In response to President Trump’s request for a reexamination of financial regulations via a “Presidential Executive Order on Core Principles for Regulating the United States Financial System,” the U.S. Department of the Treasury on October 6th announced its release of a 232-page report entitled, “A Financial System That Creates Economic Opportunities: Capital Markets,” which details the agency’s plan to streamline and reform the U.S. regulatory system for the capital markets. This is the second of four reports that the Treasury Department is publishing at President Trump’s request. The Treasury Department also released a corresponding Fact Sheet.
Among other things, the report suggests “significant reforms” to capital market rules to stimulate economic growth while still protecting investors through:
- recommending ways to encourage more public companies and to open private markets to investors by “increasing the amount that can be raised in a crowdfunding offering from $1 million to $5 million”;
- offering ways to reduce the burden on companies seeking public listings, such as “streamlining disclosure requirements by repealing portions of the Dodd-Frank Act to reduce costs for companies while providing investors the information they need to make investment decisions”;
- calling for opening private markets to investors through pooled investments and other methods;
- recommending assessing regulatory overlap between the Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”), not by merging the two agencies, but instead by assuring that they work together more; and
- suggesting more public input and economic analysis into rulemaking and revisiting the definition of an “accredited investor.”
Treasury Secretary Steven T. Mnuchin explained that Treasury came up with its recommendations in an effort to “… make the U.S. capital markets a true source of economic growth which will harness American ingenuity and allow small businesses to grow.”
The report mainly stays away from proposing legislative changes that would have to be passed by a divided Congress, and instead concentrates on adjustments that could be made fairly quickly by the SEC and CFTC, both of which have Trump appointees at the helm. SEC Chairman Jay Clayton said that the report “is a thoughtful and clear analysis of a range of market issues,” while CFTC Commissioner Rostin Benham said that he looks forward to working with his fellow commissioners “to consider carefully targeted regulatory adjustments that will support market participants, end-users, and customers by prioritizing safe, transparent derivatives markets.”
David Hirschmann, president and CEO of the U.S. Chamber of Commerce’s Center for Capital Markets Effectiveness, applauded the report, observing that it “… offers a blueprint to unlock the resources needed to spur economic growth and job creation.” Conversely, some Democratic lawmakers and investor advocates noted their surprise that the new proposals would ease protections put in place for swaps and securitized bonds, both of which triggered the 2008 financial crisis. Marcus Stanley, policy director of Americans for Financial Reform, concluded that this “… is a very clear signal to the regulatory agencies to ease up, in numerous areas, on Wall Street.”
Banking Agency Developments
Acting Comptroller Discusses Innovation and Financial Technology
On October 19th, Acting Comptroller of the Currency Keith A. Noreika discussed innovation and financial technology during a speech at Georgetown University’s Institute of International Economic Law’s Fintech Week.
Agencies Issue Temporary Exceptions to Appraisal Requirements in Areas Affected by Hurricanes Harvey, Irma, and Maria
In response to widespread damage caused by Hurricanes Harvey, Irma, and Maria, the Office of the Comptroller of the Currency (“OCC”), the Federal Reserve, the Federal Deposit Insurance Corporation (“FDIC”), and the National Credit Union Administration took action to facilitate the recovery process by temporarily easing appraisal requirements for real estate-related financial transactions in areas declared to be a major disaster. On October 17th, the regulatory agencies announced in a joint press release that they will not require financial institutions to obtain appraisals for affected transactions if the properties involved are located in areas declared major disasters; if there are binding commitments to fund the transactions within 36 months of the date the areas were declared major disasters, and if the value of the real properties support the institutions’ decisions to enter into the transactions. The exceptions apply to transactions in areas of Florida, Georgia, Puerto Rico, Texas, and the U.S. Virgin Islands and expire three years after the date the president declared each area a major disaster.
Home Mortgage Disclosure Act: Interagency Key Fields
On October 17th, the OCC issued a bulletin to inform national banks, federal savings associations, and federal branches and agencies about “key fields” that it, the Federal Reserve and the FDIC have determined examiners will typically use to test and validate the accuracy and reliability of home mortgage loan data collected beginning in 2018 pursuant to the Home Mortgage Disclosure Act (“HMDA”) rule. See Acting Comptroller of the Currency Statement on HMDA Reporting.
Principles For Consumer-Authorized Financial Data Sharing and Aggregation
On October 18th, the CFPB announced that it has outlined principles for protecting consumers when they authorize third-party companies to access their financial data to provide certain financial products and services.
Treasury Releases Report on Foreign Exchange Policies of Major U.S. Trading Partners
Treasury International Capital Data For August
On October 17th, the Department of the Treasury announced its release of the Treasury International Capital data for August 2017.
Investment Management Updates Money Market Fund Statistics
On October 19th, the SEC’s Division of Investment Management released updated money market fund statistics. The new statistics include data as of September 30, 2017.
The SEC announced on October 18th that Brett Redfearn has been appointed to serve as Director of the SEC’s Division of Trading and Markets.
