Discussion and Analysis
Clients and prospective clients often will ask us a series of questions: “Does my proposed activity violate a specific law or regulation?” “If so, what are the potential consequences to me of that violation?” “What is the likelihood that the violation will be detected?” “In your view, is this a reasonable ’business risk’ to take?”
When analyzing complex regulatory matters, especially those in which the relevant regulator’s position on the matter is not yet fully developed or is otherwise unclear, some clients may push us to attempt to prognosticate how likely it is that the regulator will become aware of the matter and pursue it as a possible regulatory violation. This inquiry is sometimes described as an assessment of “regulatory risk” (which, in fact, is something quite different) or, as some more artfully call it, “detection risk” or “discovery risk.”
It is never easy for legal counsel to respond to such a question. First, of course, one should not embark on a course of conduct suspected of being improper based on whether or not one will get caught. And, as counsel, we certainly cannot condone action which may violate applicable law or regulation simply because the chances of detection are viewed as relatively small. But trying to assess how a regulator might find out about a matter, which always has been a risky proposition, has gotten infinitely riskier as of late due to three recent developments: (a) the appointment of Mary Jo White as the Chairperson of the SEC, (b) the SEC’s recent high-profile victories against certain banks, brokers and investment advisers, and high-profile defeats in other matters (e.g., the Mark Cuban case), and (c) the advent of a regulatory tool that is quickly growing in popularity - whistleblower bounties.
There always have been many ways for information to come to a regulator’s attention. For example, an angry investor or counterparty, believing that he or she got the worst of a deal, could complain to a regulator. Many regulators have hot lines and websites specifically dedicated to this purpose. If the particular business involved advertises or publicizes the questionable activity, a member of the regulator’s staff could see it, either because he or she is actively charged with the duty of looking for such items or because he or she inadvertently uncovers it while surfing the web for potential violators. A party that feels significantly wronged in a matter could contact an attorney, who could follow up with the regulator as part of building a case, and a competitor who chooses a different (generally more difficult or expensive) course of conduct could contact the regulator, “just to check” if the other person’s way is permissible.
As we’ve discussed in this space previously, SEC Chairperson White is actively pursuing an aggressive “get tough” enforcement policy. She takes the view that even small violations cannot be excused because, if left unchecked, they create an environment conducive to more material violations. Moreover, regulators, many of which have been soundly criticized for their inaction in detecting or pursuing egregious violators in the past, recently have become emboldened by their high-profile regulatory and enforcement victories. These developments make it difficult and often unproductive to attempt to quantify the “detection risk” in the same way a business might attempt to quantify other potential risks.
But today, the biggest game changer may be that a number of regulators operate programs under which any person with information about a possible regulatory violation or other inappropriate conduct can contact the relevant regulator and, if monetary penalties result, the whistleblower can receive a significant portion of that money. This incentivizes a wide universe of potential bounty hunters to seek and report possible regulatory violations.
One such program that has received a lot of publicity lately is the SEC’s whistleblower procedure, which was mandated by the Dodd-Frank Act. Under the SEC program, a person who provides information that results in an SEC enforcement action, where the sanctions exceed US$1 million, can receive from 10 to 30 percent of the money collected. Indeed, just last month the SEC announced an award of more than US$14 million to a whistleblower who provided information that led to an enforcement action which recovered substantial investor funds. This week another, albeit less lucrative, award was announced.
So this is what we say to someone who might be considering a particular course of action in the belief that the relevant regulator is unlikely to discover it, or that the consequences are unlikely to be significant: you might wish to reevaluate. The fact is that there may well be someone with a business relationship to you, such as an employee, service provider or vendor, who might be willing to notify a regulator in hopes of realizing a large cash award if the matter is successfully pursued as a regulatory violation. In today’s climate, nothing is predictable. As the football saying goes, who can predict what will happen on any given Sunday?
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News from the Americas
Volcker rule update. Market Watch reported that US financial regulators could vote next month on rules implementing the Dodd-Frank Act’s Volcker rule provisions, which prohibit US depository banks from engaging in proprietary trading. (11/4/2013) Vote.
Central banks announce standing swap agreements. The US Federal Reserve, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank have converted their existing temporary bilateral liquidity swap arrangements to standing arrangements. (10/31/2013) Joint press release.
