Insights from Winston & Strawn 

On May 3rd, the SEC proposed amendments to the definitions of “venture capital fund” and “assets under management” under rules 203(l)-1 and 203(m)-1, respectively, of the Investment Advisers Act of 1940 (the “Advisers Act”). The proposed amendments are intended to make these definitions consistent with changes previously made to the Advisors Act by the Fixing America’s Surface Transportation Act of 2015 (the “FAST Act”).

The FAST Act provided relief to some advisers to small business investment companies (“SBICs”) by amending the venture capital fund adviser registration exemption of Section 203(l) of the Advisers Act to provide that SBICs would be deemed to be venture capital funds for purposes of determining whether an adviser was exempt from registration as an adviser solely to one or more venture capital funds. The FAST Act also amended the private fund adviser registration exemption of Section 203(m) of the Advisers Act to exclude SBIC assets from the calculation of an adviser’s private fund assets under management for purposes of determining whether an adviser is exempt from registration as an adviser solely to private funds with assets under management in the United States of less than $150 million.

The newly proposed amendments would amend the definition of a “venture capital fund” under rule 203(l)-1 of the Advisers Act to expressly include “small business investment companies” for purposes of Section 203(l), and would modify the definition of “assets under management” under rule 203(m)-1 of the Advisers Act to expressly exclude SBIC assets for purposes of Section 203(m).

The amendments do not change the substance of the venture capital adviser and private fund adviser registration exemptions, as amended by the FAST Act, but rather seek to eliminate any marketplace confusion that the SEC believes may exist or arise due to inconsistencies between the Advisers Act rules and the prior FAST Act amendments. In its proposal, the SEC expresses concern that such inconsistencies may have discouraged some advisers from taking advantage of the regulatory options available to them following the FAST Act amendments. First, a registered adviser to SBIC and non-SBIC funds may be able to deregister if excluding SBIC assets would cause its U.S. private fund assets under management to fall below the $150 million registration threshold. Second, exempt reporting advisers to only venture capital funds or only non-SBIC private funds may begin to also advise SBICs without losing their existing registration exemptions. Lastly, advisers to only SBICs (who are currently exempt from registration under Section 203(b)(7) of the Advisers Act) may begin advising non-SBIC funds by taking advantage of the venture capital fund or private fund adviser registration exemptions (but would still have to become exempt reporting advisors). The proposed amendments should provide some incremental clarity and comfort to advisers regarding the availability of these options, though it will be incumbent on each advisor to weigh the relative costs and benefits of changing registration status or expanding their advisory business to include SBICs.

The SEC is seeking comments to the proposed amendments within 30 days following publication in the Federal Register.

Feature: The State of the IPO Market in 2017 

Last month, professional services firm EY published its report on global initial public offering (“IPO”) trends for the first quarter of 2017. The report contained good news: it found that, globally, 2017 has the highest number of first quarter IPOs of any year since 2007. In addition, the number of IPOs listed on U.S. exchanges rose over 200 percent in comparison to the first quarter of 2016.

The uptick in IPOs is especially evident in the technology sector. Bloomberg noted that as of the beginning of April, five technology companies have elected to go public in 2017—including high profile offerings from Snap, Okta, Mulesoft, and Cloudera—while during the same period of 2016, no technology companies held IPOs. Bloomberg also pointed out that many of these companies are shunning takeovers by other companies in favor of IPOs in the hopes that they will receive higher valuations from a public listing. Fortune concluded that “the IPO pipeline for venture-backed tech companies looks healthier than it has in years,” partly because buyers have become more selective and unwilling to pay inflated values for these companies, forcing them to look to public listings to raise money.

Despite the excitement among investors at finally having an opportunity to invest in these so-called “unicorn” companies, some analysts have raised concerns about a backlash from inflated valuations in recent tech IPOs. Bloomberg observed that the recent high valuations of Snap, Okta and MuleSoft reverses a recent trend in which “tech company IPOs were priced at a discount to publicly traded peers,” which may indicate that the IPO market “has overshot recovery.” An analyst cited by the Financial Times speculated that the influx of tech company IPOs may serve as a test of how ready investors are to accept the potential losses that come with investing in these fast-growing companies.

