release.
Basel Committee proposes AML guidelines. The Basel Committee published for comment its proposed guidelines for managing risks related to money laundering and terrorism financing. Comments should be submitted on or before September 27, 2013. BIS press release.
Basel Committee proposes leverage ratio formula. The Basel Committee on Banking Supervision proposed a formulation for calculating the leverage ratio by banks subject to the Basel III framework, as well as a set of public disclosure requirements. Comments should be submitted on or before September 20, 2013. (6/26/2013) BIS press release.
Basel Committee assessment of Swiss capital rules. The Basel Committee on Banking Supervision published a report assessing the regulations that implement the Basel capital framework in Switzerland and found the Swiss regulations to be in compliance. (6/25/2013) BIS press release.
IOSCO publishes ETF framework. The International Organization of Securities Commissions published “Principles for the Regulation of Exchange Traded Funds,” which presents nine principles intended to guide the regulation of ETFs and foster industry best practices in relation to these products. (6/24/2013) IOSCO press release.
US Securities and Exchange Commission Developments
New Final Rules
Supervised investment bank holding company rules rescinded. The SEC rescinded the rules that established its program for supervising investment bank holding companies, and made conforming changes to certain exemptive provisions in its broker-dealer risk assessment and delegation of authority rules. The rescissions are the result of the Dodd-Frank Act’s elimination of the section of the Securities Exchange Act under which the rules had been promulgated. The rescissions are effective immediately. (7/12/2013) SEC Release No. 34-69979.
Retail foreign exchange transactions. The SEC adopted, as a final rule, interim temporary Rule 15b12-1T under the Securities Exchange Act of 1934. Rule 15b12-1T allows a registered broker-dealer to engage in a retail forex business provided that the broker-dealer complies with the Securities Exchange Act of 1934, the rules thereunder, and applicable self-regulatory organization rules. Rule 15b12-1T will expire on July 31, 2016. (7/11/2013) SEC Release No. 34-69964. See also Aguilar Remarks (expressing dissatisfaction with the Commission’s failure to propose final rules addressing retail forex).
Eliminating the prohibition against general solicitation. In accordance with the JOBS Act, the SEC adopted rules removing the prohibition on general solicitation or general advertising for unregistered securities offerings made under Rule 506 of the Securities Act of 1933. The new rules require issuers to take reasonable steps to insure that only “accredited investors” invest and that actual sales are limited to accredited investors. The new rule is effective 60 days after publication in the Federal Register, which is expected shortly. (7/10/2013) SEC Release No. 33-9415.
Disqualification of felons and other “bad actors” from Rule 506 offerings. In accordance with the Dodd-Frank Act, the SEC amended Securities Act Rule 506 to bar felons and other “bad actors” from participating in exempt offerings. The amendments are effective 60 days after publication in the Federal Register, which is expected shortly. (7/10/2013) SEC Release No. 33-9414.
Amendments to Regulation D, Form D, and Rule 156 under the Securities Act. The SEC issued proposed rules that would allow it to monitor how general solicitation impacts the private placement market. If adopted, the rules would amend Regulation D to require legends and other disclosures in written materials disseminated in offerings utilizing general solicitation. The proposal would also amend Rule 156 to extend certain antifraud guidance to private funds sales literature, and would add new Rule 510T to require, on a temporary basis, the submission of written general solicitation materials to the Commission. Comments on the proposed rule should be submitted within 60 days after publication in the Federal Register, which is expected shortly. (7/10/2013) SEC Release No. 33-9416.
Selected Enforcement Actions
Failure to refile leads to denial. The SEC issued an order denying a whistleblower claim for an award. Although the claimant submitted original information about a possible accounting fraud in 2006, the claimant did not refile that information or provide additional original information to the Commission after July 21, 2010, as required by the rules governing the SEC’s Whistleblower program. (7/2/2013) In the Matter of the Claim for Award, SEC Release No. 34-69912.
Investor Advisory Committee to meet. The SEC’s Investor Advisory Committee will hold a public meeting on July 25, 2013. The agenda includes discussions on data tagging and the use of universal proxy ballots. (7/15/2013) SEC Release No. 33-9418.
Commissioner Gallagher remarks concerning proxy advisors. SEC Commissioner Daniel M. Gallagher discussed the role of proxy advisory firms, expressing concern for the influence they exert over institutional investors. (7/11/2013) Gallagher remarks.
New enforcement initiatives. The SEC announced three new enforcement task forces: the Financial Reporting and Audit Task Force; the Microcap Fraud Task Force; and the Center for Risk and Quantitative Analytics. (7/2/2013) SEC press release.