US and Mexico sign information sharing agreement. The US Financial Crimes Enforcement Network signed a Memorandum of Understanding with Mexico’s National Banking and Securities Commission. The agreement facilitates the exchange of information to assist both agency’s efforts to combat money laundering and terrorist financing. (10/24/2013) FinCEN press release.
US agencies propose diversity standards. Six US financial regulators jointly proposed standards for assessing their respective diversity policies and practices. Comments should be submitted by December 24, 2013. (10/23/2013) Joint press release.
Canadian securities regulators issue investor education brochure. The Ontario Securities Commission and the Canadian Securities Administrators have developed a brochure on “Working with a Financial Adviser” to help investors understand what an adviser can do, what to look for in an adviser and how to make the most of the relationship. (11/4/2013) OSC press release.
Canada’s OSC adds SME seminars. The Ontario Securities Commission added three sessions to the “OSC SME Institute” to assist small and medium enterprises (SMEs) with information about market access, capital raising and cost-effective regulatory compliance. The OSC will offer the mineral disclosure, continuous disclosure and capital raising seminar sessions. (10/29/2013) OSC press release.
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News from Asia and the Pacific
China’s IPO market. According to Bloomberg, China may reopen its market for initial public offerings by the end of this year. (11/3/2013) IPOs.
China expands CLO pilot. Reuters reported that China will allow foreign banks to participate in an expanded pilot program for collateralized loan obligations. (10/31/2013) CLOs.
Japan-Indonesia cooperation agreement. Japan’s Financial Services Agency announced that it has signed an information sharing agreement with the Financial Services Authority of Indonesia. (10/31/2013) FSA press release.
ASIC focus for financial reports. The Australian Securities & Investments Commission announced its areas of focus for the December 31, 2013 financial reports of listed entities and other significant economic entities. ASIC’s reviews will include some half-year reports with particular emphasis on the impact of new accounting standards. Directors and auditors also should focus on revenue recognition and expense deferral policies; asset values; and going concern assessments. (10/30/2013) ASIC press release.
US FDIC and People’s Bank of China sign cooperation agreement. The US FDIC and the People’s Bank of China have signed a Memorandum of Understanding aimed at extending their working relationship in the areas of deposit insurance and resolution. (10/24/2013) FDIC press release.
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News from Europe
Britain proposes tougher listing rules. The UK Financial Conduct Authority proposed tighter listing rules for premium listed companies. The rules are aimed at protecting minority shareholders by providing them with additional voting rights and greater influence over key decisions. Comments should be submitted by February 5, 2014. (11/5/2013) FCA press release.
ESMA list of non-EEA counterparty applicants. The European Securities and Markets Authority published the list of central counterparties established in non-EEA countries which have applied for recognition under Article 25 of Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, CCPs and trade repositories. (11/5/2013) ESMA notice.
UK FCA studies outsourcing in the asset management industry. The UK Financial Conduct Authority published the findings from its assessment of whether asset managers are effectively mitigating the risks related to outsourcing. It found that all asset managers reviewed had oversight arrangements in place to oversee their service providers, although their effectiveness varied. Where oversight was lacking, the main cause was insufficient internal expertise. The FCA recommends asset managers review and enhance their contingency plans for a failure of a service provider, review the effectiveness of their current oversight arrangements and improve them where possible. (11/4/2013) FCA press release.
UK fast-tracks resource extractor rule. Reuters reported that the UK government will fast-track the implementation of the EU law requiring resource extractors to disclose payments they make to foreign governments. (10/31/2013) Resource extractors.
UK cash savings market study. The UK Financial Conduct Authority announced that it will study the market for cash savings to see whether competition in the market is working well for consumers. The study will examine competition in the market and any obstacles to consumers switching their savings between accounts, including the information available to them. (10/31/2013) FCA press release.
UK FCA thematic review. The UK Financial Conduct Authority published its thematic review of asset management and platform firms to assess whether this sector is taking adequate steps to mitigate the money laundering and bribery and corruption risks that it faces. (10/31/2013) FCA press release.
