Final Rules

SEC corrects asset-backed securities and registration rules. The SEC released a technical amendment to its final rules revising Regulation AB and other rules governing the offering process, disclosure, and reporting for asset-backed securities to correct inadvertent changes to the rule text, remove outdated cross-references, and apply other technical corrections. The amended rules were effective June 22, 2016. (6/16/2016) SEC Release 33-10099.

SEC approves revisions to EDGAR filer manual. The SEC approved final rules, effective upon publication in the Federal Register, that revise the EDGAR filer manual to reflect changes to the EDGAR system, including updates to support the submission of asset-backed securities related form types by certain registrants and to allow filers to use Inline XBRL in their annual and quarterly reports under certain conditions. (6/13/2016) SEC Release No. 33-10095.

SEC announces final rules on trade acknowledgment and verification requirements for SBS transactions. The SEC adopted final rules that would require security-based swap dealers and major SBS participants to provide trade acknowledgements containing all of the terms of an SBS transaction to their counterparties and to verify or dispute the terms of any acknowledgements they receive. Certain transactions are exempt from the rules, including those that are processed through a registered clearing agency, executed on an SBS execution facility, or executed on a national securities exchange. The final rules will be effective on August 16, 2016. (6/8/2016) SEC press release.

Proposed Rules

SEC proposes to modernize disclosure requirements for mining properties.The SEC issued proposed rules that would revise the disclosure requirements for mining properties under Regulation S-K to meet current industry and global regulatory practices and standards. The proposed rules would also rescind Industry Guide 7 and include the mining property disclosure requirements in a new subpart of Regulation S-K. Comments should be submitted within 60 days of publication in the Federal Register. (6/16/2016) SEC press release.


SEC offers final interpretation of “immediate” in Regulation NMS’s definition of automated quotation. The SEC published a final interpretation of the definition of “automated quotation” under Rule 600(b)(3) of Regulation NMS. The interpretation, which was issued in connection with the SEC’s order approving Investors’ Exchange LLC’s application to register as a national securities exchange, now defines “immediate” in the context of Regulation NMS as not precluding a de minimis intentional delay, which the SEC defines as a delay so short as to not impair fair and efficient access to an exchange’s quotations. (6/17/2016)

Division of Trading and Markets issues guidance on automated quotations under Regulation NMS. The SEC’s Division of Trading and Markets offered guidance concerning the SEC’s final interpretation of automated quotations under Rule 600(b)(3) of Regulation NMS. While the Commission declined to enumerate the length of a delay that would meet the de minimis standard set out in the interpretation, the Division of Trading and Markets staff considers a delay of less than a millisecond to be at a de minimis level that would not impair fair and efficient access to an exchange’s quotation, consistent with the purpose of Rule 611. (6/17/2016) SEC staff guidance.

Exemptive Orders

SEC issues order to allow the use of Inline XBRL. The SEC granted a limited and conditional exemption to companies from Securities Exchange Act requirements to attach an exhibit containing the required XBRL structured data to their annual and quarterly reports. According to the SEC’s order, companies may integrate the required XBRL data within their HTML filings using Inline XBRL format until March 2020. (6/13/2016) SEC press release. 

Selected Enforcement Actions

Fund administrator ignored red flags indicating fraud by clients. A private fund administration company will pay more than US$350,000 to settle charges that it ignored indications of fraud and other red flags and failed to act to correct faulty accounting by two of its clients. According to an announcement by the SEC, the fund administrator detected several issues with one of its clients. The administrator failed to correct previously issued accounting reports and statements and continued to issue materially false reports and statements, which the client provided to investors to demonstrate its financial position and performance. In addition, the administrator accounted for over US$1 million in undisclosed withdrawals by the owner of another client as receivables owed to the funds despite concluding that the owner was unlikely to repay. Without admitting or denying the charges, the fund administrator consented to the entry of cease-and-desist orders and agreed to enlist the services of an independent compliance consultant. The fund administrator will also pay disgorgement, prejudgment interest, and civil penalties totaling over US$350,000. (6/16/2016) In the Matter of Apex Fund Services (US), Inc., SEC Release No. IA-4428 (ClearPath), and In the Matter of Apex Fund Services (US), Inc., SEC Release No. IA-4429 (EquityStar).

Municipal advisors charged with using deceptive practices in bids for school district contracts. In its first enforcement action under the Dodd-Frank Act’s municipal advisor antifraud provisions, the SEC announced charges against two municipal advisory firms and their executives for improper conduct during the solicitation of business from several school districts in California. The SEC alleged that a consulting firm and its principal obtained confidential information about the school districts’ processes for selecting municipal advisors and shared the information with a municipal advisor and two of its executives. The municipal advisor eventually won the municipal advisory contracts. The consulting firm was not authorized to share the information with the municipal advisor and the advisor never disclosed to the school districts that it had obtained the confidential information. Without admitting or denying the allegations, all of the respondents settled the charges by consenting to the entry of cease-and-desist orders and agreeing to pay civil penalties in amounts ranging from US$20,000 to US$100,000. The consulting firm and the municipal advisor additionally agreed to the entry of censure orders. The owner of the consulting firm agreed to be barred from acting as a municipal advisor. (6/13/2016) In the Matter of School Business Consulting, Inc. and Terrance Bradley, SEC Release No. 34-78054, and In the Matter of Keygent LLC, Anthony Hsieh, and Chet Wang, SEC Release No. 34-78053.

