Insights from Winston & Strawn

On June 1, in the wake of the Department of Labor’s (“DOL”) announcement that it would not seek to delay further the June 9 effective date of the fiduciary rule (“Fiduciary Rule”), Securities and Exchange Commission (“SEC”) Chairman Jay Clayton issued a statement seeking public comments from retail investors and other interested parties on standards of conduct for investment advisers and broker-dealers.

Chairman Clayton stated that the Fiduciary Rule may have significant effects in areas that fall within the SEC’s mission, including retail investors, SEC-regulated entities and the capital markets in general. The Chairman also welcomed DOL Secretary Acosta’s invitation to engage constructively with the SEC in achieving clarity, consistency and coordination in the oversight and regulation of investment advisers and broker-dealers.

While Chairman Clayton’s statement relates to the adoption of the Fiduciary Rule, in his request for comments the Chairman posed questions and requested comments on a wide range of topics, including:

  • Which investors should be considered retail investors, and what should constitute investment advice;
  • Potential retail investor confusion regarding the type and applicable standards of conduct of the firm that is providing investment advice;
  • Proper identification of potential conflicts of interest;
  • Advances in technology that affect the way retail investors obtain advice (e.g. robo-advisers and fintech);
  • Whether there is a trend to move from a commission-based model to a fee-based advisory model of providing investment advice to retail investors;
  • The experience so far of retail investors and market participants in connection with the implementation of the Fiduciary Rule;
  • Whether there will be different standards of conduct for accounts subject to the Fiduciary Rule versus those that are not, and whether there will be different standards of conduct applicable to broker-dealers versus investment advisers;
  • What the standards should be if the SEC were to proceed with disclosure-based regulations, and what the standards should be if the SEC were to proceed with standards-of-conduct regulations;
  • Whether there should be a private cause of action for a violation of any new requirement;
  • How changes in technology can enhance the efficiency and effectiveness of regulatory action; and
  • The regulatory status of the U.S. in this area, relative to the regulatory status of other jurisdictions, and whether approaches of other jurisdictions should inform the SEC analysis.

Feature: Department of Labor’s New Fiduciary Rule Becomes Applicable on June 9th 

On May 22nd, the U.S. Department of Labor (“DOL”) announced the release of guidance for its new Fiduciary Rule, the landmark Obama-era investor protection rule that will require brokers and advisors giving retirement advice to recommend investments that are in the best interests of clients. This information comes ahead of the Fiduciary Rule’s June 9th applicability date when, according to the DOL’s new Conflict of Interest FAQs (Transition Period)(“FAQs”), “investment advice providers to retirement savers will become fiduciaries, and the ‘impartial conduct standards’ will become requirements of the [Employee Retirement Income Security Act (“ERISA”) best-interest contract] exemptions,” under which firms are allowed to make recommendations otherwise considered conflicted as long as they follow certain requirements.

Frequently Asked Questions The DOL’s new FAQs provide additional information on the period from June 9, 2017 to January 1, 2018. The applicability dates in the DOL’s Fiduciary Rule and related prohibited transaction exemptions were previously delayed from April 10, 2017 to June 9, 2017, or 60 days later than originally planned, with certain provisions in the exemptions further delayed to January 1, 2018. In its FAQs, the DOL notes that it “is possible, based on the results of the examination, that additional changes will be proposed,” adding that “[m]any of the most promising responses to the fiduciary rule, such as brokers’ possible use of ‘clean shares’ in the mutual fund market to mitigate conflicts of interest, are likely to take significantly more time to implement than what the department envisioned when it set January 1, 2018 as the applicability date for full compliance with all of the exemptions’ conditions.” Click here for The Wall Street Journal’s article on how “clean shares” will likely get a boost from the Fiduciary Rule.

Employee Benefits Security Administration’s Enforcement Policy On May 22nd, the Employee Benefits Securities Administration (“EBSA”), a DOL agency that administers, regulates and enforces provisions ERISA’s Title I, releasedField Assistance Bulletin No. 2017-02Field Assistance Bulletin No. 2017-02 announcing Field Assistance Bulletin No. 2017-02a temporary enforcement policy on the Fiduciary Rule. The EBSA stated that, during the transition period, the DOL will not pursue claims against fiduciaries who are working diligently and in good faith to comply with the fiduciary duty rule and exemptions, or treat those fiduciaries as being in violation of the Fiduciary Rule and exemptions.