UK fees. The UK Prudential Regulation Authority published proposed changes to its fee policy for next year for dual regulated Financial Conduct Authority/Prudential Regulation Authority firms. Comments should be submitted by December 30, 2013. (10/31/2013) PRA press release. Separately, the PRA issued a policy statement explaining when it will consider introducing a special project fee. (10/31/2013) Policy Statement. The Financial Conduct Authority also published proposed policy changes to its fee regime. Comments should be submitted by January 6, 2014. (10/31/2013) FCA press release.
UK FCA fund authorizations. The UK Financial Conduct Authority announced that it is working towards reducing the time it takes to authorize non-undertakings for collective investment in transferrable securities retail schemes and qualified investor schemes to three months and two months, respectively. (10/30/2013) FCA statement.
UK regulator warns asset management industry. The Financial Conduct Authority’s chief executive, Martin Wheatley, spoke before an asset management conference telling attendees that asset managers must stop charging customers for research costs. (10/30/2013) Wheatley speech.
Asset encumbrance standards. The European Banking Authority published its final implementing technical standards on reporting for asset encumbrance. (10/30/2013) EBA press release.
EBA updates prudent valuation guidance. The European Banking Authority published an updated list of frequently asked questions on the Prudent Valuation Quantitative Impact Study, amending the version published on October 3, 2013. (10/30/2013) EBA Press Release.
ESMA financial reporting enforcement. The European Securities and Markets Authority published extracts from its confidential enforcement decisions on financial statements, with the aim of providing issuers and users of financial statements with relevant information on the appropriate application of the International Financial Reporting Standards. (10/29/2013) ESMA notice.
EBA publishes risk dashboard. The European Banking Authority published its first risk dashboard, summarizing the main risks and vulnerabilities in the banking sector in the European Union. The dashboard looks at the evolution of Key Risk Indicators from 56 banks across the EU and points to significant improvements, particularly in terms of strengthened capital base. (10/29/2013) EBA press release.
UK PRA expectations regarding the application of malus to variable remuneration. The UK Prudential Regulation Authority issued a Supervisory Statement clarifying how it expects firms subject to the Remuneration Code in SYSC19A of the Handbook to comply with the requirements on the use of malus in Principle 12(h). It also states the PRA’s intention to consult soon on extending the Code to require firms to apply clawback to vested awards. (10/28/2013) PRA press release.
ESMA updates prospective directive guidance. The European Securities and Markets Authority published updated Questions and Answers on the Prospectus Directive, revising a number of current market practices and addressing a number of new issues related to the implementation of the Prospectus Directive. (10/28/2013) ESMA notice.
EBA consults on LEI use. The European Banking Authority opened a consultation on the use of the Legal Entity Identifier. The document would require all entities for which information is required under EU reporting obligations to obtain a pre-Legal Entity Identifier code for reporting purposes. Comments should be submitted by November 28, 2013. (10/28/2013) EBA press release.
ECB report on migration to a single euro market. The European Central Bank published its second report on migration to the Single Euro Payments Area, analyzing the state of play in euro area countries in creating a single market for credit transfers and direct debits in euro across Europe. The report also provides guidance on managing the transition process. (10/24/2013) ECB press release.
UK consults on crowdfunding. The UK Financial Conduct Authority issued a consultation paper on loan-based and investment-based crowdfunding. Comments should be submitted by December 19, 2013. (10/24/2013) FCA press release.
EBA consults on draft standards for leverage ratio disclosure. The European Banking Authority opened a consultation on draft Implementing Technical Standards (ITS) on disclosure for leverage ratio. These standards will be part of the EU Single Rulebook in the banking sector and aim at harmonizing disclosure of the leverage ratio across the EU by providing institutions with uniform templates and instructions. Comments should be submitted by January 24, 2014. (10/24/2013) EBA press release.
EBA consults on variable remuneration. The European Banking Authority published a consultation paper on draft Guidelines setting out the calculation of the discount rate for variable remuneration and clarifying how it should be applied. Comments should be submitted by January 18, 2014. (10/23/2013) EBA press release.
UK FCA guidance on post-RDR unit class changes. The UK Financial Conduct Authority published proposed guidance concerning the FCA’s expectations of firms involved in the transfer of investors from pre-RDR unit classes to post-RDR unit classes. Comments should be submitted by November 23, 2013. (10/23/2013) FCA press release.
