Interim Final Rules

SEC amends interim final rules on exemptions for security-based swaps to extend expiration dates. The SEC adopted amendments to its interim final rules that provide exemptions from certain provisions and registration requirements under the Securities Act, Securities Exchange Act, and the Trust Indenture Act for offers and sales of security-based swap agreements that became security-based swaps on the effective date of Title VII of the Dodd-Frank Act. The amendments extend the expiration dates in the interim final rules to February 11, 2018. (2/10/2017)

Exemptive Orders and No-Action Relief

Exemption from requirement to engage independent public accountant. The Division of Trading and Markets issued a no-action letter stating that wholesale broker-dealer Lincoln Financial Distributors Inc., which acts on behalf of more than one issuer, does not need to engage an independent public accountant to provide the reports required under paragraph (d)(l)(i)(C) of Exchange Act Rule 17a-5. (2/17/2017)

Limited exemption from Rule 102 of Regulation M granted. The Division of Trading and Markets issued an exemptive order granting limited exemptions from Rule 102 of Regulation M relating to NPM Securities, LLC’s alternatives platform, exclusively to permit Tender Offer Funds to conduct tender offers, during a limited transition period, for their securities during the applicable restricted period although periodic auctions of their securities also are conducted on the Alternatives Platform. The order further granted a limited exemption from Rule 102 to permit Master Funds and Feeder T funds to conduct tender offers for their securities during the applicable restricted period although periodic auctions in the securities of the related Feeder A funds also are conducted on the Alternatives Platform. (2/16/2017) NPM incoming letter.

Investment adviser receives limited exemption from Regulation SHO’s requirements on net long positions and ownership. The Division of Trading and Markets granted a limited conditional exemption to Magnitude Capital LLC from the requirement in Rule 200(c) of Regulation SHO to have a net long position in a security to be deemed to own such security for purposes of Rule 200(c), subject to certain conditions. The exemption will permit executing brokers to mark sell orders for sub-accounts of the Magnitude Special Investments Portfolio Fund placed by Magnitude and certain third-party asset managers that manage sub-accounts on behalf of MSIPF based on MSIPF’s net position at a sub-account level. (2/14/2017) SEC exemptive order.

SEC issues limited temporary exemption from Exchange Act prohibition on sales of revoked securities. The SEC granted UBS AG’s request for a limited temporary exemption from Exchange Act prohibitions on U.S.-registered broker-dealer sales of revoked securities to permit UBS FSI and UBS Securities to effect sales of NEC Corporation Securities on behalf of UBS FSI customers on the Tokyo Stock Exchange, subject to certain conditions. (2/10/2017) SEC exemptive order.

Selected Enforcement Actions

Broker-dealer settles charges stemming from compliance and trading surveillance failures. A New-York based broker-dealer will pay a US$100,000 civil penalty to settle charges of compliance and trading surveillance failures, according to an SEC announcement. The SEC alleged that the firm failed to establish written policies and procedures to prevent the misuse of material, nonpublic information by employees who made investment decisions for an affiliated hedge fund that invested in issuers covered by the firm’s research department and some other issuers for which the broker-dealer provided investment banking services. Without admitting or denying the allegations, the firm settled the charges by consenting to the entry of cease-and-desist and censure orders in addition to paying the civil penalty. In the Matter of Sidoti & Company LLC, SEC Release No. 34-80027. 

Broker-dealer, CCO charged with net capital requirement deficiencies. The SEC instituted settled administrative proceedings against a broker-dealer that engages in proprietary trading of American Depositary Receipts, commodity futures, and equity options, and the firm’s chief compliance officer. The SEC alleged that the firm, during a two-year period, failed to adhere to its minimum net capital requirements and provide timely notification to the SEC of net capital deficiencies. In addition, the SEC alleged that the CCO contributed to the firm’s violations by incorrectly calculating its net capital and filing inaccurate FOCUS reports that overstated the firm’s net capital. Without admitting or denying the allegations, the firm and the CCO settled the charges by consenting to the entry of cease-and-desist and censure orders and agreeing to pay civil penalties of US$25,000 and US$10,000 respectively. The firm also agreed to enlist the services of an independent compliance consultant. (2/9/2017) In the Matter of Jaypee International, Inc. and Sorabh Arora, SEC Release No. 34-80005.