Secretary Alexander Acosta’s Op-Ed Discussing the Rule and Other Regulatory Issues On May 22nd, Secretary of Labor Alexander Acosta penned a Wall Street Journal op-ed in which he discussed the Fiduciary Rule and other regulatory issues. According to Acosta, the Fiduciary Rule “has no bite” during the transition period because the DOL will not enforce any part of the Rule until January 1st, including required disclosures and contracts that give rise to private lawsuits.

Implementation of the Fiduciary Rule Morningstar laid out the significant points to keep in mind when implementing the Fiduciary Rule, which include the DOL’s clarification that financial institutions can be flexible in crafting their internal systems to ensure that their advisors give best-interest advice during the transition period. Click here to download a free copy of Morningstar’s “Checklist to Help Advisors Respond to the DOL Fiduciary Rule.”

FINRA – Regulatory Matters at a Glance

Please click here to view a summary of the regulatory notices, rule filings, guidance and the like published by the Financial Industry Regulatory Authority (“FINRA”) during the previous month.

Banking Agency Developments


OCC Issues Third and Fourth Quarter 2017 CRA Evaluation Schedule

On May 31st, the Office of the Comptroller of the Currency (“OCC”) announced the release of its schedule of Community Reinvestment Act evaluations to be conducted in the third and fourth quarters of 2017.

Extended Notice for Scheduled CRA Evaluations

On May 31st, the OCC announced that it will extend the notification timeframe for upcoming Community Reinvestment Act evaluations.

Interagency Advisory on the Availability of Appraisers

On May 31st, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (“FDIC”), the OCC, and the National Credit Union Administration (“NCUA”) announced that they have issued an advisory that discusses two existing options to help insured depository institutions address shortages of state-certified and licensed appraisers, particularly in rural areas: temporary practice permits and temporary waivers. OCC Press Release.

Updated Guidance

On May 23rd, the OCC announced that it has updated its policies and procedures regarding violations of laws and regulations. This policy is effective on July 1, 2017. These updates are reflected in the “Bank Supervision Process,” “Community Bank Supervision,” “Federal Branches and Agencies,” and “Large Bank Supervision” booklets and other sections of the Comptroller’s Handbook and internal guidance.


Update to Cybersecurity Assessment Tool

On May 31st, the Federal Financial Institutions Examination Council (“FFIEC”) announced that it has released an update to the Cybersecurity Assessment Tool.

Federal Reserve

Schedule for Results from Dodd-Frank Stress Tests and CCAR

On June 1st, the Federal Reserve Board announced schedule for results from Dodd-Frank Act stress tests and Comprehensive Capital Analysis and Review (“CCAR”).

Board Announces Final Amendments to Regulation CC and Requests Public Comment on an Additional Proposed Amendment

On May 31st, the Federal Reserve Board announced final amendments to the check collection and return provisions in Regulation CC (Availability of Funds and Collection of Checks) and also requested further public comment on an additional proposed amendment to Regulation CC’s liability provisions.


CFPB Seeks Comment on Plan for Assessing ATR/QM Rule

On May 25th, the Consumer Financial Protection Bureau (“CFPB”) announced that it has released its plan to assess the effectiveness of the Ability-to-Repay/Qualified Mortgage rule (“ATR/QM Rule”). The agency is asking the public to comment on its plan, to suggest sources of data, and generally to provide information that would help with the assessment.Comments on the plan will be due 60 days after it is published in the Federal Register.

Securities and Exchange Commission

Speeches and Statements

Clayton Seeks Input on Conduct Standards for Investment Advisers and Broker-Dealers

In a statement issued on June 1st, SEC Chairman Jay Clayton invited public comments on possible standards of conduct applicable to investment advisers and broker-dealers. Clayton made the request in response to the DOL’s statement that it would seek additional information regarding its Fiduciary Rule. Citing “significant developments in the market place” since the SEC last solicited comments on the topic, Clayton presented 17 questions addressing various aspects of possible standards for investment advice as well as other regulatory actions by the SEC. Comments can be submitted by web form or email.

Other Developments

SEC Announces Adjustments to Transaction Fee Rates

On May 31st, the SEC issued an order that adjusts the fee rates applied to most securities transactions under Sections 31(b) and (c) of the Securities Exchange Act and paid by national securities exchanges. Starting on July 4, 2017, the new fee rate applicable to covered sales will be set at $23.10 per $1,000,000, while the assessment on security futures transactions will remain unchanged at $0.0042 for each round turn transaction. SEC Press Release. 