ECB assessments. The European Central Bank announced details of the comprehensive assessment that it will conduct in preparation of its assumption of full responsibility for supervision as part of the single supervisory mechanism. The assessment will commence in November 2013 and will take 12 months to complete. It will be carried out in collaboration with the national competent authorities of the Member States. The exercise has three main goals: transparency (to enhance the quality of information available on the condition of banks); repair (to identify and implement necessary corrective actions, if and where needed); and confidence building (to assure all stakeholders that banks are fundamentally sound and trustworthy). (10/23/2013) ECB press release.
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FSB quantitative impact study of proposed framework for securities financing transactions. The Financial Stability Board launched the second-stage of its two-stage quantitative impact study on the proposed regulatory framework for securities financing transactions. This stage includes a quantitative assessment of the impact on a broader set of firms of the FSB’s haircuts proposals, both the proposed minimum standards for methodologies used by firms in calculating their own haircuts and the numerical haircut floors to be applied to certain securities financing transactions. It comprises a quantitative data collection template and a questionnaire to be completed by regulated financial intermediaries, agent securities lenders and other non-bank reporting entities. (11/5/2013) FSB press release.
Basel Committee consults on trading book capital requirements. The Basel Committee on Banking Supervision issued a second consultative paper on the fundamental review of capital requirements for the trading book. The paper comprises a detailed set of proposals for a comprehensive revision of the market risk framework. This second consultative document provides more detail on the approaches introduced in May 2012, and sets out a draft text for a revised market risk framework. Comments should be submitted by January 31, 2014. (10/31/2013) BIS press release.
Islamic capital market products. The Islamic Financial Services Board, the International Organization of Securities Commissions and the Securities Commission Malaysia jointly published “Disclosure Requirements for Islamic Capital Market Products.” (10/31/2013) Joint press release.
Liquidity stress testing. The Bank for International Settlements published two reports on bank liquidity. BCBS Working Papers No. 24 presents a survey of theory, empirics and current practices regarding liquidity stress testing. BCBS Working Papers No. 25 provides a more detailed review of academic literature pertaining to liquidity stresses. (10/23/2013) BIS press release.
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US Securities and Exchange Commission Developments
Crowdfunding proposal. The SEC proposed rules under the Jumpstart Our Business Startups Act that would allow companies to offer and sell securities through crowdfunding via a broker-dealer or a funding portal. The proposed rules address how much individuals may invest, the amount of money a company can raise, the disclosures crowdfunded companies must make and the regulatory framework for the intermediaries that would facilitate the crowdfunding transactions. Comments should be submitted by February 3, 2014. (10/23/2013) SEC press release. The New York Times summarized the comments of Division of Trading and Markets chief counsel David Blass concerning the proposal’s funding portals provisions. Portals will be able to receive commissions provided that the commissions are disclosed. (11/4/2013) Commissions.
Selected Enforcement Actions
Whistleblower award. The SEC announced an award of more than US$150,000 to a whistleblower whose tips helped the agency stop an investment fraud. The recipient provided significant information that allowed the SEC to quickly open an investigation and obtain emergency relief before additional investors were harmed. The award amount represents 30 percent of the money collected by the SEC in the successful enforcement action, the maximum permitted under the law. (10/30/2013) SEC press release.
Investment advisers allegedly violated client custody rules. The SEC sanctioned three registered investment advisory firms for violating client custody rules. SEC investigations following referrals by agency examiners found that New York-based Further Lane Asset Management, Massachusetts-based GW & Wade, and Minneapolis-based Knelman Asset Management Group failed to maintain client assets with a qualified custodian or engage an independent public accountant to conduct surprise exams. The firms also committed other violations of the federal securities laws. Each firm has agreed to settle the SEC’s charges. (10/28/2013) SEC press release.
Advisory firms sanctioned for ignoring compliance problems. The SEC instituted settled administrative proceedings against three investment advisory firms, Modern Portfolio Management Inc., Equitas Capital Advisers LLC, and Equitas Partners LLC, for repeatedly ignoring problems with their compliance programs. The enforcement actions arose from the agency’s Compliance Program Initiative, which targets firms that have been previously warned by SEC examiners about compliance deficiencies but failed to effectively act upon those warnings. (10/23/2013) SEC press release.