US Commodity Futures Trading Commission Developments
Requests for Comment
CFTC seeks comments on CME wash trades rule. The CFTC published for comment a request from the Chicago Mercantile Exchange, The Board of Trade of the City of Chicago, New York Mercantile Exchange, Commodity Exchange and Kansas City Board of Trade, for approval of CME Group Market Regulation Advisory Notice RA1308-5. The Advisory Notice provides guidance relating to CME’s wash trades rule, as well as information related to “Self-Match Prevention” functionality on the CME Globex electronic trading platform. Comments should be submitted on or before August 14, 2013. (7/15/2013) CFTC press release.
Cross-Border Application of Swaps Regulations
Compromise announced. The European Commission and the CFTC announced a joint understanding regarding a coordinated approach to the regulation of cross-border derivatives. Among other things, the regulators agreed that, where appropriate, substituted compliance with an equivalent regulation would be recognized. (7/11/2013) Joint Press Release.
Implementation. To begin implementing the EC-CFTC understanding, the CFTC issued four no-action letters. (7/11/2013)
• The Division of Clearing and Risk issued a no-action letter to LCH.Clearnet SA, CFTC Letter No. 13-43, and Eurex Clearing AG, CFTC Letter No. 13-44 to facilitate the provision of clearing services during the pendency of their derivatives clearing organization registration applications.
• The Division of Swap Dealer and Intermediary Oversight issued a letter providing relief from certain risk mitigation requirements to certain swaps transactions subject to both section 4s of the Commodity Exchange Act and Article 11 of the European Market Infrastructure Regulation. CFTC Letter No. 13-45.
• The Division of Market Oversight issued a letter expanding the relief provided by previously issued no-action letters regarding foreign boards of trade to include swap contracts for trading by direct access, subject to certain conditions. CFTC Letter No. 13-46.
See also CFTC Press Release.
Cross-Border exemption and guidance. The CFTC voted to adopt an exemptive order and interpretive guidance concerning the cross-border application of its swaps regulations. The exemptive order provides temporary relief in order to permit market participants to assess the impact of the guidance. It delays, until 75 days after the guidance is published in the Federal Register, the effectiveness of the definition of “US person” and changes in the swap dealer and major swap participant calculations and the associated aggregation rules. See Exemptive order fact sheet. The guidance includes a territorial based definition of “US person” and provides for substituted compliance with a foreign jurisdiction’s law and regulations. See Interpretive guidance fact sheet. (7/12/2013)
Other Regulatory Orders
ICE Trade Vault. The request of ICE Trade Vault, LLC, to remove the “foreign exchange” asset class as an asset class for which it will accept data was approved. (7/2/2013) CFTC press release.
Regulatory Relief and Guidance: Division of Market Oversight
Identifying reporting requirements. The Division provided reporting parties under Parts 20, 45 and 46 of the CFTC’s regulations with time-limited no-action relief from requirements to report certain identifying information regarding their counterparties. The no-action letter addresses Legal Entity Identifiers, other identifying swap data fields, and large swap trader counterparty identification information. The relief expires no later than June 30, 2014. (6/28/2013) CFTC Letter No. 13-41.
Swap data reporting relief. The Division extended to December 31, 2013, the time-limited relief granted to swap dealers and major swap participants from the obligation to report swap data under part 45 of the CFTC’s regulations for cleared credit default swaps that are entered into pursuant to a derivatives clearing organization’s rules related to its price submission process for determining end-of-day settlement prices for cleared CDS. (6/27/2013) CFTC Letter No. 13-36.
Bespoke swaps. The Division issued time-limited no-action relief for complex swaps from certain reporting obligations under Parts 43 and 45 of the CFTC’s regulations. (6/27/2013) CFTC Letter No. 13-35.
Regulatory Relief: Division of Swap Dealer and Intermediary Oversight
Portfolio reconciliation. The Division issued time-limited relief to all swap dealers and major swap participants from the portfolio reconciliation requirements of Regulation 23.502 until August 23, 2013. (6/28/2013) CFTC press release.
Forex intermediated prime brokerage. The Division provided swap dealers with time-limited relief from certain External Business Conduct Standards rules in the context of foreign exchange intermediated prime brokerage arrangements. (6/27/2013) CFTC Letter No. 13-39.
SD forex documentation. The Division issued time-limited relief for swap dealers and major swap participants from certain swap trading relationship documentation requirements. (6/27/2013) CFTC Letter No. 13-38.
Floor trading activities. The Division provided time-limited relief for persons engaging in floor trader activities. The relief expires on October 2, 2013. (6/27/2013) CFTC Letter No. 13-37.
External business conduct standards. The Division issued a no-action letter addressing “Intended-To-Be-Cleared Swaps.” The letter provides relief with respect to the swap trading relationship documentation requirement under CFTC Regulation 23.504 and certain external business conduct standards requirements. (6/26/2013) CFTC Letter No. 13-33.
