Since the last issue of our IM Update, we have also published the following separate Alerts of interest to the investment management industry:
EMIR – European Commission Responds to Draft RTS on IRS Clearing
January 13, 2015
The European Commission (“Commission”) has publicized its decision to endorse draft regulatory technical standards (“RTS”) submitted to it by the European Securities and Markets Authority (“ESMA”) on the clearing of interest rate OTC derivatives under the European Market Infrastructure Regulation (“EMIR”), with certain amendments. ESMA has until January 29, 2015 (six weeks from the date of the communication from the Commission) to re-submit the draft RTS to the Commission with amendments consistent with those proposed by the Commission or to make a different proposal. The European Parliament and the Council of Europe will have at least three months from the time when final RTS are adopted by the Commission to raise any objections to them.
Recent Changes to the BEA Foreign Direct Investment Reporting
January 6, 2015
The U.S. Department of Commerce, through the Bureau of Economic Analysis (the “BEA”), requires certain U.S. entities (such as investment funds or their portfolio companies) to file annual reports of foreign direct investments with the BEA (the “BE-13” filing). Previously, a BE-13 filing was required of entities specifically contacted by the BEA. In a recent, largely unpublicized notice published on the BEA website on November 26, 2014, the BEA announced that any entity that is party to a transaction that crosses certain reporting thresholds (a “reportable transaction”) will be required to file, regardless of whether the BEA has contacted such entity. In addition to requiring prospective filing after a “reportable transaction”, the BEA is requiring retroactive reporting by January 12, 2015, by any entity that crossed a reporting threshold between January 1, 2014, and November 26, 2014.
Precidian Re-Files Application for Exemptive Relief to Permit Nontransparent Actively Managed Exchange-Traded Funds
December 24, 2014
On December 22, 2014, Precidian ETFs Trust, Precidian Funds LLC and Foreside Fund Services, LLC filed an exemptive application under the 1940 Act requesting permission to operate actively managed exchange-traded funds that would not be required to disclose their portfolio holdings on a daily basis. The application was filed approximately two months after the SEC’s notice of its intention to deny a prior proposal from the same applicants that requested similar relief. The application contains several changes to the proposed ETF structure.
ESMA Releases Level 2 Regulations Under MiFID II
December 19, 2014
The European Securities and Markets Authority (“ESMA”) published an important new set of rules under the revised Markets in Financial Instruments Directive (“MiFID II”). MiFID II came into force on July 2, 2014, but will not have effect until January 3, 2017, reflecting the period granted to European Union member states to make MiFID II’s provisions into national law and for production of the associated “Level 2” rules.
New York Establishes New Cyber Security Examination Process for Financial Institutions
December 16, 2014
New York’s Department of Financial Services released a letter on December 10, 2014, announcing the details of its plan to focus more attention on cyber security matters in conducting examinations. Directed at New York-chartered or -licensed banking institutions, the letter notes that the Department will be incorporating a number of new security-oriented questions and topics into its pre-examination “First Day Letters.” Those questions and topics, outlined below, are similar to those in a more comprehensive cyber security questionnaire attached to a United States Security and Exchange Commission’s Office of Compliance Inspections and Examinations’ (“OCIE”) Risk Alert that was issued on April 15, 2014. The OCIE used its questionnaire earlier this year in conducting a limited set of cyber security examinations of registered investment advisors and broker-dealers. Together, both underscore the need for financial institutions to adopt and implement strong governance principles and controls to protect valuable information.
Second Circuit Raises the Bar for Proving Tippee Liability
December 12, 2014
The U.S. Court of Appeals for the Second Circuit vacated the criminal insider trading convictions of two former hedge fund managers, and in doing so, clarified the elements required to prove an insider trading charge against a “tippee.” The Court held that the government must prove that an individual knew that a company insider had disclosed confidential information in exchange for a personal benefit, and also heightened the standard for proving a personal benefit. Although this decision is being characterized as a “sweeping” blow to the government’s ability to combat insider trading, the U.S. Attorney’s office has petitioned the original three-judge panel to reconsider the decision or, as an alternative, the petition requests a hearing en banc before the entire Second Circuit Court of Appeals.
EU Short Selling – Sovereign Debt
December 11, 2014
The Council of the European Union, on December 1, 2014, has published a provisional version of a press release announcing its decision not to object to the adoption by the European Commission of a regulation on the notification of significant net short positions in sovereign debt. Following the press release, the regulation, a delegated regulation supplementing the EU Short Selling Regulation, can be published in the Official Journal of the European Union and entered into force, unless the European Parliament objects.