Investor Advisory Committee Meeting

The SEC’s Investor Advisory Committee will hold a public meeting on June 22, 2017. Written statements to the Committee should be submitted on or before June 22, 2017. SEC Meeting Notice.

Staff Announcements

On May 25th, the SEC announced that Peter Uhlmann will serve as the managing executive in the Office of Chairman Jay Clayton. 

SEC Submits Fiscal Year 2018 Budget Request

The SEC published a report on May 23rd that details its Congressional budget request for fiscal year 2018. The SEC said that it would use the requested $1.602 billion to advance progress in several key areas, including adopting technologies to support the SEC’s economic and risk analysis functions; maintaining the investigative and litigation capabilities of the SEC’s enforcement program; and continuing risk-based examinations of investment advisers and other entities.

Investment Management Releases April 2017 Money Market Fund Statistics

The SEC’s Division of Investment Management issued updated money market fund statistics on May 23rd. The updated statistics contain data as of April 30, 2017.

SEC, MSRB Will Hold Webinar on Professional Qualification Requirements for Municipal Advisors

On May 23rd, the SEC announced that it will host a joint educational webinar with the Municipal Securities Rulemaking Board (“MSRB”) to assist municipal advisors in understanding their professional qualification requirements, including the requirement that municipal advisor representatives pass the MSRB's Municipal Advisor Representative Qualification Examination (“Series 50 exam”) before engaging in municipal advisory activity. The free webinar will take place on June 15, 2017.

Commodity Futures Trading Commission

Final Rules

CFTC Unanimously Approves Amendments to Recordkeeping Requirements

On May 23rd, the U.S. Commodity Futures Trading Commission’s (“CFTC”) announced that it has unanimously approved a final rule amending Regulation 1.31. The amendments modernize and make technology neutral the form and manner in which regulatory records must be kept. The effective date for this final rule is August 28, 2017.

CFTC Strengthens Anti-Retaliation Protections for Whistleblowers and Enhances the Award Claims Review Process

On May 22nd, the CFTC announced that it has unanimously approved amendments to its whistleblower rules. Based on a reinterpretation of the CFTC’s anti-retaliation authority under the Commodity Exchange Act (“CEA”), the CFTC or the whistleblower may now bring an action against an employer for retaliation against a whistleblower. The amendments also prohibit employers from taking steps to impede a would-be whistleblower from communicating directly with CFTC staff about a possible violation of the CEA by using a confidentiality, pre-dispute arbitration or similar agreement. This final rule is effective July 31, 2017. Fact Sheet: Strengthening Anti-Retaliation Protections for Whistleblowers and Enhancing the Award Claims Review ProcessFederal Register: Whistleblower Awards Process.

No-Action Relief

No-Action Relief for SEFs and DCMs in Connection with Swaps with Operational or Clerical Errors

On May 30th, the CFTC’s Division of Market Oversight and the Division of Clearing and Risk responded to a no-action relief extension request from the Wholesale Markets Brokers’ Association, Americas (“WMBAA”). The WMBAA contended that, despite swap execution facility (“SEF”) efforts to continue to work on solutions to reduce operational and clerical errors, market participants continue to encounter circumstances in which a trade is rejected from clearing due to a readily correctible clerical or operational error. The Divisions determined that they will not recommend that the CFTC take any enforcement action against an SEF or designated contract market (“DCM”) if, after a trade has been rejected for clearing, the SEF or DCM permits a new trade to be submitted for clearing without having been executed. CFTC Press Release.

Other Developments

CFTC’s Market Risk Advisory Committee to Meet

The CFTC’s Market Risk Advisory Committee (“MRAC”) announced that it will hold a public meeting on June 20, 2017 at the CFTC’s Washington, D.C., headquarters. At this meeting, the MRAC will respond to a presentation by the CFTC’s Division of Clearing and Risk on how it conducts risk surveillance of central counterparties (“CCPs”); discuss how to better inform the CCP regulatory framework through academic research and economic analysis; and advise the CFTC of the potential effects of Brexit on financial markets.

Panel Affirms CFTC’s Dismissal of Trust’s Untimely $3.6 Million Trading Loss Claim

In 2008, a family trust lost $3.6 million trading futures contracts. Contending that errors by futures commission merchant Dorman Trading caused some of the losses, the trust asked the CFTC to order Dorman to make reparation. The trust did not bring the claim until almost three years after it closed its Dorman account. The CFTC dismissed the claim as untimely and the Seventh Circuit denied the trust’s petition for review, agreeing that the claims were untimely despite the trust’s arguments that its timely arbitration at the National Futures Association tolled the two-year limitations period. The Conway Family Trust v. Commodity Futures Trading Commission.