SEC Will Bring Small Business Capital Formation Forum to Texas
On October 18th, the SEC announced that it will hold its annual Government-Business Forum on Small Business Capital Formation on November 30, 2017, at the University of Texas at Austin. The forum will include a panel discussion exploring how capital formation options are working for small businesses, including small businesses in Texas, as well as small group discussions of specific policy recommendations to improve small business capital formation.
C&DI Updates: Business Combination Transactions/Non-GAAP Financial Measures
On October 17, 2017, the SEC’s Division of Corporation Finance updated the Business Combination Transactions section of its Compliance and Disclosure Interpretations (“C&DIs”) on non-GAAP financial measures.
Equity Traders Pan Tick-Size Pilot
The majority of equity traders do not support the SEC’s tick-size pilot in small-cap stocks, according to a report in Pensions & Investments on October 17th. The article notes that 40 percent of traders who responded to a survey conducted by Greenwich Associates said that the program failed to increase liquidity in these stocks and 50 percent were unsure whether the program conferred any liquidity benefits.
LabCFTC Releases Primer on Virtual Currencies
On October 17th, the CFTC announced that its LabCFTC has released a primer entitled, “A CFTC Primer on Virtual Currencies.” This primer is the first of a series that LabCFTC will release to provide information about innovation in financial technology.
Clearinghouse Liquidity Stress Test Results
October 2017 – December 2017
Consumer Financial Protection Bureau
Federal Deposit Insurance Corporation
Federal Financial Institutions Examination Council
Federal Reserve System
Bats Global Markets
SEC Approves EDGX’s Rules on Complex Order Trading
On October 17th, the SEC granted accelerated approval to Bats EDGX Exchange Inc.’s (“EDGX”) amended proposal to adopt rules to govern the trading of complex orders. SEC Release No. 34-81891.
Chicago Stock Exchange
SEC Approves CHX’s Liquidity Enhancing Access Delay
On October 19th, the SEC granted accelerated approval to the Chicago Stock Exchange’s (“CHX”) amended proposal to adopt the CHX Liquidity Enhancing Access Delay (“LEAD”), which would require all new incoming orders, cancel, and cancel/replace messages to be subject to a 350- microsecond intentional access delay except for orders that would provide liquidity submitted by a LEAD Market Maker (“LEAD MM”) and cancel messages originating from a LEAD MM’s trading account. CHX recently amended the proposal to implement CHX LEAD as a 24-month pilot program and establish data collection requirements for public disclosure by CHX. SEC Release No. 34-81913.
SEC Delays Action on Clearing Agencies’ Proposed Frameworks for Stress Testing and Liquidity Risk Management
On October 16th, the SEC designated December 21, 2017, as the date by which it will approve, disapprove, or institute disapproval proceedings regarding the proposals filed by The Depository Trust Company (“DTC”), the Fixed Income Clearing Corporation (“FICC”), and the National Securities Clearing Corporation (“NSCC”) to adopt the Clearing Agency Stress Testing Framework and the Clearing Agency Liquidity Risk Management Framework.
Financial Industry Regulatory Authority
FINRA Seeks Input on Two Arbitration-Related Proposals
The Financial Industry Regulatory Authority (“FINRA”) announced on October 18th that it is seeking comments on two proposals related to its arbitration program. The first proposal would amend FINRA’s Code of Arbitration Procedure for Customer Disputes to expand a customer’s options to withdraw an arbitration claim if a firm or an associated person becomes inactive before a claim is filed or during a pending arbitration. The proposal would also allow customers to amend pleadings, postpone hearings, and receive a refund of filing fees in these situations. The second proposal requests input from forum users on their experiences with compensated non-attorney representatives (“NAR firms”) as part of its review to determine whether to continue allowing NAR firms to represent clients in securities arbitration and mediation. Comments on both proposals should be submitted on or before December 18, 2017.
FINRA Offers Guidance on Sales Practice Obligations for Volatility-Linked ETPs
In a Regulatory Notice published on October 16th, FINRA reminded firms of their sales practice obligations in connection with volatility-linked exchange-traded products (“ETPs”), which are very likely to lose value over time and therefore may be unsuitable for certain retail investors. The Notice emphasizes that recommendations of these products to customers must be based on a full understanding of the terms, features and risks of the product recommended; sales materials must be fair and accurate; and firms must have reasonable supervisory procedures in place to ensure that these obligations are met.
ICE Clear Credit
SEC Approves Amendments to ICC’s Clearing Rules Related to Venezuela Sanctions
On October 17th, the SEC issued an order granting accelerated approval to a proposed rule change filed by ICE Clear Credit LLC (“ICC”) to make certain amendments to the ICC Clearing Rules applicable to cleared CDS contracts in response to the implementation of Venezuela sanctions. SEC Release No. 34-81892.
