Insights from Winston & Strawn
Technological advances have changed the way that people think about and conduct their banking. However, the banking licenses that companies rely on to conduct such activities have not kept pace. Besides mobile applications, one of the largest drivers of the changes in this industry has been financial technology companies (“fintech companies”). There are now more than 4,000 of these fintech companies operating in the U.S. and the United Kingdom. Fintech companies currently have to comply with a variety of state laws. However, Comptroller of the Currency Thomas J. Curry announced on Friday that the Office of the Comptroller of the Currency (“OCC”) is considering a new banking license—a Special Purpose National Bank charter—which recognizes some of these technological advances. The creation of a national banking license would allow companies to streamline their operations and regulatory obligations. The creation of a new banking license highlights the OCC’s efforts to anticipate a changing market; one of the primary reasons that the OCC recently established the Office of Innovation.
Comptroller Curry noted that fintech companies have the potential to “expand financial inclusion, reach unbanked and underserved populations, make products and services safer and more efficient, and accelerate their delivery.” Curry emphasized that companies applying for licenses would be subject to typical review, including an evaluation of the companies’ ability to provide appropriate risk management, effective consumer protection, and strong capital and liquidity, lending money, paying checks or receiving deposits.
The OCC is requesting comments from industry participants on a number of elements of its plan, including: (1) what capital and liquidity requirements the OCC should impose, (2) how a fintech firm can demonstrate its commitment to financial inclusion, (3) how fintech firms that do not lend (such as a payments provider) can demonstrate a commitment to inclusion, (4) whether a special-purpose fintech charter would have competitive advantages over a full-service bank charter, and (5) how the OCC can ensure fintech charter applicants mitigate the unique risks they face. Comments are due by January 15, 2017.
A copy of the OCC’s white paper on the issue is available here.
We will keep you informed of this important licensing update. Please contact yourWinston & Strawn attorney if you would like additional information on the OCC’s proposal.
Feature: Shadow Banking Developments
On November 30th, researchers at the Federal Reserve Bank of New York published an analysis of its Quarterly Report on Household Debt and Credit, which identified steady growth in the number of auto loans, especially loans made to subprime borrowers. The rise in subprime loans has also been accompanied by a disproportionate increase in delinquency rates among these borrowers. The report notes that the vast majority of subprime loans are generated outside of traditional banks and credit unions, originating primarily with auto finance companies. The Wall Street Journal remarked that the New York Fed’s report reflects a reversal in lending practices established in the wake of the financial crisis, when lenders declined to extend auto loans to subprime borrowers. The New York Times observed that, while these finance companies are too small to inflict wide damage on the financial system as a whole, a barrage of auto loan defaults could deliver a blow to the economy by making it more difficult for Americans to commute. Nonetheless, the New York Fed analysts concluded that “the increased level of distress associated with subprime loan delinquencies is of significant concern.”
The New York Fed’s report on delinquency rates in subprime auto loans comes on the heels of news that shadow banks now provide the majority of mortgage loans in the U.S.—the first time in over 30 years that depository institutions account for less than half of mortgage loans, according to the Wall Street Journal. The Wall Sreet Journal’s report explains that while shadow banks are not necessarily increasing the number of subprime loans in the housing market, the growing presence of shadow banks in the mortgage market raises concerns among some analysts that these lenders lack adequate liquidity to survive an economic downturn. In addition, Bloomberg reported that private funds are taking advantage of banks’ reluctance to make risky commercial real estate loans by seeking a record $32 billion in capital for real estate debt investment, despite warning signs that the real estate market is potentially on the edge of another bubble.
The growing presence of shadow banks in lending markets has prompted warnings of another credit crisis and renewed calls for additional regulation of these lenders. Researchers cited by CNBC noted that the rise of shadow banking reflects an unmet need in the market created by regulatory constraints placed on traditional banks, which reduced risks to large financial institutions but shifted that risk to shadow banks. Financial regulators continue to call for increased regulation of shadow banks to curtail these risks. In a speech last October, Federal Reserve governor Daniel Tarullo called the lack of a regulatory framework for shadow banks “worrisome.” The Securities and Exchange Commission’s (“SEC”) proposed rule to regulate the use of derivatives by registered investment companies, including mutual funds, exchange-traded funds, and business development companies, has garnered criticism by the shadow banking industry that the rule will inhibit their ability to provide loans to small businesses. A proposal to address systemic risks posed by large financial institutions floated last month by Minneapolis Federal Reserve Bank president Neel Kashkari includes a measure to prevent risk from transferring to shadow banks. Under Kashkari’s plan, shadow banks would face a 1.2%-2.2% tax on their debt.