Federal Rules Effective Dates

June 2017 – August 2017

Commodity Futures Trading Commission

August 28, 2017      Recordkeeping. 82 FR 24479.

July 31, 2017           Whistleblower Awards Process. 82 FR 24487.

Securities and Exchange Commission

July 1, 2017             Technical Amendments to Form ADV and Form ADV-W. 82 FR 21472

Exchanges and Self-Regulatory Organizations

Chicago Board Options Exchange

SEC Approves CBOE’s Proposal to Change Exposure Periods of AIM and SAM

On May 22nd, the SEC issued an order approving a proposed rule change filed by the Chicago Board Options Exchange Incorporated (“CBOE”) that reduces the exposure periods of the CBOE’s Automated Improvement Mechanism (“AIM”) and Solicitation Auction Mechanism (“SAM”) from 1 second to a time period designated by CBOE of no less than 100 milliseconds and no more than 1 second. SEC Release No. 34-80738.     

Financial Industry Regulatory Authority

FINRA Announces Changes to Problem Codes Related to DOL’s Fiduciary Rule and MSRB Customer Complaint Rules

In a Regulatory Notice issued on May 31st, the Financial Industry Regulatory Authority (“FINRA”) indicated that it has made revisions to the Rule 4530 (Reporting Requirements) Product and Problem Codes and Filing Application Form to reflect changes related to the DOL’s Fiduciary Rule and the MSRB’s rules on customer complaints and recordkeeping. The revisions related to the DOL’s Fiduciary Rule will be implemented on June 9, 2017, while the revisions related to the MSRB’s customer complaint rules will be implemented on October 1, 2017.

FINRA E-Learning Courses Eligible for CE Credits for Financial Planners

FINRA announced on May 31st that it has received approval from the Certified Financial Planner Board of Standards Inc. to offer continuing education (“CE”) credits to certified financial planners who enroll in FINRA e-learning courses. The courses will permit certified financial planners, including those who are registered representatives with FINRA member firms, to receive CE credits in anti-money laundering, communications with the public, cybersecurity, senior investor issues, and insider trading, among other topics.  

FINRA Proposes New End-of-Day TRACE Transaction File

On May 30th, the SEC requested comments on a proposal filed by FINRA that would amend its rules to make available a new End-of-Day TRACE Transaction File to provide interested parties with a simpler means of receiving all of the transaction information disseminated each trading day as part of Real-Time TRACE transaction data. Comments should be submitted within 21 days of publication in the Federal Register, which is expected the week of June 5, 2017. SEC Release No. 34-80805.

FINRA Notifies Members of Upcoming Board Elections

FINRA announced on May 23rd that it will hold its annual meeting of FINRA firms in August to elect one Small Firm Governor and one Large Firm Governor to the FINRA Board of Governors. Eligible individuals who have not been nominated for election by the Nominating Committee should submit their petitions for candidacy on or before July 7, 2017.      

Fixed Income Clearing Corporation

SEC Initiates Disapproval Proceedings on FICC’s Proposed Capped Contingency Liquidity Facility

On May 30th, the SEC issued an order instituting proceedings to determine whether to approve or disapprove the Fixed Income Clearing Corporation’s (“FICC”) proposal to implement a Capped Contingency Liquidity Facility, which would serve as an additional liquidity resource designed to provide FICC with a committed liquidity resource to meet its cash settlement obligations in the event of a default of a Government Securities Division (“GSD”) Netting Member or family of affiliated Netting Members to which FICC has the largest exposure in extreme but plausible market conditions. Comments should be submitted within 21 days of publication in the Federal Register, which is expected the week of June 5, 2017. Rebuttals are due within 35 days. SEC Release No. 34-80812.   

ICE Clear Credit

ICC Proposes Changes to Liquidity Risk Management and Stress Testing Frameworks

On May 31st, the SEC provided notice of a proposed rule change filed by ICE Clear Credit LLC (“ICC”) that would revise the ICC Liquidity Risk Management Framework and the ICC Stress Testing Framework to facilitate the prompt and accurate clearance and settlement of securities transactions and derivative agreements, contracts, and transactions. Comments should be submitted within 21 days of publication in the Federal Register, which is expected the week of June 5, 2017. SEC Release No. 34-80818.     

