Insights from Winston & Strawn 

In October, a three-judge panel of the D.C. Circuit Court of Appeals determined that the existing structure of the Consumer Financial Protection Bureau (“CFPB”) was impermissible as the combination of a single-Director structure and a limitation on presidential authority to terminate the Director only “for cause” created an unconstitutional delegation of authority.  The D.C. Circuit agreed to vacate the prior order and rehear the case en banc.  This case has important implications and the CFPB has characterized it as “the most important separation of powers case in a generation.”  In a recent twist, the Department of Justice (the “DOJ”) filed a brief on Friday agreeing with the earlier panel decision and stating that the president should have the ability to remove the head of an agency for cause as such positions are “meaningfully different” from the type of multimember commission positions that have historically been largely immune from such political pressures.  As the DOJ pointed out, “there is a greater risk that an ‘independent’ agency headed by a single person will engage in extreme departures from the president’s executive policy” and without the ability to remove, such position remains largely unaccountable.  

The new administration has shown a penchant for reshaping policy through its selections of agency heads and as the CFPB has become a powerful agency in its brief history, giving the president the ability to change the direction of this agency at his discretion may have significant effects going forward, under both this and future administrations. 

Feature: Despite 'The Fearless Girl,' Gender Discrimination Persists on Wall Street 

In honor of International Women’s Day on March 8th, a statue of a young girl was temporarily installed in New York’s Financial District. “The Fearless Girl” was depicted valiantly confronting the bronze bull that has become a representation of Wall Street. The statue was installed by the world’s third largest asset manager as part of its campaign to celebrate “the power of women in leadership” and pressure companies to add more women to their boards.

Unfortunately, according to a new study, Wall Street is nowhere near treating female employees equally to their male counterparts. On March 12th, three finance professors determined in a new research paper for The National Bureau of Economic Research that, even though the average male financial advisor participates in three times more misconduct than his female colleagues, those females are being punished more harshly and are less likely to find other employment if they lose their jobs. The study, entitled “When Harry Fired Sally: The Double Standard in Punishing Misconduct,” noted that 46% of male financial advisors either quit or are fired, as opposed to 55% of female financial advisors who either quit or are fired. And, after losing a job for one reason or another, 47% of the men find a new job in the same industry within the year while only 33% of the women land a new job in the same business within the year.

Study co-author Gregor Matvos of the University of Chicago found that women in financial advisor jobs “walk a tightrope,” as their bosses are less lenient when it comes to making mistakes. On the other hand, at firms where women made up at least one-third of executives, there was “almost no differential punishment for misconduct between genders.” Matvos concluded that managers at brokerage firms dealing with a misbehaving male broker seem eager to consider that he is “a good guy who deserves a second chance” while, “for females, you don’t get a second chance.”

Banking Agency Developments


Draft Licensing Manual Supplement Issued for Evaluating Charter Applications from Fintech Companies

On March 15th, the OCC provided additional detail on evaluating national bank charter applications from financial technology (fintech) companies that engage in the business of banking. The detail came in a draft supplement to the agency’s existing Licensing Manual. This supplement explains how the OCC will apply the licensing standards and requirements in existing regulations and policies to fintech companies applying for special purpose national bank charters. The supplement also describes unique factors that the agency will consider in evaluating applications from fintech companies; expectations for promoting fair access, fair treatment, and financial inclusion; and the agency’s approach to supervising those fintech companies that become national banks. The OCC will accept comments on this document by the end of April 14, 2017.


CFPB Seeks Comment on Plan for Assessing Remittance Rule

On March 17th, the (“CFPB”) announced that it has released its plan to assess the effectiveness of the remittance rule. The agency asked the public to comment on the plan, suggest sources of data, and generally to provide information that would help with the assessment. Comments on the plan will be due 60 days after its publication in the Federal Register.

Securities and Exchange Commission


Division of Investment Management Publishes FAQs on Form 13F

On March 15th, the Securities and Exchange Commission’s (“SEC”) Division of Investment Management published Frequently Asked Questions to help money managers who are required to file Form 13F.

Guidance Update for Holding Companies and the Application of Rule 3a-2 Under the Investment Company Act

The Division of Investment Management issued a Guidance Update that clarifies the application of Investment Company Act of 1940, Rule 3a-2 with respect to holding companies that are engaged in various operating businesses through wholly-owned and majority-owned subsidiaries, where neither the holding companies nor their subsidiaries are regulated as investment companies.

Information Update for Advisers Relying on the Unibanco No-Action Letters

The Division of Investment Management issued an Information Update regarding the representations and undertakings required by the Unibanco letters including what information, if any, should be submitted to the staff or SEC to facilitate the agency’s ability to monitor and enforce certain advisers’ performance of their obligations to their U.S. clients. 