Of course, the future of any proposed regulations affecting shadow banks is unclear as financial policy shifts into the hands of a new administration. It remains to be seen whether President-elect Donald Trump’s plans to loosen regulations on financial institutions imposed by the Dodd-Frank Act will come to fruition and what impact those plans may have on the shadow banking sector.
FINRA – Regulatory Matters at a Glance
Please click here to view a summary of the regulatory notices, rule filings, guidance and the like published by the Financial Industry Regulatory Authority (“FINRA”) during the previous month.
Banking Agency Developments
Comptroller Discusses Progress in the Federal Banking System
On November 30 , the OCC announced that, at an appearance at The Clearing House Annual Conference, Comptroller of the Currency Thomas J. Curry discussed the importance of strong capital, the value of limiting leverage, the need for sufficient liquidity, and the importance of effective supervision in light of the last financial crisis.
Revised Comptroller's Handbook Booklet and Rescissions
On November 29 , the OCC announced that it has issued the “Bank Premises and Equipment” booklet of the Comptroller’s Handbook. This revised booklet replaces the booklet of the same name issued in March 1990. The revised booklet also replaces the “Investment in Bank Premises” booklet of the Comptroller’s Licensing Manualissued in December 2005 and section 252, “Fixed Assets,” (issued in 1999 and 2011) of the former Office of Thrift Supervision Examination Handbook. The revised “Bank Premises and Equipment” booklet provides updated guidance to examiners assessing the risks associated with bank premises and equipment.
Final Rule Issued on Method to Adjust Threshold for Exempting Small Loans from Special Appraisal Requirements
On November 23 , the OCC, along with the Consumer Financial Protection Bureau (“CFPB”) and the Federal Reserve Board, announced the issuance of a final rule detailing the method that will be used to make annual inflation adjustments to the threshold for exempting small loans from special appraisal requirements. The final rule also applies the calculation method to the exemption threshold for 2017. The threshold will remain at $25,500, based on the Consumer Price Index for Urban Wage Earners and Clerical Workers in effect on June 1, 2016.
Enhanced Cyber Risk Management Standards: Advanced Notice of Proposed Rulemaking
On November 22 , the OCC announced that it, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation, are inviting comment on an advance notice of proposed rulemaking(“ANPR”) regarding enhanced cyber risk management standards for large and interconnected entities under their supervision. The agencies are considering establishing enhanced standards to increase the operational resilience of a covered entity, lower the probability of a covered entity’s failure or inability to serve as a financial intermediary, and reduce the potential impact on the financial system of a cyber event affecting a covered entity. The ANPR was published in the Federal Register on October 26, 2016, and comments are due by January 17, 2017.
FDIC Issues List of Banks Examined for CRA Compliance
On December 2 , the Federal Deposit Insurance Corporation (“FDIC”) announced that it has issued its list of state nonmember banks recently evaluated for compliance with the Community Reinvestment Act (“CRA”). The list covers evaluation ratings that the FDIC assigned to institutions in September 2016.
Changes to Beige Book Publication
Federal Reserve Issues Final Rule Regarding Dividend Payments on Reserve Bank Capital Stock
On November 23 , the Federal Reserve announced that it has issued a final rule that amends Regulation I to implement provisions of the Fixing America’s Surface Transportation (“FAST”) Act. The final rule is the same as the interim final rule the Federal Reserve issued in February. The final rule, which takes effect January 1, 2017, also adjusts the treatment of accrued dividends when a Reserve Bank issues or cancels capital stock owned by a large member bank.
Agencies Issue Final Rule on Method to Adjust Thresholds for Exempting Certain Consumer Credit and Lease Transactions and Announce 2017 Thresholds
On November 23 , the Federal Reserve announced that it, along with the CFPB, issued a final rule detailing the method that will be used to adjust the thresholds for exempting certain consumer credit and lease transactions from the Truth in Lending Act and Consumer Leasing Act. Regulation M. Regulation Z.
CFPB Warns Financial Companies About Sales and Production Incentives That May Lead to Fraud or Consumer Abuse
On November 28 , the CFPB announced that it has issued a bulletin warning supervised financial companies that creating incentives for employees and service providers to meet sales and other business goals can lead to consumer harm if not properly managed.
Securities and Exchange Commission
SEC Issues Q&As on EDGAR Filings for ABS Issuers
On November 30 , the SEC’s Division of Corporation Finance published new staff guidance on EDGAR filings for asset-back securities (“ABS”) issuers. The new guidance provides answers to questions about certain programming changes to the EDGAR system that have been made to support recently adopted revisions to Regulation AB and new Securities Exchange Act Rule 15Ga-2, which requires the issuer or underwriter of any Exchange-Act ABS offering to make publicly available the findings and conclusions of any third-party due diligence reports.
