Final Rules

SEC approves governance and operation standards for securities clearing agencies. The Securities and Exchange Commission adopted final rules that will require covered securities clearing agencies, including those that are deemed systemically important or that are involved in complex transactions, to implement and maintain policies and procedures designed to address all major elements of its operations, including, among other things, governance and comprehensive risk management; financial risk management; general business risk; access requirements; and settlement and depository systems. The final rules will become effective on December 12, 2016. (9/28/2016) SEC press release. SEC Commissioner Kara M. Stein supported the new rules, but concluded that the rules only “marginally decrease the risk posed by systemically important clearing agencies.” See also statements by SEC Chair Mary Jo White and CommissionerMichael S. Piwowar. (9/28/2016)

Proposed Rules and Requests for Comment

SEC proposal would extend new regulatory framework to more clearing agencies. At an Open Meeting, the SEC proposed to amend the definition of “covered clearing agency” to apply the requirements under its newly-adopted rules on enhanced governance and operation standards for registered clearing agencies to other categories of securities clearing agencies, including all SEC-registered securities clearing agencies that are central counterparties, central securities depositories, or securities settlement systems. Comments should be submitted within 60 days of publication in the Federal Register. (9/28/2016)

SEC proposes T+2 settlement cycle for most broker-dealer securities transactions. The SEC proposed a rule amendment to shorten the settlement cycle for most broker-dealer securities transactions from three business days after the trade date (T+3) to two business days after the trade date (T+2), subject to certain exceptions. Comments should be submitted within 60 days of publication in the Federal Register. SEC press release. (9/28/2016)

SEC extends comment deadline for proposal to update and simplify disclosure requirements. The SEC has extended the comment deadline for its proposal to amend certain disclosure requirements that may have become redundant, duplicative, overlapping, outdated, or superseded as a result of other Commission disclosure requirements US Generally Accepted Accounting Principles, International Financial Reporting Standards, or technological changes. Comments are now due on or before November 2, 2016. (9/23/2016) SEC Release No. 33-10220. 


“Tandy” representations no longer required in filing reviews. The SEC’s Division of Corporation Finance has eliminated the requirement that companies include “Tandy” representations in their filings, effective immediately. The Division will instead include a statement in its comment letters that reminds companies of their responsibility for the accuracy and adequacy of their disclosures. (10/5/2016) SEC press release. 

Division of Corporation Finance offers guidance on employer offers of securities. The SEC’s Division of Corporation Finance published new Compliance and Disclosure Interpretations on Securities Act Section 5 and Securities Act Form S-8. The new C&DIs address whether a company-sponsored 401(k) plan that does not prohibit employee contributions to be invested in employer securities through a self-directed “brokerage window” would require Securities Act registration as an offer of employer securities. (9/22/2016) Securities Act Section 5 C&DI 139.33 and Securities Act Form S-8 C&DI 126.41.

No-Action Relief and Exemptive Orders

SEC extends no-action relief from Custody Rule’s auditor inspection requirements. The SEC’s Division of Investment Management extended the no-action relief granted to investment advisers from Investment Advisers Act requirements that auditors performing certain engagements for an investment adviser be subject to regular inspection by the Public Company Accounting Oversight Board. The Division extended the no-action relief until December 31, 2019, or until the SEC approves a permanent inspection program adopted by the PCAOB for auditors of brokers and dealers, whichever is earlier. (10/4/2016) SEC no-action letter.

SEC extends exemption from compliance with SDR rules. The SEC extended the temporary exemptions granted to security-based swap data repositories from compliance with Securities Exchange Act Rules 13n-1 to 13n-12 until April 1, 2017, to allow the agency sufficient time to review the first applications for registration of SDRs. (9/29/2016) SEC Release No. 34-78975.

Selected Enforcement Actions

SEC charges investment adviser with cherry-picking trades and misleading clients. An investment adviser will face charges that he engaged in a cherry-picking scheme to allocate profitable trades to his own account and mislead clients about the fees they paid and the risks of recommended investments. The SEC also alleged that the adviser charged clients invested in an affiliated mutual fund both advisory fees and fund management fees, despite assuring investors that they would not have to pay both kinds of fees. In addition, the adviser allegedly made trades for the mutual fund that deviated from two of its fundamental investment limitations and resulted in a non-diversified portfolio. The SEC alleged that the adviser’s actions led investors to incur significant losses. The SEC charged the adviser with violating Section 10(b) of the Securities Exchange Act and Rule 10b-5; Section 17(a) of the Securities Act; Sections 206(1), 206(2), 206(4) and 207 of the Investment Advisers and Rule 206(4)-8; and Sections 13(a) and 34(b) of the Investment Company Act. In the Matter of Laurence I. Balter, SEC Release No. 33-10228. 