Corporate vice president, controller charged in false accounting scheme. The SEC announced that it instituted settled administrative proceedings against an electronics company, its former corporate vice president, and its former controller, alleging the executives orchestrated a false inventory accounting scheme that caused the company to overstate its profits in its financial statements. Without admitting or denying the allegations, the respondents settled the charges by consenting to the entry of cease-and-desist orders and agreeing to pay civil penalties in the amount of US$200,000, US$25,000, and US$40,000, respectively. The vice president will also pay US$29,204.48 in disgorgement and consented to the entry of an officer and director bar; the controller agreed to be permanently suspended from practicing or appearing before the SEC as an accountant. The company’s former CEO agreed to return US$42,072 in incentive-based compensation and stock sale profits as well as 19,616 shares of company stock pursuant to the Sarbanes-Oxley Act’s clawback provision. The CEO was not accused of misconduct. (6/8/2016) In the Matter of IEC Electronics Corp., Ronald J. Years, CPA, and Donald S. Doody, SEC Release No. 34-78017.

Speeches and Statements

Senators criticize White’s leadership during testimony. In testimony before the Senate Committee on Banking, Housing, and Urban Affairs, SEC Chair Mary Jo White provided an overview of the SEC’s current work and initiatives, including the SEC’s work on equity market structure, mutual and exchange-traded funds, small business capital formation, the regulation of security-based swaps, and disclosure effectiveness. According to a report in the Wall Street Journal, White faced criticism from senators regarding the SEC’s disclosure review of the SEC’s inaction on political disclosure rules for public companies. (6/14/2016) 

Bricker discusses new and emerging issues in financial reporting. SEC Deputy Chief Accountant Wesley R. Bricker addressed the 35th Annual SEC and Financial Reporting Institute Conference, highlighting new and emerging issues related to internal control over financial reporting, the Public Company Accounting Oversight Board’s standard-setting activities, auditor independence, and the implementation activities for the new revenue recognition and leasing standards. (6/9/2016) Bricker remarks.

Other Developments

Equity Market Structure Advisory Committee to meet by telephone. The SEC’s Equity Market Structure Advisory Committee will hold a telephonic meeting on July 8, 2016, to consider a recommendation for an access fee pilot and recommendations related to trading venues regulation. The public may submit written statements by July 5, 2016. SEC Release No. 34-78040.

IEX’s exchange application wins SEC approval. The SEC issued an order approving Investors’ Exchange LLC’s application to register as a national securities exchange and granting IEX Exchange’s request for an exemption from the rule filing requirements of Section 19(b) of the Securities Exchange Act with respect to its rules that incorporate Financial Industry Regulatory Authority rules by reference. IEX Exchange must comply with certain requirements before it can begin the process of transitioning its operation to a national securities exchange, including participating in certain national market system plans and joining the Intermarket Surveillance Group. (6/17/2016) SEC press release.

SIPC proposes new intermediary assessment rate for member broker-dealers.The SEC is seeking comments on proposal filed by the Securities Investor Protection Corporation to amend its bylaws concerning assessments on SIPC member broker-dealers. Under the proposal, SIPC would impose an intermediary assessment rate that would apply when the SIPC’s unrestricted net assets are less than $2.5 billion. Comments are due within 21 days of publication in the Federal Register. (6/15/2016) SEC Release No. SIPA-177.

April Money Market Fund Statistics. The SEC’s Division of Investment Management updated its Money Market Fund Statistics to include data as of April 30, 2016. (6/14/2016) Money Market Fund Statistics.

SEC adjusts dollar amount thresholds for qualified client advisory fees. The SEC approved the proposed adjustments to the dollar amount thresholds of the asset-under-management test and the net worth test for determining client performance fees charged to “qualified clients,” which will become effective on August 15, 2016. According to the SEC’s order, the dollar amount of the assets-under-management test will remain $1,000,000 and the dollar amount of the net worth test will increase to $2,100,000. (6/14/2016) SEC Release No. IA-4421.

EDGAR Updates. The SEC published updates to the EDGAR Filer Manual Volume II and the EDGAR Form N-MFP1 XML Technical Specification (Version 1.1). (6/13/2016) 

SEC pays company employee US$17 million for detailed tip. The SEC awarded a whistleblower the SEC’s second-largest award of over US$17 million for providing the SEC with a detailed tip that bolstered its investigation and resulted in a successful enforcement action. (6/9/2016) SEC press release.

Investor Advisory Committee meets by telephone. The SEC’s Investor Advisory Committee held a telephonic meeting to consider the SEC’s concept release on business and financial disclosures under Regulation S-K and a subcommittee recommendation to enhance information for bond market investors. SEC Chair Mary Jo White told the Committee that she supported its proposed recommendations on bond market transparency and its comments on the use of non-GAAP measures in response to the Regulation S-K concept release. SEC Commissioner Michael S. Piwowar praised the Committee for focusing on issues related to transparency in the fixed-income markets and emphasized the need for pre-trade price transparency. (6/7/2016)