Investment Management Offers Guidance to Small Entities on Recent Rule Changes for Investment Companies
On November 23 , the SEC’s Division of Investment Management published small entity compliance guides on the SEC’s newly adopted rules on investment company liquidity risk management programs, investment company reporting modernization, and investment company swing pricing. The compliance guides summarize the rule requirements and identify additional resources to assist small entities in complying with the new rules.
Investment Management Offers Guidance on Investment Advisers’ Reliance on Predecessor Registrations
On November 18 , the SEC’s Division of Investment Management issued a guidance update that addresses questions about the circumstances under which an entity may be able to rely on a predecessor’s registration as an investment adviser with the SEC. The guidance identifies several instances in which an investment adviser may be able to rely on special registration provisions for “successors” to SEC-registered advisers, including changes in, among other things, its form of organization, its leadership, or its ownership. The guidance notes that investment advisers must file a new application for registration on Form ADV or file an amended Form ADV within 30 days after succession or a change in the form of organization or reorganization.
Corporation Finance Agrees that Proposed IPO Procedures Would Not Involve a Pre-Effective Sale
In response to a request for interpretive guidance on initial public offering procedures, the SEC’s Division of Corporation Finance issued a no-action letter on November 22 in which it concurred with the view that certain proposed procedures for soliciting conditional offers to buy from clients during the period prior to the effectiveness of the registration statement for an initial public offering would not involve a pre-effective sale for purposes of Section 5(a) of the Securities Act.
Speeches and Statements
Ceresney Stresses Cooperation of Companies and Global Regulators in FCPA Enforcement Efforts
In a speech on November 30 to the America Conference Institute’s 33rd International Conference on the Foreign Corrupt Practices Act (“FCPA”), SEC Division of Enforcement Director Andrew Ceresney discussed how the SEC’s efforts to encourage companies to self-report misconduct and cooperate with investigations aid the agency’s ability to identify and investigate FCPA violations. Ceresney also emphasized the role of international cooperation and the use of global settlements to resolve FCPA cases efficiently.
Investor Advocate Urges SEC to Focus Disclosure Reforms on Meeting Needs of Investors
In remarks at the North American Securities Administrators Association (“NASAA”) Corporation Finance Training on November 19 , SEC Investor Advocate Rick A. Fleming maintained that the success of the SEC’s Disclosure Effectiveness Initiative should be evaluated on how it improves the usefulness of corporate disclosures for the investing public. Fleming also raised concerns that the proposed scaling of disclosure requirements for smaller issuers would reduce the availability of material information for investors.
Advisory Committee on Small and Emerging Companies Will Meet by Phone
The SEC’s Advisory Committee on Small and Emerging Companies will hold a public telephone meeting on December 7, 2016, to continue discussions regarding outreach and board diversity initiated at its October 5 meeting. Written statements should be received by the Committee on or before December 5, 2016. SEC Meeting Notice.
Equity Market Structure Committee Meeting
The SEC’s Equity Market Structure Committee met on November 29 to discuss subcommittee recommendations on market quality, customer issues, trading venues regulation, and Regulation NMS. SEC Chair Mary Jo White addressed the committee, announcing that the SEC voted to renew the Committee’s charter until August 2017 with the current membership. White called the Committee “a vital resource” for the next SEC Chair and Commission in their “ongoing assessment of equity market structure issues and potential changes and enhancements.”
SEC Takes Position that Exchanges Are Not Immune from Suit When Misconduct Stems from Operation of Their Markets
On November 28 , the SEC filed an amicus curiae brief with the U.S. Court of Appeals for the Second Circuit in City of Providence v. Bats Global Markets, Inc., a private securities fraud class action lawsuit in which institutional investors allege that several national securities exchanges engaged in market manipulation by selling certain co-location services and proprietary data feeds, and providing certain electronic order types, to customers engaged in “high-frequency trading.” In its brief, the SEC maintained that securities laws do not deprive the district court of subject matter jurisdiction over the case and that the defendants are not entitled to absolute immunity from suit for the alleged conduct. The SEC asserted that the exchanges are only afforded absolute immunity when they are engaged in self-regulatory functions, but not when they are engaged in the sale of their products and services. The SEC stated, however, that a lawsuit challenging an exchange’s conduct would be subject to preemption and preclusion if the plaintiff’s claims conflict with the SEC’s own regulation of the exchanges.
SEC Publishes Report on Regulation S-K Modernization and Simplification
On November 23 , the SEC released its report on the modernization and simplification of disclosure requirements under Regulation S-K, as required under Section 72003 of the FAST Act. The report reviews the proposed rules issued by the SEC to fulfill the FAST Act mandate, including proposals to modernize property disclosure for mining registrants, revise the smaller reporting company definition, update and simplify certain disclosure requirements, and require the use of HTML format in filings and hyperlinks for exhibits. The report also makes several new recommendations on changes to specific items in Regulation S-K.