Investment Adviser, CIO charged with compliance failures. The SEC announcedcharges against Moloney Securities Co., Inc. and its president and Chief Investment Officer for failing to implement written compliance policies and procedures for its investment advisory business as well as failing to properly conduct and accurately disclose its practices regarding principal transactions. The SEC alleged that its Office of Compliance Inspections and Examinations issued a deficiency letter to Moloney noting the firm’s lack of compliance policies. While Moloney represented that it would correct the deficiency and develop written policies and procedures, a subsequent exam found that the firm failed to implement the compliance policies it developed concerning best execution and principal transactions. The SEC also alleged that Moloney’s president failed in his oversight of Moloney’s investment advisory business. Without admitting or denying the allegations, Moloney and the president settled the charges by consenting to the entry of cease-and-desist orders and agreeing to pay civil penalties of US$34,000 and US$7,500, respectively. Moloney also agreed to be censured and to enlist the services of an independent compliance consultant. (9/30/2016) In the Matter of Moloney Securities Co., Inc. and Joseph R. Medley, Jr., SEC Release No. 34-79003.

Biotech employee traded on confidential information from clinical trials of company’s breast cancer drug. The SEC charged the former senior director of regulatory affairs for Puma Technology with insider trading, alleging that the director traded ahead of the public release of information about the company’s breast cancer drug, reaping profits of over US$1.1 million. The SEC also alleged that the director altered his trading records before providing them to Puma after the company launched an internal investigation of his trading activity. In addition to the SEC’s civil charges, the director will face charges in a parallel criminal proceeding. (9/29/2016) SEC press release. 

Investment adviser principals failed to disclose conflicts of interest to clients.The SEC announced charges against two principals of a former investment adviser for failing to disclose conflicts of interest arising from the adviser’s investment of client assets into an affiliated mutual fund. Without admitting or denying the allegations, the president and the CEO settled the SEC’s charges by consenting to the entry of cease-and-desist orders. In addition, the president agreed to be censured and to pay disgorgement of US$63,887, prejudgment interest of US$4,614, and a civil penalty of US$40,000. (9/28/2016) In the Matter of Jan Gleisner and Keith D. Pagan, SEC Release No. IA-4537.

Speeches and Statements

Ceresney highlights Enforcement’s focus on auditors and auditing. SEC Division of Enforcement Director Andrew Ceresney reviewed the SEC’s enforcement work in the area of auditing at the American Law Institute Conference on Accountants’ Liability 2016 and recommended best practices for auditors to avoid becoming subjects of enforcement actions. (9/22/2016) Ceresney remarks.

White discusses impact of international cooperation on SEC’s regulatory efforts. Chair Mary Jo White highlighted the role of international cooperation and coordination in the regulation of global securities markets in an address to the International Bar Association Annual Conference. (9/21/2016) White remarks.

Chief Accountant describes new credit loss standard’s role in enhancing quality of financial reporting. SEC Interim Chief Accountant Wesley R. Bricker discussed the Financial Accounting Standards Board’s new credit loss standard and its importance in enhancing the reliability and credibility of financial reporting at the AICPA National Conference on Banks & Savings Institutions. (9/21/2016)Bricker remarks.

Other Developments

SEC will host Fintech forum. The SEC announced a public forum to discuss financial technology innovation, including blockchain technology, automated investment advice or “robo-advisors,” and online marketplace lending and crowdfunding. The forum will be held on November 14, 2016. SEC press release. 

SEC, FINRA, MSRB to hold compliance program for municipal advisors. The SEC, the Financial Industry Regulatory Authority, and the Municipal Securities Rulemaking Board will co-host a compliance outreach program for municipal advisors on November 10, 2016, in a live webcast on the MSRB website. SEC press release.

Advisory Committee on Small and Emerging Companies meeting. The SEC’s Advisory Committee on Small and Emerging Companies met to discuss disclosure requirements in Regulation S-K, research on corporate board diversity, and the treatment of finders and other intermediaries in small business capital formation transactions. In remarks to the committee, SEC Chair Mary Jo White highlighted the launch of the Tick Size Pilot Program at the beginning of October as evidence of the SEC’s efforts to adapt market structure to “promote capital formation for smaller companies.” (10/5/2016) White remarks.

SEC issues fee rate advisory for Section 31 fees at start of fiscal year 2017.The SEC announced that the fees paid under Section 31 of the Securities Exchange Act will remain at their current rate until 60 days after the date of enactment of a regular appropriation for the SEC. (9/30/2016) SEC press release.

OIG: SEC could better document the basis for rejecting SRO proposals. The SEC released the findings of the Office of Inspector General’s audit of the SEC’s process for reviewing self-regulatory organizations’ proposed rule changes, which concluded that the SEC’s Division of Trading and Markets and its Office of Municipal Securities did not consistently document the basis for rejecting SROs’ proposed rule changes in the SEC’s SRO Rule Tracking System. (9/28/2016) OIG final report. 

SEC releases revised Rules of Practice. The SEC updated its Rules of Practice and Rules on Fair Fund and Disgorgement Plans to reflect amendments that became effective on September 27, 2016. (9/26/2016) SEC Rules of Practice.

Money market fund statistics. The SEC’s Division of Investment Management published updated money market fund statistics with data as of August 31, 2016. (9/22/2016) Money market fund statistics.

FINRA and MSRB pay-to-pay rules are equivalent to SEC’s restrictions. The SEC issued orders finding that the pay-to-play rules adopted by FINRA and theMSRB, which prohibit political contributions or payments to third parties by members to solicit business from government entities, impose substantially equivalent or more stringent restrictions on broker-dealers and municipal advisors than the SEC’s Pay-to-Play Rule under the Investment Advisers Act imposes on investment advisers and is consistent with the objectives of the SEC Pay-to-Play Rule. (9/20/2016)