International Swaps and Derivatives Association

ISDA Updates OTC Derivatives Compliance Calendar

On May 31st, the International Swaps and Derivatives Association (“ISDA”) released an updated version of its OTC Derivatives Compliance Calendar.     

Miami International Securities Exchange

MIAX Options Proposes New Types of Complex Orders

On May 25th, the SEC requested comments on a proposed rule change filed by Miami International Securities Exchange LLC (“MIAX Options”) that would amend its rules governing the execution of orders and quotes, complex orders, and the MIAX Options Price Improvement Mechanism (“PRIME”) and PRIME Solicitation Mechanism to establish three new types of complex orders, and to adopt new provisions that relate to the processing of those new complex order types. Comments should be submitted on or before June 22, 2017. SEC Release No. 34-80768.

Municipal Securities Rulemaking Board

MSRB Seeks Additional Input on Proposed Requirements for Obtaining CUSIP Numbers

The MSRB issued a second request for comments on June 1st that seeks additional input on draft amendments to MSRB Rule G-34, on obtaining CUSIP numbers. The amendments now include possible exceptions from the proposed requirements for obtaining CUSIP numbers in certain limited circumstances. Comments should be submitted on or before June 30, 2017. MSRB Press Release.     


MRX Proposes Rule Amendments to Prepare for INET Migration

On May 30th, the SEC provided notice of a proposed rule change filed by Nasdaq MRX LLC (“MRX”) that would amend several of its rules in connection with a system migration to Nasdaq INET technology, including its rules on trading halts, the acceptance of quotes and orders, and the automatic execution of orders, among others. Comments should be submitted within 21 days of publication in the Federal Register, which is expected the week of June 5, 2017. SEC Release No. 34-80815.  

National Futures Association

NFA Details New Risk Metrics for SDs to Include in Risk Data Reports

The National Futures Association (“NFA”) notified members on May 30th that its Board of Directors has approved a list of specific risk metrics that swap dealers (“SDs”) will be required to report electronically to the NFA on a monthly basis as part of the NFA’s regulatory oversight program for SDs. The first Risk Data Report containing the required risk metrics will be due on January 31, 2018.


SEC Delays Action on NYSE Exchanges’ Proposal on Use of Non-Exchange Provided Phones on Trading Floor

On May 24th, the SEC designated July 9, 2017, as the date by which it will approve, disapprove, or institute disapproval proceedings concerning the New York Stock Exchange LLC’s (“NYSE”) and NYSE MKT LLC’s (“NYSE MKT”) respective proposals to amend their rules to permit Exchange floor brokers to use cellular or wireless telephones not provided by the Exchange while on the Floor of the Exchange. SEC Release No. 34-80753.

SEC Takes More Time to Consider Proposed Changes to NYSE Listing Standards for SPACs

On May 19th, the SEC designated July 5, 2017, as the date by which it will approve, disapprove, or institute disapproval proceedings regarding NYSE’s proposal to amend its listing standards for Special Purpose Acquisition Companies (“SPAC”) to modify the initial and continued distribution requirements. SEC Release No. 34-80735.

Judicial Developments

Proposed Shareholder Class Action is Timely after Being Tolled by Past Would-Be Class Actions

Plaintiffs brought a proposed shareholder class action against China Agritech for federal securities law violations. The district court dismissed the suit as untimely and the Ninth Circuit reversed and remanded. The panel held that plaintiffs are not time-barred from bringing a class action where they were unnamed plaintiffs in earlier timely would-be, but denied, class actions against many of the same defendants based on the same events. Also, the statute of limitations for the individual claims of would-be class members in the earlier actions was tolled during the pendency of those actions. Resh v. China Agritech Inc.

Industry News

IEX Intends to Become Listing Venue

On May 31st, the Financial Times reported that IEX is planning to begin operating as an exchange for listings in October 2017 pending SEC approval.     

SEC Suspends Some of its Pending In-House Court Cases

On May 23rd, Reuters reported that the SEC has suspended some of its pending in-house court cases following a federal appeals court decision that the agency had violated the Constitution in the way in which it hired its administrative law judges.     

Companies Are Convincing the SEC That Adjusted Earnings Are Not Misleading Investors

On May 22nd, The Wall Street Journal reported that, a year after a crackdown on the practice, big firms are successfully showing the SEC that their use of unofficial accounting figures is not misleading investors. According to the article, the SEC’s job in policing earnings is being complicated by the complexities and nuances in corporate accounting.