Final Rules

SEC adopts final rules that require the use of exhibit hyperlinks and HTML format in company filings. At an Open Meeting, the SEC approved final rules that will require issuers to include a hyperlink to each exhibit identified in the exhibit index of Form F-10, Form 20-F, and registration statements and periodic reports subject to the exhibit requirements under Item 601 of Regulation S-K. The rules will also require registrants to submit these filings in HTML format and discontinue the use of the text-based American Standard Code for Information Interchange format. The rules will be effective for filings submitted by most filers on or after September 1, 2017. Non-accelerated filers and smaller reporting companies using ASCII format will have until September 1, 2018, to comply with the final rules. The final rules also provide a longer compliance date for certain filings on Form 10-D to permit the SEC to complete programming changes to EDGAR. (3/1/2017) SEC press release. See statements by Acting Chair Michael S. Piwowar and Commissioner Kara M. Stein.

Proposed Rules and Requests for Comment

SEC proposes rule amendments to require Inline XBRL Filing of tagged data. The SEC proposed amendments to several disclosure rules to require the use of Inline XBRL format for the submission of operating company financial statement information and mutual fund risk/return summaries. The proposed rules would also eliminate the requirement for filers to post XBRL data on their websites. The proposals include a phased adoption of the requirements based on filer status. The requirements for operating company financial statements would be phased in over a three-year period, while the requirements for mutual funds risk/return summaries would be phased in over a two-year period. Comments on the proposed rule are due within 60 days of publication in the Federal Register. (3/1/2017) SEC press release. See statements by Acting Chair Piwowar and Commissioner Stein.

SEC proposes to require additional disclosure of information on bank loans and other financial obligations in municipal securities offerings. The SEC voted to amend Securities Exchange Act Rule 15c2-12, which requires brokers, dealers, and municipal securities dealers that are acting as underwriters in primary offerings of municipal securities to reasonably determine that the issuer or obligated person has agreed to provide timely notice of certain events to the Municipal Securities Rulemaking Board, by adding two new events to the list of event notices included in the Rule. The new events would include information regarding the incurrence of a bank loan or other financial obligation of the issuer or obligated person, as well as priority rights, events of defaults, termination events, and modification of terms of the financial obligation, any of which reflect financial difficulties. Comments are due within 60 days of publication in the Federal Register. (3/1/2017) SEC press release. See statements by Acting Chair Piwowar and Commissioner Stein.

SEC requests comments on possible changes to disclosures by bank holding companies. The SEC published a request for comment that seeks public input on the effectiveness and possible revision of Industry Guide 3, which provides guidance on the statistical disclosures made by bank holding companies. The request invites public comment on the existing disclosure guidance for bank holding companies, both in Guide 3 and other sources of disclosures for these entities and other financial services industry registrants; possible improvements to the disclosure regime, including new disclosures, revisions to existing disclosures, or the elimination of duplicative or overlapping disclosures; the scope and applicability of Guide 3; and the effects of regulation on bank holding companies. Comments are due within 60 days of publication in the Federal Register. (3/1/2017) SEC press release. See statements by Acting Chair Piwowar and Commissioner Stein.


Staff issues guidance update and investor bulletin on robo-advisers. The SEC announced its publication of information and guidance for investors and the financial services industry on the fast-growing use of robo-advisers, which are registered investment advisers that use computer algorithms to provide investment advisory services online, often with limited human interaction. A second publication, an Investor Bulletin issued by the SEC’s Office of Investor Education and Advocacy, offers individual investors information they may need to make informed decisions if they consider using robo-advisers. (2/23/2017)

No-Action Relief and Exemptive Orders

Exemption extends deadline for SROs to publish Tick Size Pilot data on their websites. The SEC’s Division of Trading and Markets granted a limited exemption to several self-regulatory organizations from the requirements of the National Market System Plan to Implement a Tick Size Pilot Program to publish on their websites certain data regarding Pilot Securities on a monthly basis. The exemptive order extends the deadline for posting the data until April 28, 2017. (2/28/2017) SEC exemptive order.

