Exemptive Applications and Orders

BATS One Feed is inconsistent with the Vendor Display Rule. The Securities and Exchange Commission’s Division of Trading and Markets rejected the request of BATS Global Markets for no-action relief to permit the use of BATS One Feed to fulfill the requirements of the Vendor Display Rule of Regulation NMS. The Division noted that BATS One Feed aggregates approximately only 20 percent of the daily volume in national market system securities among the four BATS Exchanges. Therefore, the broker-dealer’s reliance on the BATS One Feed alone would be inconsistent with the Vendor Display Rule. (7/22/2015) No-action denial. 

Selected Enforcement Actions

Tax accountant-cum-investment adviser is banned from the industry. An SEC Administrative Law Judge (ALJ) issued an initial decision which found that a CPA violated Section 206(4) of the Investment Advisers Act of 1940. The SEC alleged unregistered broker-dealer activity, fraudulent offer and sale of investments in land conservation easements, and misappropriation of investor funds. During the relevant period the CPA maintained an investment advisory business associated with a registered broker-dealer and investment adviser firm. Although the ALJ found that the CPA lied to a securities broker, failed to keep his clients informed, and may have intended to steal from his clients, the ALJ ultimately concluded that he did not steal his clients’ funds and that his clients received the tax deductions they had expected. Nonetheless, the CPA’s actions and testimony attested to his sloppiness, misstatements, and departure from an investment adviser’s standard of care. The ALJ therefore found that he violated the Advisers Act, ordered him to cease and desist from violating Advisers Act Section 206(4), and imposed a permanent associational bar, disgorgement of US$105,750, and civil penalties of US$100,000. (7/27/2015) In the Matter of Paul Edward “Ed” Lloyd, Jr., CPA, SEC Release No. ID-840. 

Investment manager fined for failing to disclose compensation arrangements.The SEC instituted settled administrative proceedings against Dion Money Management, LLC, a registered investment adviser, for failing to disclose to clients the terms of certain compensation arrangements in which the adviser received payments from third parties that were calculated based on client assets invested in particular mutual funds. Although Dion disclosed the existence of these arrangement in filings with the Commission, it did not describe the interplay between the different arrangements, either in its filings or otherwise to clients. The adviser thus understated the maximum payment rate under the multiple arrangements, and did not disclose the possibility of receiving payments from multiple parties based on the same client assets. Without admitting or denying the allegations, Dion consented to the entry of a cease-and-desist order and agreed to pay a US$50,000 civil penalty. (7/24/2015) In the Matter of Dion Money Management, LLC, SEC Release No. IA-4146.

Other Developments

Money market funds. The Division of Investment Management has released statistics regarding money market funds as of June 30, 2015. (7/29/2015) MMF data.

Staff changes. Daniel M. Hawke, chief of the Division of Enforcement’s Market Abuse Unit, is leaving the SEC to return to the private sector. (7/29/2015) SEC staff announcement.

Staff working paper on proxy access. The Division of Economic and Risk Analysis published staff working paper “Public versus Private Provision of Governance: The Case of Proxy Access,” which examines the tradeoffs between universal regulatory mandates and private contracting in the field of corporate governance. (7/24/2015) Staff working paper.

Commissioner Gallagher comments on Labor Department proposal.Commissioner Daniel M. Gallagher responded to the Department of Labor’s proposed rules on the definition of “fiduciary” and the conflict of interest requirements for retirement investment advice. Gallagher’s personal comments criticize the proposal as misguided. (7/21/2015) Gallagher letter.