New Final Rules
SecurityBased Swap Data Repository Registration, Duties, and Core Principles
On February 11th, the Securities and Exchange Commission (“SEC”) published the adopting release and text of new rules governing the securitybased swap data repository (“SDR”) registration process, duties, and core principles. The SEC is also adopting a new registration form. Additionally, the SEC is amending several of its existing rules and regulations in order to accommodate SDRs. Regulation ST and Exchange Act Rule 24b2 are amended to clarify that all filings by SDRs, including any confidential portion, and their requests for confidential treatment must be filed electronically. Second, the SEC is amending Regulation ST by, among other things, adding a new rule that specifically applies to the electronic filing of SDRs’ financial reports. The new rules and amendments will be effective 60 days after publication in the Federal Register, which is expected shortly. The deadline for compliance with the new rules and amendments will be 1 year following their effectiveness. SEC Release No. 3474246.
Regulation SBSRReporting and Dissemination of SecurityBased Swap Information
On February 11th, the SEC published the adopting release and text of Regulation SBSRReporting and Dissemination of SecurityBased Swap Information. Regulation SBSR provides for the reporting of security based swap information to registered SDRs or to the SEC, and the public dissemination of securitybased swap transaction, volume, and pricing information by registered SDRs. Registered SDRs are required to establish and maintain certain policies and procedures regarding how transaction data are reported and disseminated, and participants of registered SDRs that are registered securitybased swap dealers or registered major security based swap participants are required to establish and maintain policies and procedures that are reasonably
designed to ensure that they comply with applicable reporting obligations. Regulation SBSR contains provisions that address the application of the regulatory reporting and public dissemination requirements to crossborder securitybased swap activity as well as provisions for permitting market participants to satisfy these requirements through substituted compliance. The new rule is effective 60 days after publication in the Federal Register, which is expected shortly. SEC Release No. 3474244. Commissioners Daniel M. Gallagher and Michael S. Piwowar issued a statement explaining why it took almost a month for the SEC to publish the adopting release and text for Regulation SBSR and calling for the reopening of the comment period for the rule. Shortly after the SEC’s January 14 vote adopting the rule, SEC staff discovered that an extensive comment letter related to Regulation SBSR was inadvertently left out of the publicly available comment file. The letter, submitted by the International Swaps and Derivatives Association, was neither considered by staff in developing their recommendation, nor published on the SEC’s website. Commissioners’ Statement.
Regulation SBSRReporting and Dissemination of SecurityBased Swap Information
On February 11th, the SEC published the proposing release and text of new rules and rule amendments to Regulation SBSRReporting and Dissemination of SecurityBased Swap Information. Proposed Rule 901(a)(1) of Regulation SBSR would require a platform (i.e., a national securities exchange or securitybased swap execution facility that is registered with the Commission or exempt from registration) to report to a registered securitybased swap data repository (“registered SDR”) a securitybased swap executed on such platform that
will be submitted to clearing. Proposed Rule 901(a)(2)(i) of Regulation SBSR would require a registered clearing agency to report to a registered SDR any securitybased swap to which it is a counterparty. The SEC also is proposing certain conforming changes to other provisions of Regulation SBSR in light of the proposed amendments to Rule 901(a), and a new rule that would prohibit registered SDRs from charging fees for or imposing usage restrictions on the users of the securitybased swap transaction data that they are required to publicly disseminate. In addition, the SEC is explaining the application of Regulation SBSR to prime brokerage transactions and proposing guidance for the reporting and public dissemination of allocations of cleared securitybased swaps. Finally, the SEC is proposing a new compliance schedule for the portions of Regulation SBSR for which the SEC has not specified a compliance date. Comments should be submitted within 45 days after publication in Federal Register, which is expected shortly. SEC Release No. 3474245.