Improvements in the IPO markets are encouraging other companies besides high-profile tech startups to consider undertaking a public listing. The Wall Street Journal reported that Cadence Bancorporation’s decision to go public in April will test the waters for other banks. The article noted that IPOs for banks are relatively uncommon and Cadence’s IPO is the first by a major U.S. bank since last September.

Although the growth in IPOs during 2017 is promising, industry stakeholders are still looking for ways to boost the IPO market. Nasdaq’s CEO Adena Friedman published an op-ed in the Wall Street Journal last week in which she announced Nasdaq’s blueprint for the reforms that she feels are necessary to revitalize the IPO market and encourage more companies to make a public listing. These reforms include changes to modernize market structure, reduce regulatory burdens on public companies, and encourage long-term thinking by investors. New Securities and Exchange Commission (“SEC”) Chair Jay Clayton has indicated that reducing regulations that dissuade companies from going public is one of his priorities. Some observers question whether too much regulation is to blame for a sluggish IPO market, and instead maintain that the overvaluation of Silicon Valley startups has caused these companies to avoid the risk of their value declining following an IPO.

In an effort to assess the current state of the IPO market, the SEC announced that its Division of Economic and Risk Analysis (“DERA”) will co-host a public forum with NYU’s Salomon Center for the Study of Financial Institutions in which panelists will use data to examine the economic causes and consequences of the perceived weakness in the IPO market, and discuss ways to encourage more capital-raising through IPOs. The forum will take place on May 10, 2017.

Banking Agency Developments


Comptroller Curry Steps Down

On May 4th, the Office of the Comptroller of the Currency (“OCC”) announced that Comptroller Thomas J. Curry stepped down on May 5, 2017, and Keith A. Noreika now serves as Acting Comptroller of the OCC.     


FDIC Releases Final Handbook for De Novo Organizers Applying for Deposit Insurance

On May 1st, the Federal Deposit Insurance Corporation (“FDIC”) announced that it has released a final handbook to assist parties interested in establishing new banks. The handbook, Applying for Deposit Insurance – A Handbook for Organizers of De Novo Institutions, provides a plain language overview of the requirements and considerations significant to the application process, and to offers organizers a clear and transparent explanation of the path to obtaining deposit insurance.     

Federal Reserve

Federal Reserve Issues FOMC Statement

On May 3rd, the Federal Reserve issued a statement on the Federal Open Market Committee (“FOMC”).    


CFPB Seeks Comment on Plan for Assessing Mortgage Servicing Rule

On May 4th the Consumer Financial Protection Bureau (“CFPB”) released its plan to assess the effectiveness of the Real Estate Settlement Procedures Act (“RESPA”) mortgage servicing rule. The CFPB asked the public to comment on the agency’s plan, to suggest sources of data, and generally to provide other information that would help with the assessment.Comments on the plan will be due 60 days after it is published in the Federal Register. 

Treasury Department Developments

Report to Treasury Secretary from Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association

On May 3rd, the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association (“SIFMA”) drafted its report to the Secretary of the Treasury.     

Economy Statement for Treasury Borrowing Advisory Committee of SIFMA

On May 1st, the U.S. Treasury published the economy statement for SIFMA’s Treasury Borrowing Advisory Committee.

Securities and Exchange Commission

Final Rules

Technical Amendments to Form ADV and Form ADV-W

On May 4th, the SEC published a final rule, effective July 1, 2017, that makes technical amendments to Form ADV under the Investment Advisers Act of 1940 to reflect the enactment of a Wyoming state law regulating investment advisers.     