Profile. The current issue of the New Yorker profiles SEC Chairman Mary Jo White, discussing her competitiveness, background and the challenges that she faces. (11/11/2013) Profile.
Money market funds respond. Some of the comments submitted to the SEC in response to the Commission’s proposed reforms for money market funds were summarized by Reuters. Nine firms jointly suggested a more functional definition of a “retail” fund. (10/31/2013) Comments.
OCIE focus. According to InvestmentNews, in 2014 the SEC’s Office of Compliance Inspections and Examinations will focus on the inspection of about one-half of the 4,000 investment advisers that have yet to be examined. (10/31/2013) Focus.
Fee Rate Advisory. The SEC issued a Fee Rate Advisory explaining that it is operating under a continuing resolution until January 15, 2014. Accordingly, the fees paid under Section 31 of the Securities Exchange Act will remain at their current rate until 60 days after the enactment of the Commission’s regular appropriation. (10/31/2013)
Report on administrative proceedings. The SEC published its bi-annual report on its administrative proceedings caseload. The report identifies the number of matters pending before SEC Administrative Law Judges and the Commission at the beginning of the period; the number of matters instituted, filed and disposed of during the period; and the number pending at the end of the period. (10/30/2013) SEC Release No. 34-70781.
Financial Reporting Manual. The SEC’s Division of Corporation Finance updated its Financial Reporting Manual. The updates address the JOBS Act and issues related to Form 8-K age of interim financial statements, acquisitions of selected parts of an entity that may result in less than full financial statements, Form 8-K requirements in reporting a disposition, the effect of retrospectively applied changes in accounting principles on the significance test for equity method investees and registrations on Form S-8 for a new employee benefit plan. (10/29/2013)
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US Commodity Futures Trading Commission Developments
Swap dealer collateral protection rules. The CFTC adopted new final rules imposing requirements on swap dealers and major swap participants concerning the treatment of collateral posted by their counterparties to margin, guarantee or secure uncleared swaps. The new rule includes provisions for the protection of a customer’s portfolio margining account in the event of a broker’s bankruptcy. The new rules will be effective 60 days after publication in the Federal Register, which is expected shortly. (10/30/2013)
Futures commission merchant and derivatives clearing organization customer protection rules. The CFTC adopted new rules enhancing customer protections, risk management programs, internal monitoring and controls, capital and liquidity standards, customer disclosures, and auditing and examination programs for futures commission merchants (FCMs). The regulations also address related issues concerning derivatives clearing organizations and chief compliance officers. The new rules are effective 60 days after publication in the Federal Register, which is expected shortly. (10/30/2013)
Ownership and control reports. The CFTC adopted new rules for the electronic submission of trader identification and market participant data on amended Forms 102 and 40, and on new Form 71. The new and amended forms require the reporting of certain trading accounts active on reporting markets that are designated contract markets or swap execution facilities. The forms collect ownership and control information with respect to both position-based special accounts and trading accounts that meet specified volume-based reporting. The new rules will be effective 90 days after publication in the Federal Register, which is expected shortly. The compliance date is 180 days thereafter. (10/30/2013)
Exception for clerical and ministerial employees. The CFTC issued an amendment to Regulation 23.22 to clarify that swap dealers and major swap participants are not subject to the prohibition in Section 4s(b)(6) of the Commodity Exchange Act on associating with a person who is subject to a disqualification from registration under Section 8a(2) or 8a(3) of the Act, where the person is a clerical or ministerial employee. (10/22/2013)
Requests for Comment
Position limits. The CFTC voted to publish for comment two position limit proposals, one for derivatives and the other for the aggregation of accounts under Part 150 of its rules. The position limits for derivatives proposal would include limits on speculative positions in 28 core physical commodity contracts and their “economically equivalent” futures, options, and swaps; set spot-month position limit levels generally at 25 per cent of estimated deliverable supply; include an exemption to the cash-settled spot-month limit; set non-spot-month position limits using the 10/2.5 percent formula (10 per cent of the contract’s first 25,000 of open interest and 2.5 per cent thereafter); provide exemptions for bona fide hedging positions in physical commodities, positions established in good faith and for certain aggregation accounts; and establish requirements and acceptable practices. (11/5/2013) CFTC fact sheet.
