Final Rules

Rules for resource extraction issuers. The SEC announced its adoption of rules that require resource extraction issuers to disclose payments made to governments for the commercial development of oil, natural gas or minerals. The rules, mandated by Dodd-Frank, are meant to further the statutory objective to advance US foreign policy interests by promoting greater transparency about payments related to resource extraction. (6/27/2016) SEC Release No. 34-78169.

Proposed Rules

SEC proposes rule that would require investment advisers to adopt business continuity and transition plans. The SEC announced the proposal of a new rule that would require registered investment advisers to adopt and implement written business continuity and transition plans. The proposed rule is meant to ensure that investment advisers have plans in place to address operational and other risks related to a significant disruption in the adviser’s operations in order to minimize client and investor harm. In addition to the proposed rule, SEC staff issued related guidance addressing business continuity planning for registered investment companies, including the oversight of the operational capabilities of key fund service providers. Comments should be received on or before September 6, 2016. (6/28/2016)

Amendments to “smaller reporting company” definition proposed. The SEC announced its vote to propose amendments that would increase the financial thresholds in the “smaller reporting company” definition. The proposal to update the definition would expand the number of companies that qualify as smaller reporting companies, therefore qualifying for certain existing scaled disclosures provided in Regulation S-K and Regulation S-X. Comments should be received on or before August 30, 2016. (6/27/2016)

Requests for Comment

Interim final rule on adjustments to civil monetary penalty amounts. The SEC has adopted an interim final rule to implement the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. This interim final rule, which becomes effective on August 1, 2016, adjusts for inflation the maximum amount of civil monetary penalties under the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, the Investment Advisers Act of 1940, and certain penalties under the Sarbanes-Oxley Act of 2002. Comments on the interim final rule should be received on or before August 15, 2016. (6/27/2016)


New C&DIs on Rule 701 address derivative securities assumed during merger transactions. The SEC’s Division of Corporation Finance revised its Compliance and Disclosure Interpretations on Securities Act Rule 701 to address new questions concerning the application of the rule to the derivative securities of a target company assumed by the acquiring company during a merger transaction. (6/23/2016) C&DIs 271.17-217.23. 

No-Action Relief

SEC staff grants 14e-1(a) exemption so purchaser can make tender offer for Indian company. The Division of Corporation Finance granted Marble II Pte. Ltd.’s request for an exemption from Rule 14e-1(a) under the Exchange Act in an effort to enable Marble and its affiliated entities to make a tender offer to purchase shares of Mphasis Limited, a public limited company that is organized under the laws of India. The Division noted, among other things, that Indian Takeover Regulations mandate a fixed 10-working day offer period that cannot be reduced or increased. (6/28/2016)

Fidelity Funds granted temporary leave to use auditors that may not meet Regulation S-X’s independence requirements. In response to a request by Fidelity Management & Research Company for no-action relief from requirements under the Loan Provision of Regulation S-X, the SEC’s Division of Investment Management indicated it would not recommend enforcement action if Fidelity continued to use the services of auditors that may have certain lending and ownership relationships with financial institutions that also hold Fidelity shares, either beneficially or as record owners for the benefit of their clients. The relief is subject to certain conditions and will be in effect for a period of 18 months. (6/20/2016)

Selected Enforcement Actions

SEC investigates potential securities law violations against CEO of Wyoming investment adviser. The SEC announced its filing of a subpoena enforcement action in the US District Court for the District of Colorado against Timothy F. Sexton, Jr., the CEO and owner of Bantry Bay Capital LLC, an investment adviser formerly registered with the SEC. The SEC began an investigation to determine, among other things, if Bantry Bay kept and maintained books and records for its investment advisory business and, as part of the SEC investigation, the SEC’s Denver Regional Office served Sexton with a subpoena in May 2016, requiring the production of certain documents. Sexton did not respond to the subpoena. (7/1/2016) Securities and Exchange Commission v. Timothy F. Sexton, SEC Release No. 23589.