Proposed Rules

No-Action Relief and Exemptive Orders

Waiver of Disqualification Under Rule 506(d)(2)(ii) of Regulation D

On May 2nd, the SEC’s Division of Corporation Finance granted relief from any disqualification that arose as to Citizens Bank, N.A. and Citizens Bank of Pennsylvania under Rule 506 of Regulation D under the Securities Act of 1933. This disqualification is applicable as a result of consent orders agreed to by the banks issued by their prudential banking supervisors.

Exemption Granted from Website Data Publication Requirements of ‘Plan to Implement a Tick Size Pilot Program’

FINRA, on behalf of itself and Chicago Stock Exchange, Inc. (“CHX”), requested that the SEC grant an exemption from the website data publication requirements of the National Market System Plan to Implement a Tick Size Pilot Program. On April 28th, the SEC’s Division of Trading and Markets granted FINRA and CHX a limited exemption from the requirement to comply with certain provisions of the plan as long as the pilot data is published in accordance with the FINRA proposed rule change.     

Speeches and Statements

Bricker Highlights Current Issues that Reflect Importance of High-Quality Financial Information

SEC Chief Accountant Wesley R. Bricker discussed the implementation of the new revenue recognition and credit losses standards, the importance of maintaining frameworks for internal control over financial reporting, and auditor independence, among other matters, in remarks at the 2017 Baruch College Financial Reporting Conference on May 4th.     

Other Developments

SEC, FINRA Announce National Compliance Program for Broker-Dealers

The SEC’s Office of Compliance Inspections and Examinations (“OCIE”) and the Financial Industry Regulatory Authority (“FINRA”) will hold their National Compliance Outreach Program for Broker-Dealers on July 27, 2017. The event, which is co-sponsored by OCIE and FINRA in coordination with the SEC’s Division of Trading and Markets, will focus on current compliance practices relating to cybersecurity and investing by seniors, among other topics. SEC Press Release.

SEC Enhances Data Offered in Quarterly Private Fund Statistics

On May 3rd, the SEC announced that it has updated the Private Fund Statistics published by the Division of Investment Management to offer new data and analyses of the information reported by private fund advisers on Form ADV and Form PF, including information about the use of financial and economic leverage by hedge funds, and characteristics of private liquidity funds. The newly published data also includes statistics from the third quarter of 2016.

Whistleblower Earns $500,000 Award for Tipping the SEC about Well-Hidden Misconduct

The SEC announced on May 2nd that it has awarded over $500,000 to a company insider who reported information to the SEC about well-hidden misconduct, which resulted in an SEC investigation and successful enforcement action.

SEC Report on Administrative Proceedings Caseload

On April 28th, the SEC issued its six-month status report on its administrative proceedings caseload. The report provides information regarding, among other things, the number of matters pending at the beginning of the sixth month period covered by the report; the number of matters instituted, filed, and disposed of during the period; and the number pending at the end of the period.

Commodity Futures Trading Commission

CFTC Requests Public Input on Simplifying Rules

On May 3rd, the U.S. Commodity Futures Trading Commission (“CFTC”) announced that it has voted to seek public input on simplifying and modernizing the agency’s rules. CFTC Acting Chairman J. Christopher Giancarlo initially announced Project KISS, which stands for “Keep It Simple, Stupid,” in March as an agency-wide internal review of CFTC rules, regulations and practices to identify those areas that can be simplified to make them less burdensome and less costly. The CFTC is now seeking ideas from industry, other stakeholders and interested parties, and the broader public on where the CFTC rules can be simplified and made less costly to comply. Suggestions must be received by September 30, 2017. Federal Register Notice.    

CFTC Proposes to Amend Rules Governing CCO Duties and Annual Reports for Certain Registrants

On May 3rd, the CFTC announced that it will publish in the Federal Register proposed amendments to Part 3 of its regulations. The proposed amendments would define “senior officer”; clarify the duties of a Chief Compliance Officer of a futures commission merchant, swap dealer, or major swap participant; and modify the CCO annual report’s content and submission requirements. The CFTC is seeking comments on the proposed amendments. The comment period ends 60 days after the proposal’s publication in the Federal Register.     