Speeches and Statements

Stein Sees Potential to Revolutionize Disclosure through Research Initiative on Investor Behavior

In remarks at the SEC Office of the Investor Advocate’s Evidence Summit on March 10th, SEC Commissioner Kara M. Stein maintained that the summit’s goal of investigating the behavior and beliefs of investors along with the rise in data and technology could potentially help regulators and market participants engage in “a full re-imagining of the possibilities for disclosure.” 

Other Developments

SEC Will Vote on Shortened Settlement Cycle at Open Meeting

The SEC will hold an Open Meeting on March 22, 2017, to consider whether to approve final amendments to Securities Exchange Act Rule 15c6-1 that would shorten the standard settlement cycle for most broker-dealer transactions from three business days after the trade date to two business days after the trade date. SEC Meeting Notice.

Equity Market Structure Advisory Committee to Hold Public Meeting

The SEC’s Equity Market Structure Advisory Committee will meet on April 5, 2017, to discuss potential recommendations and updates from its four subcommittees. Written statements should be submitted to the Committee on or before March 29, 2017. SEC Commission Notice.

Investment Management Updates Money Market Fund Statistics

On March 16th, the SEC’s Division of Investment Management published updated Money Market Fund Statistics. The updated statistics include data as of February 28, 2017.

SEC Announces Enhanced Cooperative Agreement with Belgian Regulator to Oversee Euroclear’s Expanded Clearing Services

The SEC announced on March 14th that it has entered into a memorandum of understanding (“MOU”) with the National Bank of Belgium that will allow for additional cooperation and the exchange of information between the two regulators to support their oversight of Euroclear Bank’s expanded clearing services in the U.S., which now include limited clearing agency services for U.S. equity securities.

Information for EDGAR Filers

On March 13th, the SEC published the following updated information for EDGAR filers:

DERA White Paper Analyzes Impact of Limit Up-Limit Down Plan

On March 10th, the SEC released a white paper prepared by staff in its Division of Economic and Risk Analysis (“DERA”) that examines the frequency with which certain types of market events occurred both before and after the implementation of the Limit Up-Limit Down (“LULD”) National Market System (“NMS”) Plan. Among other things, DERA staff found no reduction in clearly erroneous trades following implementation of the LULD NMS Plan, an increase in trading pauses for Tier 2 securities, and a decrease in trading pauses for Tier 1 securities.

Commodity Futures Trading Commission

CFTC Extends Comment Period on Proposed Capital Requirements of Swap Dealers and Major Swap Participants

On March 13th, the U.S. Commodity Futures Trading Commission (“CFTC”) announced that it is extending the comment period on its proposed capital requirements applicable to swap dealers and major swap participants for an additional 60 days. The original comment period was to expire on March 16, 2017. As extended, the comment period will expire on May 15, 2017. Notice of the extension will be published in the Federal Register.

Federal Rules Effective Dates

March 2017 – May 2017

Click here to view table. 

Exchanges and Self-Regulatory Organizations

Bats Global Markets

SEC Rejects BZX’s Proposal to List and Trade First Bitcoin ETF

On March 10th, the SEC issued an order disapproving Bats BZX Exchange’s (“BZX”) proposed rule change that would have permitted BZX to list and trade shares of the Winklevoss Bitcoin Trust. The New York Times reported that the SEC cited the lack of regulation in the markets for bitcoin as a primary reason for rejecting the proposal, which would have created the first bitcoin exchange-traded fund (“ETF”).      

Financial Industry Regulatory Authority

FINRA Announces Date for Second Workshop on TRACE Reporting of U.S. Treasuries Transactions

The Financial Industry Regulatory Authority (“FINRA”) will host its second phone-in workshop on Trade Reporting and Compliance Engine (“TRACE”) reporting of transactions in U.S. Treasury Securities on April 6, 2017.  Registration for the workshop, which will include a review of relevant regulations and a demonstration of new related forms, should be completed by April 5, 2017. FINRA Press Release.

FINRA Warns Investors about Binary Options Follow-Up Schemes

FINRA issued an Investor Alert on March 16th that advises anyone involved in binary options trading through unregistered non-U.S. companies to be aware of the dangers of follow-up frauds, which include ploys such as recovery scams requiring advance fees and IRS impersonation scams that promise to help investors recover binary trading losses. FINRA Press Release.     

Fixed Income Clearing Corporation

FICC Proposes to Expand Entities Eligible to Participate as Sponsored Members

On March 14th, the SEC provided notice of a proposed rule change filed by the Fixed Income Clearing Corporation (“FICC”) that would expand the types of entities that are eligible to participate in FICC as Sponsored Members under Rule 3A and make other amendments and changes to the Government Securities Division (“GSD”) Rulebook. Comments should be submitted within 21 days of publication in the Federal Register, which is expected the week of March 20, 2017. SEC Release No. 34-80236.