Swaps certification. The CFTC requested public comment on certification applications individually submitted by TW SEF LLC and MarketAxcess SEF to implement available-to-trade determinations for certain interest rate and/or credit default swap contracts. Comments on TW SEF’s application should be submitted by November 29, 2013. (10/29/2013) Comments on MarketAxcess’ application should be submitted by December 2, 2013. (10/31/2013) The CFTC also extended to December 2, 2013, the time in which comments may be submitted in response to Javelin SEF, LLC’s application to implement available-to-trade determinations for certain interest rate swap contracts. (11/1/2013)
DCO application. The CFTC requested comment on Singapore Exchange Derivatives Clearing Limited’s application for registration as a derivatives clearing organization. Comments should be submitted by November 12, 2013. (10/28/2013) CFTC press release.
Regulatory Relief and Orders
SEF temporary registration approved. The CFTC approved the application of Chicago Mercantile Exchange Inc. for temporary registration as a swap execution facility. (11/4/2013) CFTC press release.
Extension of relief for certain forex swaps. The CFTC’s Division of Market Oversight issued a letter providing time-limited extensions of relief for swaps in the foreign exchange asset class previously provided in CFTC Letter No. 13-55 (amended) (Time-Limited No-Action Relief for Temporarily Registered Swap Execution Facilities from Certain Swap Data Reporting Requirements); CFTC Letter No. 13-56 (Time Limited No-Action Relief for Reporting Counterparties from Certain Continuation Data Reporting Requirements); and CFTC Letter No. 13-58 (Time-Limited No-Action Relief to Temporarily Registered Swap Execution Facilities). The Division is extending the relief provided in each letter for swaps in the forex asset class, subject to certain terms and conditions, until 12:01 AM (eastern time) on November 29, 2013. CFTC press release.
Legal Entity Identifiers. CFTC-registered entities and swap counterparties subject to CFTC Legal Entity Identifier (LEI) swap data recordkeeping and reporting regulations may comply with those rules by using any LEI issued by an LEI provider endorsed by the Regulatory Oversight Committee of the global LEI system. (10/30/2013) CFTC press release.
SEF registration relief for Australian platform. The CFTC’s Division of Market Oversight extended to December 1, 2013, the time-limited relief from the swap execution facility registration requirements previously provided to Australian-based trading platform Yieldbroker Pty Limited. Yieldbroker is regulated by the Australian Securities & Investment Commission. The CFTC and ASIC are developing an arrangement that provides for information sharing and other cooperation with respect to Yieldbroker. (10/30/2013) CFTC press release.
Limited purpose swap dealer designations. The CFTC approved the application of Cargill, Inc. and its affiliate, Cargill Financial Services International, Inc., for limited purpose swap dealer (SD) designations. These are the first limited purpose SD designations to be granted. (10/29/2013) CFTC press release.
SEF relief. The CFTC’s Division of Clearing and Risk and Division of Market Oversight provided time-limited relief for swap execution facilities (SEFs) from compliance with certain CFTC regulations. The Divisions will not recommend an enforcement action against a SEF for failure to comply with regulations regarding methods of execution for required or permitted transactions or prohibitions against pre-arranged trading if, after a trade has been rejected for clearing for clerical or operational errors or omissions, the SEF permits a new trade, with terms and conditions that match the terms and conditions of the original trade. Additional other conditions must also be met. The relief expires on June 30, 2014. (10/25/2013) CFTC press release.
Commissioner Chilton to leave. Reuters quoted CFTC Commissioner Bart Chilton as saying that he will be leaving the agency in the near future. (11/5/2013) Departure.
CFTC will not appeal position limit ruling. The CFTC voted to dismiss its appeal of the US District Court decision vacating the agency’s position limit rules. (10/29/2013) O’Malia statement.
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US Banking Agency Developments
Liquidity rules. The Federal Reserve Board proposed liquidity rules for large financial institutions. The proposal would create the first standardized minimum liquidity requirement for large and internationally active banking organizations and systemically important, non-bank financial companies designated by the Financial Stability Oversight Council. (10/24/2013) Federal Reserve Board press release. The OCC and the FDIC jointly proposed liquidity rules, which are substantively the same as those of the Federal Reserve Board. Comments on either proposal should be submitted by January 31, 2014. (10/30/2013) Joint press release.