Staff grants no-action relief under the Custody Rule. The Investment Adviser Association requested clarification from the Division of Investment Management that an investment adviser does not have custody as set forth in the Custody Rule under the Investment Advisers Act of 1940 if it acts pursuant to a standing letter of instruction or similar asset transfer authorization arrangement established by a client with a qualified custodian (SLOA). Alternatively, the IAA requested the Division’s assurance that it would not recommend enforcement action to the SEC under Section 206(4) of the Advisers Act and the Custody Rule against an investment adviser if it acts pursuant to a SLOA without obtaining a surprise independent verification (a surprise examination) as required by Rule 206(4)-2(a)(4). Division staff stated that an investment adviser with power to dispose of client funds or securities for any purpose other than authorized trading has access to the client’s assets; that a letter of instruction or other similar asset transfer authorization arrangement established by a client with a qualified custodian would constitute an arrangement under which an investment adviser is authorized to withdraw client funds or securities maintained with a qualified custodian upon its instruction to the qualified custodian; and that an investment adviser who enters into such an arrangement with its client would therefore have custody of client assets and would be required to comply with the Custody Rule. Notwithstanding that view, the Division concluded that it would not recommend enforcement action to the SEC against an investment adviser if that adviser does not obtain a surprise examination where it acts pursuant to such an arrangement under certain circumstances. See Revision to Custody Rule FAQ II.4. Also see Guidance Update on Inadvertent Custody. (2/21/2017)

Selected Enforcement Actions

SEC uses satellite imagery of undeveloped home sites to bring charges against homebuilder for reporting fake home sales. The SEC filed civil fraud charges against a Mexico-based homebuilding company, alleging that the company engaged in an accounting scheme to inflate revenues in its financial statements. The SEC alleged that the company reported inflated numbers of home sales during a three-year period and overstated its revenue by approximately US$3.3 billion. Without admitting or denying the allegations, the company settled the charges by agreeing to the entry of a permanent injunction that prohibits the company from violating the antifraud, reporting, and books and records provisions of the federal securities laws, as well as a five-year bar from offering securities in the US markets. (3/3/2017) SEC press release.

SEC suspends registration exemption of Regulation A issuer. The SEC announced that it has temporarily suspended the Regulation A registration exemption of an issuer that allegedly made significant material misrepresentations in connection with its attempt to obtain a registration exemption for a US$20 million offering of securities. The SEC alleged that the company included material misrepresentations in its offering statement about the company’s assets, the industry experience of its CEO, and the location of its principal office. Additionally, the company’s CEO allegedly failed to produce documents in response to the SEC’s investigation. The SEC’s action against the issuer is the second temporary suspension order under the amendments to Regulation A. (2/28/2017) In the Matter of Web Debt Solutions LLC, SEC Release No. 33-10316.

Speeches and Statements

Piwowar, Stein deliver remarks on securities-based crowdfunding. At the SEC-NYU Dialogue on Securities Market Regulation, SEC Acting Chair Michael S. Piwowar and Commissioner Kara M. Stein discussed US securities-based crowdfunding. Acting Chair Piwowar raised concerns that the SEC’s crowdfunding rules in their current form are “too restrictive and burdensome.” Commissioner Stein addressed the role of funding portals as gatekeepers, concerns regarding the risks of so-called SAFE securities, and concerns about concentration within the crowdfunding marketplace. (2/28/2017)

Piwowar speaks at “SEC Speaks” conference. Acting SEC Chair Michael Piwowar delivered a speech at the “SEC Speaks” Conference 2017: Remembering the Forgotten Investor. Among other things, Piwowar discussed disclosure-based securities regulation and the accredited investor threshold. (2/24/2017)

Stein addresses current conditions in and future of financial markets. At the SEC Speaks conference, SEC Commissioner Kara M. Stein discussed “the rise of institutional investors, the move to private markets, and the evolution of electronic trading,” and their potential impact on capital formation and investor protection. (2/24/2017) Stein remarks.

Other Developments Investor Advocate announces conference on investor understanding and behavior. The SEC’s Office of the Investor Advocate announced that it will hold a public conference on March 10, 2017, to consider potential strategies for enhancing retail investors’ understanding of key investment characteristics, including fees, risks, returns, and conflicts of interest. (3/2/2017) SEC commission notice.

IFRS Taxonomy now available on SEC website for XBRL submissions by foreign private issuers. The SEC announced that the IFRS Taxonomy is available on its website for use by for foreign private issuers in submitting their financial statements in XBRL, pursuant to Rule 405 of Regulation S-T. (3/1/2017) SEC commission notice.

DERA white paper examines analyzes initial Title III crowdfunding activity. The SEC released a white paper prepared by staff in its Division of Economic and Risk Analysis that examines the offering activity in the crowdfunding market for offerings made pursuant to Title III of the JOBS Act during the first six months following the effective date of the final rules. (2/28/2017) DERA white paper.

Money Market Fund Statistics. The Division of Investment Management published Money Market Fund Statistics, which includes data as of January 31, 2017. (2/21/2017)