Hedging Disclosure Rules
On February 9th, the SEC published for comment proposed rules that would require the disclosure of company hedging policies for directors and employees, as required by the DoddFrank Act. The proposal would require disclosure about whether directors, officers and other employees are permitted to hedge or offset any decrease in the market value of equity securities granted by the company as compensation or held, directly or indirectly, by
employees or directors. The disclosures would be required in proxy and information statements for the election of directors and apply to companies subject to the federal proxy rules, including smaller reporting companies, emerging growth companies, business development companies, and registered closedend investment companies with shares listed and registered on a national securities exchange. The disclosure requirements would apply to equity securities of the company, its parent, subsidiary, or any subsidiary of any parent of the company that is registered under Section 12 of the Securities Exchange Act. Comments should be submitted within 60 days after publication in the Federal Register, which is expected shortly. SEC Press Release. SEC Commissioner Luis A. Aguilar issued a statement discussing the proposed rule’s failure to go far enough and expressing the hope that additional disclosures will be required. Aguilar Statement. Commissioners Daniel M. Gallagher and Michael S. Piwowar also issued a statement. Although they voted to publish the proposal for comment, they voiced concern over the proposal’s costs and burdens. Joint Statement.
Sweep Program Written Consent
On February 6th, the SEC posted the Division of Trading and Markets’ February 5, 2015 letter to the Securities Industry and Financial Markets Association (“SIFMA”) in response to SIFMA’s request to make permanent, previously issued relief from the Financial Industry Regulatory Authority’s (“FINRA”) requirement that broker dealers obtain prior written consent from a customer before placing customer funds into a sweep program. Although the Division of Trading and Markets will not make the requested relief permanent, it will extend the current relief until September 30, 2015 if certain conditions are met.
SEC Tackles Immigration Abuses
On February 13th, Bloomberg reported the SEC may sue as many as 24 immigration attorneys for failing to register as brokers. The attorneys accepted fees for helping to find wealthy foreign investors willing to invest
$500,000 in the U.S. Under the EB5 visa, these investors, and their immediate families, can then qualify for a twoyear resident alien visa. But those who accept fees in exchange for helping to find these wealthy investors may also be facilitating private securities transactions. Under SEC rules, that facilitation requires registration. Immigration Enforcement.
Chair White’s Agenda
On February 12th, SEC Chair Mary Jo White delivered the opening remarks at the Investor Advisory Committee meeting. Among other things, White discussed the Division of Investment Management’s development of recommendations to address portfolio composition and operations. Three of the core initiatives would modernize and enhance data reporting for both funds and investment advisers; require registered funds to have controls in place that identify and effectively manage the risks related to the composition of their portfolios, including liquidity and the use of derivatives in the portfolios; and require investment advisers to create transition plans to prepare for a major disruption in their business. Other items on the agency’s agenda for 2015 include completion of the remaining DoddFrank Act and JOBS Act mandates; enhancements to the equity and fixed income market structure; the disclosure effectiveness review; enhancing brokerdealer financial responsibility requirements; whether to subject brokerdealers to a fiduciary standard when providing investment advice; enhancing the disclosure of risks in target date funds; and completing its review of the “accredited investor” definition. White Remarks.
House of CARDS
On February 12th, Reuters reported SEC Commissioner Michael S. Piwowar is questioning the FINRA’s proposed Comprehensive Automated Risk Data System, asking if the market surveillance system is a solution in search of a problem. Piwowar is particularly concerned by the privacy implications of the proposal. Questions.
Too Many Cooks Spoil the Broth
On February 11th, Bloomberg summarized the remarks of Gregg Berman, Associate Director of the Office of Analytics and Research in the SEC’s Division of Trading and Markets. Addressing conflicting proposals for market structure reforms, Berman told an Investment Company Institute conference that the industry needs to first agree on what the problem is. Too Many Cooks.
On February 6th, the SEC submitted an amicus brief to the Second Circuit in Berman v. Neo@Ogilvy LLC in which it defends its implementation of the DoddFrank Act’s whistleblower protection provisions to include whistleblowers who internally report their concerns.
On February 6th, Think Advisor, citing the remarks of Vincente Martinez, who heads the SEC’s Office of Market Intelligence, reported that the SEC and the FINRA are using Regulation SP for cybersecurity enforcement purposes and that the FINRA is also employing FINRA Rule 2010. Cyber Enforcement.
The SEC announced that Heather Seidel has been named Chief Counsel for the SEC’s Division of Trading and Markets. Seidel, an Associate Director in the Office of Market Supervision, will begin her new role immediately. Pamela C. Dyson has been appointed as the SEC’s Chief Information Officer in charge of overseeing the agency’s information technology functions.