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US Judicial Developments
Delaware’s corporate arbitration program. The US Court of Appeals for the Third Circuit found that there is a public right of access to the Delaware Chancery Court’s corporate arbitration program. The Delaware Court of Chancery may arbitrate business disputes and the Chancery Court judge presiding over the proceeding may grant any remedy or relief deemed appropriate. The arbitration decisions are appealable to the Delaware Supreme Court. But the law authorizing these proceedings bars public access to the proceedings. A divided panel of the Third Circuit found that there is a First Amendment right of access to these government-sponsored arbitrations. (10/23/2013) Delaware Coalition for Open Government v. Strine.
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US Exchanges and Self-Regulatory Organizations
Veterans Day reporting obligations. The National Futures Association reminded members of their holiday reporting requirements. Because Veterans Day is November 11, 2013, daily segregated, 30.7 secured, cleared swaps customer collateral and daily forex statements prepared as of November 8, 2013, must be submitted by noon on November 11, 2013. Daily segregated, 30.7 secured, cleared swaps customer collateral and forex statements are required to be prepared as of November 11, 2013, and are required to be submitted by noon on November 12, 2013; and FCMs and RFEDs are reminded that any information filed after its due date must be accompanied by a fee for each business day that it is late. NFA Notice to Members I-13-34.
Electronic Blue Sheet submissions. The US members of the Intermarket Surveillance Group (ISG) have extended the effective date for compliance with certain new data elements for Electronic Blue Sheets identified in FINRA Regulatory Notice 13-16 to May 1, 2014. The ISG members have also extended the effective date for compliance with certain other data elements to be consistent with the exemptive relief provided by the SEC, which extended the compliance date for certain broker-dealer recordkeeping and reporting requirements of Securities Exchange Act Rule 13h-1 (Large Trader Rule) from November 1, 2013, to November 1, 2015. (11/1/2013) FINRA Regulatory Notice 13-38.
FINRA renewals. The Financial Industry Regulatory Authority reminded members that the 2014 Renewal Program begins on November 11, 2013, when the Preliminary Renewal Statements will be available on FINRA’s Web CRD/IARD. (11/1/2013) FINRA Regulatory Notice 13-37.
FINRA exam revisions. The Financial Industry Regulatory Authority announced revisions to its Investment Company and Variable Contracts Products Representative (Series 6) examination program. (10/31/2013) FINRA Regulatory Notice 13-36.
TRACE amendments for Rule 144A transactions. The Financial Industry Regulatory Authority announced SEC approval of amendments to FINRA Rule 6750 and TRACE dissemination protocols that provide for the dissemination of transactions in TRACE-eligible securities that are effected pursuant to Securities Act Rule 144A. (10/30/2013) FINRA Regulatory Notice 13-35.
Form U4 amendments. The Financial Industry Regulatory Authority announced the amendment of the Form U4 to update the Judgment/Lien Disclosure Reporting Page to add a question regarding the date that a registered person learns of an unsatisfied judgment or lien. The amendment was effective October 26, 2013. (10/25/2013) FINRA Information Notice.
FINRA Investor Alert. The Financial Industry Regulatory Authority issued an Investor Alert on closed-end fund distributions, explaining what closed-end funds are. (10/28/2013) FINRA press release.
EMIR counterparty classification. The International Swaps and Derivatives Association, Inc., the British Bankers Association, the Investment Management Association, and Markit announced the launch of the EMIR Counterparty Classification Tool, which provides an online system that will allow businesses to classify themselves according to the EMIR taxonomy. (10/28/2013) ISDA press release.
FINRA funding portal proposal. The Financial Industry Regulatory Authority published proposed rules and forms for SEC-registered funding portals that become FINRA members in accordance with the crowdfunding provisions of the JOBS Act. Comments should be submitted by February 3, 2014. (10/23/2013) FINRA Regulatory Notice 13-34.
NFA financial requirements. The National Futures Association reminded members of new fee structures for FDMs and IBs. (10/23/2013) NFA Notice to Members I-13-32.
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