Guidance on Calculation of Projected Operating Costs by DCMs and SEFs

On April 28th, the CFTC’s Division of Market Oversight announced that it has issued Guidance on the calculation by designated contract markets (“DCMs”) and swap execution facilities (“SEFs”) of projected operating costs.

Federal Rules Effective Dates

May 2017 – July 2017

Securities and Exchange Commission

May 30, 2017             Securities Transaction Settlement Cycle. 82 FR 15564.

Exchanges and Self-Regulatory Organizations

Depository Trust Company

SEC Approves DTC’s Proposal on Collateral Management Services Sub-Accounts

On May 4th, the SEC approved The Depository Trust Company’s (“DTC”) proposal to allow any DTC participant that is, or acts on behalf of, a user of certain collateral management services (“CMS”) of DTCC Euroclear Global Collateral Ltd. (“DEGCL”) to establish one or more sub-Accounts at DTC in connection with CMS. SEC Release No. 34-80598.     

Financial Industry Regulatory Authority

FINRA Announces Rulemaking Items Under Consideration at Board of Governors May Meeting

On May 3rd, FINRA announced the rulemaking items that the FINRA Board of Governors will consider at its meeting on May 10, 2017. The Board will consider rulemaking items related to broker conduct, liquidity reporting and notification, and unpaid arbitration awards. 

FINRA Provides Notice of Special Meeting for Large Firms

FINRA issued an Election Notice on May 2nd to notify firms that FINRA will conduct a special meeting of large firms on May 19, 2017, to elect one Large Firm Governor to the FINRA Board of Governors. The Notice also reminds firms that, in order to be represented by a valid proxy, their proxy must be signed by the executive representative of a large firm eligible to vote in the election.     

Fixed Income Clearing Corporation

SEC Approves FICC’s Proposed Tri-Party Repo Service

On May 2nd, the SEC issued an order granting approval to a proposed rule change filed by the Fixed Income Clearing Corporation (“FICC”) to amend its Government Securities Division (“GSD”) Rulebook to establish a service that would allow the submission of tri-party repo transactions in GCF Repo Securities between GSD Netting Members that participate in the GCF Repo Service and institutional counterparties where the institutional counterparties are the cash lenders in the transactions. SEC Release No. 34-80574.

SEC Approves FICC’s Proposed Amendments to Its Sponsored Membership Program

On May 1st, the SEC approved FICC’s proposal to amend its rules to expand the types of entities that are eligible to participate in FICC’s Sponsored Membership program as Sponsored Members and make amendments and clarifications relating to the Sponsored Membership service in general. SEC Release No. 34-80563.     

ICE Clear 

SEC Delays Action on ICE Clear Europe’s Proposed Price Submission Process

On May 1st, the SEC designated June 21, 2017, as the date by which it will approve, disapprove, or institute disapproval proceedings concerning ICE Clear Europe Limited’s (“ICE Clear Europe”) proposal to amend ICE Clear Europe’s CDS End-of-Day Price Discovery Policy to implement a new price submission process for Clearing Members.  SEC Release No. 34-80566.     

International Swaps and Derivatives Association

ISDA Publishes Analysis of Swaps Activity for First Quarter 2017

On May 4th, the International Swaps and Derivatives Association (“ISDA”) published its SwapsInfo Quarterly Review for the first quarter of 2017. The report analyzes the impact of regulatory change on swap execution facility (“SEF”) and bilateral trading volumes, as well as cleared and non-cleared activity.

ISDA Updates OTC Derivatives Compliance Calendar

On May 1st, ISDA released an updated version of its OTC Derivatives Compliance Calendar.     