Speeches and Statements

Piwowar chastises SEC for failing to propose shortened trade settlement cycle.SEC Commissioner Michael S. Piwowar released a statement in which he urged the SEC to propose a rule to shorten the trade settlement cycle from three business days after a trade is executed to two business days, calling the delay in issuing a proposal “wholly unacceptable.” (7/8/2016) Piwowar statement.

SEC Chief of Staff delivers keynote address at InvestoRegulation Conference.Andrew J. Donohue, SEC Chief of Staff, delivered the keynote address, “The SEC at Home and Abroad,” at London’s InvestoRegulation Conference. Among other things, Donohue discussed the globalization of the securities markets, the importance of international engagement, enhancing asset management regulation, and addressing market structure. (6/28/2016)

Chair White delivers keynote address at International Corporate Governance Network Annual Conference. SEC Chair Mary Jo White delivered the keynote address at the International Corporate Governance Network Annual Conference where she talked about the SEC’s role in corporate governance, board diversity, non-GAAP financial measures, and sustainability disclosures. (6/27/2016)

Other Developments

SEC announces new appointments to Investor Advisory Committee. The SEC announced the appointment of three new members of its Investor Advisory Committee, as well as the reappointment of five members whose terms recently expired. The Investor Advisory Committee’s next meeting is scheduled to take place on July 14, 2016. (7/12/2016) SEC press release.

SEC approves amendments to PCAOB rules relating to audit inspections. The SEC approved the Public Company Accounting Oversight Board’s proposal to amend its rules governing the frequency of audit inspections. Among other things, the amended rules replace the triennial inspection requirement for registered public accounting firms that play a substantial role in an audit but do not issue audit reports with a requirement for the PCAOB to inspect five percent of these firms on an annual basis. (7/11/2016) SEC Release No. 34-78289.

EDGAR updates. The SEC released a draft EDGAR Form N-MFP2 XML Technical Specification (Version 1), which contains changes that are scheduled to take effect on October 14, 2016, subject to approval by the SEC. (7/8/2016)

Chief of Whistleblower Office plans to leave SEC. Sean McKessy, Chief of the SEC’s Office of the Whistleblower, will leave the SEC later in July. The Whistleblower Office’s Deputy Chief, Jane Norberg, will serve as Acting Chief after McKessy’s departure. (7/8/2016) SEC press release.

Office of the Investor Advocate’s Report on Objectives. The SEC’s Office of the Investor Advocate has released its third annual Report on Objectives, which contains a summary of the Investor Advocate’s primary objectives for Fiscal Year 2017, starting on October 1, 2016. (6/30/2016)

Chief of Office of International Corporate Finance leaves agency. The SEC announced that Paul Dudek, Chief of the Office of International Corporate Finance in the Division of Corporation Finance, has left the agency. (6/29/2016)

C. Dabney O’Riordan named Asset Management Unit Co-Chief. The SEC announced that C. Dabney O’Riordan was named co-chief of the Division of Enforcement’s Asset Management Unit, a national specialized unit that focuses on misconduct by investment advisers, investment companies, and private funds. She joins Anthony Kelly as co-chief of the unit and succeeds Marshall Sprung, who left the agency in April. (6/28/2016)

Advisory Committee on Small and Emerging Companies to hold public meeting.The SEC announced that its Advisory Committee on Small and Emerging Companies will be holding a public meeting on Tuesday, July 19, 2016, in Multi-Purpose Room LL-006 at its headquarters in Washington, DC. The meeting will begin at 9:30 am (EDT) and will be open to the public. Written statements should be received on or before July 15, 2016. (6/27/2016) SEC Release No. 33-10105.

Divisions of Enforcement and Trading and Markets announce new Customer Protection Rule Initiative. The SEC’s Division of Enforcement and Division of Trading and Markets launched a new initiative to address historical and ongoing violations of Securities Exchange Act Rule 15c3-3, also known as the Customer Protection Rule. Under the initiative, broker-dealers that self-report potential violations of the Customer Protection Rule to both Divisions by November 1, 2016, can expect favorable settlement terms if an enforcement action is warranted. The two Divisions also announced that that they will conduct risk-based sweeps of certain broker-dealers to assess their compliance with the Customer Protection Rule. (6/23/2016) SEC press release.