CCO annual reporting. The Division provided certain swap dealers with limited relief from the requirement that chief compliance officers prepare and submit an Annual Report. (6/26/2013) CFTC Letter No. 13-32.
Portfolio reconciliation. The Division identified 11 data fields that may be excluded from portfolio reconciliations. (6/26/2013) CFTC Letter No. 13-31.
Fingerprinting. The Division issued relief from the fingerprinting requirement for associated persons of CFTC registrants where the associated persons have not resided in the United States since reaching 18 years of age. (6/21/2013) CFTC Letter No. 13-29.
US Banking Developments
Supplementary leverage ratios proposed. The Federal Reserve Board, FDIC, and OCC published a proposed rule that would require bank holding companies with more than US$700 billion in consolidated total assets or US$10 trillion in assets under custody to maintain additional capital. Among other things, these institutions would have to maintain a tier 1 capital leverage buffer of at least 5 percent. Comments should be submitted within 60 days after publication in the Federal Register, which is expected shortly. (7/9/2013) Joint press release.
Capital requirements. The Federal Reserve Board adopted the Basel III capital requirements for banks. The rule includes a new minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5 percent and a common equity tier 1 capital conservation buffer of 2.5 percent of risk-weighted assets. For the largest organizations, the rule includes a new minimum supplementary leverage ratio that takes into account off-balance sheet exposures. For community banks, the changes from current regulations target a few areas that are higher risk, but are otherwise minimal. (7/2/2013) Federal Reserve Board press release. The FDIC and OCC have also approved the Basel III capital requirements. (7/9/2013) FDIC press release; OCC press release.
US Judicial Developments
Dismissal of securities fraud lawsuit against mortgage firm is affirmed. The US Court of Appeals for the Tenth Circuit affirmed the dismissal of investor claims brought against the underwriters for Thornburg Mortgage’s securities offering. At the time of Thornburg’s disclosures, the Court found, few foresaw the timing and breadth of the economic downturn; documents incorporated by reference by Thornburg’s prospectuses disclosed its risk exposure; and because Thornburgh adequately portrayed its finances, additional details concerning its exposure were unnecessary. (7/9/2013) Slater v. A.G. Edwards & Sons, Inc.
SEC resource extractor rule vacated. The SEC’s resource extractor rules were vacated by the US District Court for the District of Columbia. The plaintiffs contended that the challenged rules, which were promulgated under the Dodd-Frank Act, violated the First Amendment and the Administrative Procedures Act. On cross-motions for summary judgment the Court found that the Dodd-Frank Act did not require the public disclosure of the disclosure reports and that the SEC’s decision to deny any exemption was, given the limited explanation provided, arbitrary and capricious. (7/2/2013) American Petroleum Institute v. SEC.
CFTC investment company registration. The US Court of Appeals for the DC Circuit affirmed the CFTC’s rules requiring SEC-registered investment companies engaging in the activities of a commodity pool operator (and meeting certain trading thresholds), to register with and report to the CFTC. (6/25/2013) Investment Company Institute v. CFTC.
Efforts to recover funds for Madoff victims fail. The US Court of Appeals for the Second Circuit affirmed the dismissal of various state law tort and contract claims brought by the Securities Investor Protection Corporation trustee for Bernard L. Madoff Investment Securities, the brokerage firm of convicted Ponzi schemer Bernie Madoff. (6/20/2013) In re: Bernard L. Madoff Investment Securities.
US Exchanges and Self-Regulatory Organizations
ISDA credit derivatives definitions. The International Swaps and Derivatives Association described the areas in which changes to its credit derivatives definitions are anticipated. The changes are expected to be implemented March 20, 2014. (7/15/2013) ISDA notice.
CME seeks exemption from proposed Regulation SCI. According to Reuters, CME Group, Inc. has asked the SEC to exempt it from proposed rules that would require it to test and have comprehensive policies and procedures in place for its technological systems. CME claims that it is already highly regulated by other agencies and that its participation in equity markets is minimal. (7/15/2013) Exemption.
ATS reporting. Reuters reported that the Financial Industry Regulatory Authority will ask the SEC for permission to obtain trading information from alternative trading systems. (7/12/2013) ATS reporting.
FINRA revises equity trader exam. The Financial Industry Regulatory Authority published revisions to its Equity Trader (Series 55) examination program. The changes are reflected in the Series 55 content outline on FINRA’s website and will appear in the Series 55 examination starting on August 12, 2013. (6/28/2013) FINRA Regulatory Notice 13-22.
ISDA provisions for certain physical settlements. The International Swaps and Derivatives Association published Additional Provisions relating to Credit Derivative Transactions with a Restricted Delivery Party where Physical Settlement applies. The provisions are for use where the settlement method is physical settlement and either party to the transaction is restricted from holding a loan or there is a limit on the outstanding principal balance of a bond that it may hold. (6/25/2013) ISDA press release.