Miami International Securities Exchange

MIAX Proposes Changes to Duration of PRIME Auction

On May 1st, the SEC requested comments on a proposed rule change filed by the Miami International Securities Exchange LLC (“MIAX”) that would amend the MIAX Price Improvement Mechanism (“PRIME”) and PRIME Solicitation Mechanism to modify the duration of a PRIME Auction to be no less than 100 milliseconds and no more than 1 second. Comments should be submitted on or before May 26, 2017. SEC Release No. 34-80570.     

Municipal Securities Rulemaking Board

MSRB Offers Guidance to Solicitor Municipal Advisors

The Municipal Securities Rulemaking Board (“MSRB”) published guidance on May 4th for municipal advisors acting as solicitors. The guidance provides a comprehensive summary of the regulatory framework that applies to solicitor municipal advisors and their interactions with public pension plans and other municipal entities. MSRB Press Release.

MSRB Summarizes Discussions from Its Quarterly Board Meeting

On May 1st, the MSRB published a summary of the items discussed by the MSRB Board of Directors at its quarterly meeting, which took place on April 26-27, 2017. Among other matters, the Board discussed the comments received in response to the MSRB’s proposal to update its municipal securities dealer advertising rule, the preliminary input it received from its review of primary offering practices, and comments received on proposed amendments to rules governing below-minimum denomination transactions. MSRB Press Release.    


SEC Seeks Comments on Nasdaq’s Amended Proposal to Adopt a New Third Party Connectivity Service

On April 28th, the SEC granted accelerated approval to the Nasdaq Stock Market LLC’s (“Nasdaq”) proposal to adopt the third party connectivity service that will segregate connectivity to Nasdaq and its proprietary data feeds from connectivity to third party services and data feeds, including the UTP SIP data feeds. The SEC also requested comments on several amendments to the proposal. Comments should be submitted on or before May 25, 2017. SEC Release No. 34-80558.     

National Securities Clearing Corporation

SEC Approves NSCC’s Proposed Rule Amendments to Clarify Illiquid Charge

On May 4th, the SEC approved a proposed rule change filed by the National Securities Clearing Corporation (“NSCC”) that will amend its Rules & Procedures to provide transparency to an existing margin charge (“Illiquid Charge”) and to codify NSCC’s current practices with respect to the assessment and collection of the Illiquid Charge. SEC Release No. 34-80597.     


SEC Approves NYSE MKT’s New Equity Trading Rules

On May 4th, the SEC granted accelerated approval to NYSE MKT LLC’s (“NYSE MKT”) amended proposal to adopt new equity trading rules to transition trading on NYSE MKT from a floor-based market with a parity-allocation model to a fully automated market with price-time-priority allocation model on the NYSE MKT’s new trading technology platform, Pillar. SEC Release No. 34-80590.

SEC Grants Approval to NYSE’s Rules for Market Makers on Pillar

On May 2nd, the SEC issued an order granting accelerated approval to NYSE MKT’s amended proposal to adopt rules relating to market makers that would be applicable when NYSE MKT transitions trading to Pillar. SEC Release No. 34-80577.

SEC Takes More Time to Consider NYSE Exchanges’ Amendments to Rules Governing DMM Activity at the End of Trading

On April 28th, the SEC designated July 15, 2017, as the date by which it will approve, disapprove, or institute disapproval proceedings regarding the New York Stock Exchange LLC’s ( “NYSE”) and NYSE MKT’s separately filed proposals to amend their respective rules by removing the prohibition on Designated Market Makers (“DMMs”) from establishing, during the last ten minutes of trading before the close, a new high (low) price for the day on the respective exchanges in a security in which the DMM has a long (short) position.      

Options Clearing Corporation

SEC Approves Changes to OCC’s Stock Loan Programs

On April 28th, the SEC approved a proposal filed by the Options Clearing Corporation (“OCC”) that would make changes to OCC’s Stock Loan Programs and related rules to improve trade certainty and transparency for clearing members and to mitigate stock loan risks in the event of a clearing member suspension. SEC Release No. 34-80555.