Proposed Rules and Requests for Comment

SEC considers new rules for transfer agents. The SEC requested comments on an advance notice of proposed rulemaking that would impose new requirements for transfer agents and an accompanying concept release that outlines the SEC’s approach to transfer agent regulation and potential areas for additional rulemaking. Comments on both the advance notice of proposed rulemaking and the concept release are due on or before February 29, 2016. (12/22/2015) SEC press release.See also supporting statement of Commissioner Aguilar.

SEC proposes new rules regulating the use of derivatives by registered funds.The SEC published a proposed rule that would place additional limitations on the use of derivatives by mutual funds, ETFs, closed-end funds, and business development companies. The proposed rule would require funds to comply with one of two alternative portfolio limitations that would limit the amount of leverage a fund may obtain through derivatives and to segregate certain assets to mitigate the risks associated with derivatives. Funds that use complex derivatives or engage more frequently in derivatives transactions would be required to establish a derivatives risk management program. Comments on the proposed rule are due on or before March 28, 2016. (12/11/2015) SEC press release. See also a white paper published by the SEC Division of Economic Research and Analysis (DERA) examining the use of derivatives by registered investment companies that was released alongside the proposed rule. 

SEC gives resource extraction payment disclosure rule another try. The SEC proposed new rules that would require domestic or foreign issuers engaged in the commercial development of oil, natural gas, or minerals that are required to file annual reports with the SEC to disclose payments made to the US or foreign governments. Under the proposed rule, these companies would be required to disclose any payments made related to their commercial development activities or that total more than US$100,000 during the fiscal year. The disclosure requirements would extend to payments made by subsidiaries or other entities controlled by the issuer. Initial comments on the proposed rule are due on or before January 25, 2016, while reply comments responding to issues raised in the initial comment period are due on or before February 16, 2016. (12/11/2015) SEC press release. SEC Commissioner Michael S. Piwowar dissented, criticizing the proposed rule for burdening only public companies with additional disclosure requirements. 

SEC proposes format for SBS data submissions. The SEC proposed amendments to Securities Exchange Act rules governing the registration, duties, and core principles of security-based swap data repositories (SDRs). The proposal would require SDRs to make security-based swap (SBS) data available to the SEC in electronic format by using appropriate schemas that will rely on either FpML or FIXML. Comments are due on or before February 22, 2016. (12/11/2015) SEC Release No. 34-76624.


Division of Corporation Finance publishes guidance on securities law amendments in FAST Act. The SEC’s Division of Corporation Finance issued guidance on changes to federal securities laws included in the recently enacted Fixing America’s Surface Transportation (FAST) Act, including an announcement providing a brief overview of the changes, new Compliance and Disclosure Interpretations (C&DIs), and revised versions of the Jumpstart Our Business Startups (JOBS) Act frequently asked questions that address generally applicable questions and the confidential submission process for emerging growth companies to reflect amendments to Section 6(e) of the Securities Act. (12/21/2015) FAST Act C&DIs.

No-Action Relief and Exemptive Orders

SEC grants temporary extension of no-action relief to funds assisting clearing organizations in meeting CDS margin requirements. The SEC Division of Investment Management extended until December 31, 2017, the no-action relief requested by the Chicago Mercantile ExchangeICE Clear Credit LLC, and LCH.Clearnet Limited and LCH.Clearnet LLC that the Division would not recommend enforcement action against registered investment companies that place and maintain assets in the custody of these entities or their clearing members for the purposes of meeting their margin requirements for certain credit default swaps (CDSs). (12/29/2015)

Division of Trading and Markets issues no-action letter to allow EDGAR filing of annual and supplemental reports by broker-dealers. The SEC’s Division of Trading and Markets issued a no-action letter in which it indicated that it would not recommend enforcement action against a broker-dealer or OTC derivatives dealer who files the required annual and supplemental reports electronically through the EDGAR system in lieu of filing them with the SEC in paper form. (12/21/2015) SEC no-action letter.

WKSI obtains relief from becoming an ineligible issuer after its subsidiary violated best execution requirements. The SEC’s Division of Corporation Finance granted KCG Holdings, Inc.’s request for relief from being considered an “ineligible issuer” under Rule 405 of the Securities Act. KCG requested the relief to retain its well-known seasoned issuer (WKSI) status after the SEC brought an administrative proceeding against KCG’s subsidiary broker-dealer for failing to seek the best execution of certain customer orders. (12/21/2015) SEC no-action letter.

Selected Enforcement Actions

Market maker fails to follow best execution rule in executing customer orders.The SEC instituted settled administrative proceedings against broker-dealer KCG Americas LLC for failing to obtain the best execution of certain customer orders and falsely representing to customers that it handled their orders in keeping with best execution requirements. The SEC alleged that KCG failed to pass on favorable prices to certain customer orders. Without admitting or denying the allegations, KCG agreed to settle the charges by consenting to the entry of cease and desist and censure orders. In addition, KCG agreed to pay disgorgement of US$685,900, prejudgment interest of US$69,297.38, and a civil penalty of US$300,000. (12/21/2015) In the Matter of KCG Americas LLC, SEC Release No. 33-9996.