Investment adviser, owner settle charges of making misleading claims in marketing materials. A Minnesota-based investment adviser and the firm’s president and owner have settled charges with the SEC that they provided misleading marketing materials to current and prospective advisory clients. The SEC alleged that the adviser and its owner distributed marketing materials that contained misleading performance data, misstatements regarding the firm’s acceptance of items of value from investment managers, and misstatements about the firm’s enforcement of its Code of Ethics. In addition, the firm failed to adopt and implement compliance policies and procedures and failed to make and keep required books and records supporting performance data in its marketing materials. Without admitting or denying the allegations, the firm and the owner settled the charges by consenting to the entry of cease-and-desist orders and agreeing to pay civil penalties of US$300,000 and US$100,000, respectively. The firm additionally agreed to be censured. (2/8/2017) In the Matter of Jeffrey Slocum & Associates, Inc. and Jeffrey C. SlocumSEC Release No. IA-4647.

Other Developments

Piwowar discusses MoU signing between SEC and NASAA. SEC Acting Chairman Michael S. Piwowar delivered remarks at the signing of the Memorandum of Understanding between the agency and the North American Securities Administrators Association (NASAA). Piwowar noted that the MoU will allow SEC staff and NASAA to share information about their observations of the various securities offering exemptions available to companies at the state and federal level. (2/17/2017)

FAQs on IM Guidance Update 2016-08 (Mutual Fund Fee Structures). Division of Investment Management staff prepared responses to questions regarding IM Guidance Update 2016-06 that relates to mutual fund fee structures. These FAQs also explain disclosure matters associated with the staff’s January 2017 interpretive letter to the Capital Group. (2/15/2017)

Investor Advisory Committee meeting. The SEC’s Investor Advisory Committee will hold a public meeting on March 9, 2017, to discuss SEC investor research initiatives, the Financial Industry Regulatory Authority’s 2016 Financial Capability Study, academic research on financial literacy, and unequal voting rights of common stock. Written statements are due on or before March 9, 2017. (2/13/2017) SEC meeting notice.

Small and Emerging Companies Advisory Committee meeting. The SEC’s Advisory Committee on Small and Emerging Companies met on February 15, 2017, to discuss secondary market liquidity for Regulation A companies and non-listed reporting companies; reasons why more companies may be choosing to stay private; recommendations on corporate board diversity; and suggestions on the treatment of so-called “finders” that assist companies in capital raising activities. Michael Piwowar addressed the Committee, offering an update on the new Office of the Advocate for Small Business Capital Formation and the search to fill the new Advocate role. Also see Commissioner Kara Stein remarks. (2/15/2017)

EDGAR updates. The SEC published the Draft EDGAR Filer Manual (Volume I) General Information (Version 27), the Draft EDGAR Filer Manual (Volume II) EDGAR Filing (Version 41), the Draft EDGAR X-17A-5 XML Technical Specification (Version 3.0), the Draft EDGAR Form TA XML Technical Specification (Version 1.0), the Draft EDGAR N-MFP2 XML Technical Specification (Version 2.0), the Draft EDGAR Reg A XML Technical Specification (Version 1.4), and the Draft EDGAR ABS XML Technical Specification (Version 1.6). (2/13/2017)

SEC approves renewal of Equity Market Structure Advisory Committee. The SEC approved the renewal of its Equity Market Structure Advisory Committee for a period of six months, unless the SEC chooses to renew the Committee prior to its expiration. (2/9/2017) SEC commission notice.

OCIE identifies top five compliance topics in examinations. The SEC’s Office of Compliance Inspections and Examinations identified the top five frequent compliance topics cited in deficiency letters sent by OCIE examiners to SEC-registered investment advisers, which include deficiencies involving the Custody Rule, the Compliance Rule, the Code of Ethics Rule, the Books and Records Rule, and regulatory filings, such as Form ADV, Form PF, and Form D. (2/7/2017) OCIE Risk Alert.

DERA publishes analysis of private liquidity funds. Staff in the SEC’s Division of Economic and Risk Analysis published a white paper that examines data from Form PF to define the characteristics of private liquidity funds and compare them to money market mutual funds. (2/6/2017) DERA white paper.