International Swaps and Derivatives Association
ISDA Publishes Conceptual Version of Common Domain Model
On October 17th, the International Swaps and Derivatives Association (“ISDA”) announced the publication of a paper that proposes a conceptual version of its ISDA Common Domain Model, which would provide a common set of data and processing standards to represent digitally how derivatives are traded and managed across the lifecycle. ISDA maintained the its Common Domain Model will facilitate the development and use of new technologies, including distributed ledger and smart contracts.
Investors Exchange LLC
SEC Approves IEX’s Proposed Complimentary Products and Services for Listed Companies
On October 13th, the SEC issued an order approving a proposed rule change filed by Investors Exchange LLC (“IEX”) to adopt new rules to describe the complimentary products and services to be made available to all listed companies. SEC Release No. 34-81872.
Municipal Securities Rulemaking Board
MSRB Announces Rulemaking and Policy Topics for Board Meeting
On October 18th, the Municipal Securities Rulemaking Board (“MSRB”) published a list of discussion items that will be considered by its Board of Directors at a meeting on October 25 and 26, 2017. Among other matters, the MSRB Board will discuss facilitating compliance with MSRB rules; impending rule changes on mark-up disclosure and prevailing market price of municipal securities; and possible amendments to its rules on the Real-Time Transaction Reporting System.
MSRB Identifies Risky Municipal Market Practices in Letter to SEC Investor Advocate
In an October 17th letter to the SEC’s Office of the Investor Advocate, the MSRB identified products and practices within the municipal securities market that may have an adverse impact on retail investors. The MSRB raised concerns regarding certain market practices, including “pennying,” filtering, and holding below minimum denomination positions; disclosure practices; and price fairness and transparency. MSRB Press Release.
MSRB Releases Fiscal Year 2018 Budget Summary
The MSRB announced on October 17th that it has published a budget summary for the 2018 fiscal year, which sets out how projected revenues and spending align with the MSRB’s strategic activities and goals. The summary also explains how the MSRB will approach the management of organizational reserves to achieve the fair and equitable balance of fees while maintaining the MSRB’s financial sustainability.
National Futures Association
NFA Executive Committee Recommends Increase to NFA Assessment Fee
On October 20th, the National Futures Association (“NFA”) published a Notice to Members announcing that its Executive Committee has recommended to the NFA’s Board of Directors that it increase the NFA’s assessment fee from $0.01 per side to $0.02 per side for futures and options contracts. If it is approved by both the NFA Board and the CFTC, the increase would become effective on January 1, 2018.
Options Clearing Corporation
OCC Proposes Comprehensive Risk Management Framework Policy
On October 19th, the SEC requested comments on The Options Clearing Corporation’s (“OCC”) proposal to adopt a comprehensive Risk Management Framework Policy, which would describe OCC’s framework to identify, measure, monitor, and manage all risks faced by OCC in the provision of clearing, settlement and risk management services. Comments should be submitted within 21 days of publication in the Federal Register, which is expected the week of October 23, 2017. SEC Release No. 34-81909.
SEC Is Set to Give Wall Street a MiFID II Reprieve
On October 18th, Bloomberg reported thatthe SEC is allegedly getting ready to give Wall Street a break by telling financial firms they will not have to overhaul their operations to comply with the European Union’s revised Markets in Financial Instruments Directive (“MiFID II”) governing investment research. The SEC is expected to provide formal assurances by the end of October that it will not object if brokerages break out the cost of market analysis for their European clients, rather than bundling it together with other services.
Stock Exchange Executives Question SEC’s Plan to Overhaul Trading
According to The Wall Street Journal, the operating chiefs of NYSE Group Inc., Nasdaq Inc., and CBOE Holdings Inc. sent a letter to SEC Chairman Jay Clayton in response to the agency’s planned "maker-taker" pilot program, which would lower the incentives that exchanges offer to attract trading, stating that the program as planned would make it more difficult and pricier to trade some stocks. The exchanges suggested that the SEC first work on other changes to the way the stock market operates, including imposing new transparency and conflict-of-interest rules on trading platforms run by brokerage firms.
Antitrust and Competition – The EU Weekly Briefing, Vol 5, Issue 39
The EU Weekly Briefing is designed to provide timely updates on recent European Union competition law by including a short description of, and links to, recent developments. Newsletter.
SEC Proposes Rule Changes to Modernize Regulation S-K
On October 11, 2017, the Securities and Exchange Commission (the “SEC”) issued a release proposing amendments to certain disclosure requirements in Regulation S-K and related forms and rules. Briefing.
Update on Sudan Sanctions: General Embargo Lifted as Limited Sanctions Remain in Place
As of October 12, 2017, the United States is no longer maintaining a general embargo against Sudan and U.S. persons can engage in most transactions with Sudan and its government without a license. Briefing.
Developments in U.S. Policy toward Iran: President Trump’s Decision not to Recertify Iran’s Compliance with the JCPOA and Designation of the IRGC under E.O. 13224
On October 13, 2017, the President announced that he will not recertify Iran’s compliance with the Joint Comprehensive Plan of Action. Briefing.