Investment adviser failed to disclose financial benefit to parent company in bond investment. The SEC charged an investment adviser with fraud in a civil proceeding after it invested client funds in bonds without disclosing to its clients that the sales would benefit a broker-dealer whose parent company partially owned the firm. The SEC alleged that the investment adviser invested over US$43 million of client funds in illiquid bonds issued by a Native American tribal corporation at the suggestion of a broker-dealer affiliated with an entity that also partially owns the adviser. The sales of the bonds generated a private placement fee for the broker-dealer and proceeds from the sales were designated to purchase an annuity provided by the entity’s parent company. The investment adviser failed to disclose these conflicts of interest to its clients and failed to disclose the entity’s ownership interest in its filings with the SEC. The SEC has charged the investment adviser with violations of the antifraud provisions of the Investment Advisers Act of 1940 and related rules as well as violations of Section 207 of the Advisers Act. (12/15/2015) SEC press release.

Public accountants charged with performing deficient audits and falsifying audit documents. The SEC instituted settled administrative proceedings against two accounting firms and five accountants for performing deficient audits of public companies by failing to obtain required engagement quality reviews, falsifying audit documents by backdating quality review documents for the deficient audits, and violating audit independence rules. All of the accountants and firms involved agreed to settle the charges without admitting or denying the allegations. One accountant and his firm agreed to be permanently barred from practicing as accountants for SEC-regulated companies or entities. The remaining respondents agreed to practice suspensions ranging from two to four years. In addition, all respondents agreed to pay penalties and disgorgement totaling over US$100,000 collectively. (12/10/2015) SEC press release.

Statements and Speeches

Aguilar bids farewell to SEC by noting improvements and ‘unfinished business.’SEC Commissioner Luis Aguilar issued a departing statement in which he reviewed the improvements to the SEC’s internal structure and processes that occurred during his time on the Commission and highlighted the items of “unfinished business” he hopes the SEC will address in 2016. (12/21/2015) Aguilar statement.

Aguilar urges SEC to balance data requirements with cybersecurity precautions. SEC Commissioner Luis Aguilar issued a statement in which he highlighted the need for the SEC to take steps to reduce potential cybersecurity threats that may result from the SEC’s data gathering efforts. (12/16/2015) Aguilar statement.

Transition planning, stress testing on the agenda for possible 2016 rulemaking initiatives. SEC Division of Investment Management Director David Grim delivered remarks in which he indicated the SEC may propose rules in 2016 that would require investment advisers to devise and maintain transition plans in the event of a major business disruption and that would establish new requirements for stress testing by large investment advisers and investment companies. (12/16/2015) Grim remarks.

White concerned by continuing audit deficiencies and growing audit committee workload. Addressing the 2015 American Institute of Certified Public Accountants (AICPA) National Conference, SEC Chair Mary Jo White expressed apprehension regarding the number of significant deficiencies in auditing found during Public Company Accounting Oversight Board (PCAOB) inspections and the pressure placed upon audit committees by a growing workload. (12/9/2015) White remarks.

Supplemental use of IFRS information by US issuers under SEC consideration.In remarks delivered to the 2015 AICPA National Conference, SEC Chief Accountant James V. Schnurr indicated that the SEC is considering regulatory changes to allow domestic issuers to supplement their financial statements with IFRS-based information. (12/9/2015) Schnurr remarks. 

White defends FSOC SIFI designation and transparency in House testimony. In testimony before the US House of Representatives Financial Services Committee, SEC Chair Mary Jo White defended the Financial Stability Oversight Council (FSOC) against charges that its decision-making process in designating systemically important financial institutions (SIFIs) lacks transparency, noting recently adopted changes in the designation process by the FSOC including increased engagement with companies, increased transparency, and an annual review process that allows designated firms to present relevant information to FSOC staff. (12/8/2015) White testimony.

Piwowar praises FAST Act for removing SBS indemnification requirement. SEC Commissioner Michael S. Piwowar applauded the provision of the FAST Act that repealed the Dodd-Frank Act’s security-based swap data repository indemnification requirement, citing the indemnification provision as an example of a Dodd-Frank Act requirement that prevents the SEC from fulfilling its core mission. (12/8/2015) Piwowar statement.

Other Developments

Investor Advisory Committee meeting. The SEC announced a public meeting of the Investor Advisory Committee will be held on Thursday, January 21, 2016. The SEC has invited the public to submit written statements to the Committee, which should be received on or before January 21, 2016. SEC Release No. 33-10000.

SEC publishes two staff reports on NRSROs. The SEC released two staff reports discussing the credit rating agencies registered as nationally recognized statistical rating organizations (NRSROs). The annual examination report summarizes the SEC staff findings from the Dodd-Frank mandated examinations of NRSROs. The annual report required by the 2006 Credit Rating Agency Reform Act examines the state of competition, transparency, and conflicts of interest at NRSROs. (12/28/2015) SEC press release.

Office of the Investor Advocate Report on Activities. The SEC’s Office of the Investor Advocate released its annual report describing the Investor Advocate’s activities and recommendations related to its key policy areas during Fiscal Year 2015. (12/23/2015) SEC Investor Advocate report.

SEC staff recommends changes to accredited investor definition. The SEC published a staff report prepared in connection with the first review of the accredited investor definition. The SEC has requested public comments on the report, which examines the history of the accredited investor definition, considers comments on the definition received from a variety of sources, and provides staff recommendations for potential updates and modifications to the definition. (12/18/2015) SEC press release.

Companies may test file Regulation Crowdfunding form. The SEC will offer test filings of Regulation Crowdfunding Form C until February 29, 2016. Form C, which contains required disclosures in connection with a crowdfunding offering, may be accessed on the SEC’s EDGAR filing website by companies with a Central Index Key (CIK) and a CIK Confirmation Code (CCC). (12/18/2015) SEC press release.