FICC Proposes New Committed Liquidity Resource Facility

On March 14th, the SEC requested comments on FICC’s proposal to amend the GSD Rulebook to include a committed liquidity resource that would provide FICC with additional liquid financial resources to meet its cash settlement obligations in the event of a default of the largest family of affiliated Netting Members of the GSD. Comments should be submitted within 21 days of publication in the Federal Register, which is expected the week of March 20, 2017. SEC Release No. 34-80234.

SEC Takes More Time to Consider FICC’s Proposed Change to Margin Model Calculation

On March 14th, the SEC designated May 10, 2017, as the date by which it will approve, disapprove, or institute disapproval proceedings regarding FICC’s proposed rule change that would establish a supplemental Value-at-Risk charge calculation in FICC’s GSD margin model. SEC Release No. 34-80235.     

International Securities Exchange

SEC Approves ISE’s Proposed Changes to Opening Process

On March 13th, the SEC approved a proposed rule change filed by the International Securities Exchange LLC (“ISE”) that would replace its opening process with an opening process similar to the process used by NASDAQ PHLX LLC and by ISE Gemini LLC in connection with a technology migration to a Nasdaq-supported architecture. SEC Release No. 34-80225.     

Investors Exchange

SEC Approves IEX’s Proposed Changes to Rules on Peg Orders

On March 13th, the SEC approved the proposed rule change filed by Investors Exchange LLC (“IEX”) that would amend its rules by modifying the operation of the primary peg order type, modifying the price sliding process for both primary peg orders and discretionary peg orders resting on or posting to the IEX order book, and making other minor technical changes. SEC Release No. 34-80223.     

National Securities Clearing Corporation

NSCC Proposes Rule Change to Describe Illiquid Charge Imposed on Members

On March 16th, the SEC requested comments on a proposed rule change filed by the National Securities Clearing Corporation (“NSCC”) that would amend its rules to provide transparency with respect to an existing margin charge (“Illiquid Charge”) that is imposed on Members’ Net Unsettled Positions in certain securities that are not traded on or subject to the rules of an exchange and that exceed applicable volume thresholds. The proposed rule amendments would also codify NSCC’s current practices with respect to the assessment and collection of the Illiquid Charge. Comments should be submitted within 21 days of publication in the Federal Register, which is expected the week of March 20, 2017. SEC Release No. 34-80260.  


SEC Accelerates Approval of NYSE’s Amended Proposal on Unlisted Trading Privileges

On March 10th, the SEC granted accelerated approval to the New York Stock Exchange LLC’s (“NYSE”) amended proposal to allow NYSE to trade pursuant to unlisted trading privileges (“UTP”) any NMS Stock listed on another national securities exchange; establish listing and trading requirements for exchange-traded products (“ETPs”); and (3) adopt new equity trading rules relating to trading halts for securities traded pursuant to UTP on NYSE’s Pillar trading platform. The SEC also requested comments on NYSE’s fourth amendment to the proposal. Comments should be submitted on or before April 6, 2017. SEC Release No. 34-80214.

SEC Approves NYSE’s Proposed Changes to Listing Standards for SPACs

On March 10th, the SEC issued an order approving a proposed rule change filed by NYSE that would amend initial listing standards for Special Purpose Acquisition Companies (“SPACs”) to provide an option to hold a tender offer in lieu of a shareholder vote on a proposed acquisition; and amend initial and continued listing standards to lower quantitative standards. SEC Release No. 34-80199.

Industry News

G20 Is Not Anxious Over Financial Regulation Rollback

In response to growing concerns around U.S. deregulation chatter, Germany finance minister Wolfgang Schaeuble commented that finance leaders of the world’s top economies are not worried about the impending rollback of financial market regulation. Reuters.     

Wall Street Bonuses Could Show Their First Boost Since 2009

On March 17th, Reuters reported that Wall Street bonuses could rise as much as 15% this year. According to compensation firm Johnson Associates Inc., this boost would be the first significant uptick since 2009. The firm said in a presentation to an industry group that an increase in market volatility and the promise of looser regulation since President Trump’s election may increase trading profits.    

SEC Is Set to Shorten Time it Takes for Settlement of Securities Trades

In an effort to reduce credit and market risk exposure,U.S. securities regulators will be shortening the amount of time it takes for a securities trade to settle from the time an investor’s order is executed to when cash and ownership of the security are exchanged. The settlement cycle will be shortened from three business days to two business days. According to Reuters, the SEC will hold a public meeting on March 22nd to vote to adopt a final rule.     

Trump’s CFTC Nominee Discloses Major Overhaul

Acting CFTC Chairman J. Christopher Giancarlo, who President Trump nominated as permanent chairman on March 14th, delivered a comprehensive policy speech before the Futures Industry Association’s annual conference in Florida, in which he laid out plans for an extensive overhaul of the agency that will include everything from slashing regulation to restructuring the unit that conducts surveillance for market abuses. According to CNBC, Giancarlo also promised to fix what he referred to as “flawed swaps trading rules,” which he said are responsible for driving business away from the U.S.