Investment Management Publishes Updated Money Market Fund Statistics
On November 22 , the SEC’s Division of Investment Management released updated money market fund statistics, which include data as of October 31, 2016.
SEC Announces Agenda for Investor Advisory Committee Meeting
On November 21 , the SEC published the agenda for the upcoming meeting of its Investor Advisory Committee, which will take place on December 8, 2016. The agenda includes a discussion of investor protection priorities for next year and an update on the SEC’s response to the rulemaking mandate of the FAST Act concerning public company disclosure requirements.
On November 22 , the SEC announced that it has named Wesley R. Bricker to serve as Chief Accountant. Bricker, who was appointed interim Chief Accountant last summer, will succeed James V. Schnurr, who announced his retirement from the SEC. On November 21 , the SEC announced that Stephen Luparello, Director of the Division of Trading and Markets, will leave the agency by the end of the year. Matthew C. Solomon, the Chief Litigation Counsel for the SEC’s Enforcement Division, announced plans to leave the SEC at the beginning of December.
Commodity Futures Trading Commission
CFTC Staff Issues No-Action Relief on Use of a Consolidated Risk Disclosure Statement for Non-Institutional Customers
On November 30 , the Commodity Futures Trading Commission (“CFTC”) announced that its Division of Swap Dealer and Intermediary Oversight provided no-action relief to futures commission merchants (“FCMs”) and introducing brokers (“IBs”) to simplify the process for providing risk disclosure statements to non-institutional customers. The no-action letter allows FCMs and IBs to provide non-institutional customers with a single risk disclosure document that consolidates the separate risk disclosure statements required by Regulations 1.55, 30.6, 33.7 and/or 190.10. FIA Combined Disclosure Statement.
Divisions Extend Time-Limited No-Action Relief from the Clearing and Trade Execution Requirements for Certain Affiliated Counterparties
On November 28 , the CFTC announced that its Divisions of Clearing and Risk and Market Oversight each extended until December 31, 2017 previously-issued no-action relief from the clearing and trade execution requirements for certain inter-affiliate transactions.
Staff Issues Extension of Swap Data Reporting Relief for Certain Swap Dealers and Major Swap Participants Established under the Laws of Australia, Canada, the European Union, Japan or Switzerland
On November 21 , the CFTC’s Division of Market Oversight announced its issuance of a time-limited no-action letter extending relief provided to certain CFTC-registered swap dealers and major swap participants.
CFTC Unanimously Approves Final Rule Amendments to its Regulations on CPO Financial Reports
On November 21 , the CFTC announced its unanimous approval of amendments to its regulations applicable to the financial reports that commodity pool operators (“CPOs”) are required to provide on their pools’ operations. The amendments include provisions for the use of certain additional alternative generally accepted accounting principles, practices or standards in Annual Reports and periodic Account Statements.
Regulation Automated Trading
On November 25 , the CFTC published in the Federal Register a notice of proposed rulemaking proposing a series of risk controls, transparency measures, and other safeguards to enhance the safety and soundness of automated trading on all designated contract markets (“Regulation Automated Trading”). Comments must be received by January 24, 2017.
Annual Enforcement Results for Fiscal Year 2016
On November 21 , the CFTC released its enforcement results for fiscal year 2016. In the fiscal year that ended in September, the CFTC filed 68 enforcement actions and obtained orders totaling approximately $1.29 billion in restitution, disgorgement and penalties. The CFTC also pursued litigation in over 100 cases and won liability verdicts in both jury and bench trials in U.S. district courts. In addition, the CFTC issued a whistleblower award of over $10 million, marking the largest such award since Congress created the CFTC Whistleblower program in 2010.
Federal Rules Effective Dates
December 2016 – February 2017
Click here to view table.
Exchanges and Self-Regulatory Organizations
BOX Options Exchange
BOX Proposes to Adopt an Open-Outcry Trading Floor
On November 29 , the SEC provided notice of a proposal filed by BOX Options Exchange LLC (“BOX”) to adopt rules to allow for open-outcry trading on a physical trading floor. Comments should be submitted within 21 days of publication in the Federal Register, which is expected the week of December 5, 2016. SEC Release No. 34-79421.
Chicago Board Options Exchange
CBOE Proposes Changes to Disaster Recovery Rules
On November 29 , the SEC requested comments on the Chicago Board Options Exchange, Incorporated’s (“CBOE”) proposal to amend its rules related to disaster recovery to provide CBOE authority to take additional steps necessary to preserve its ability to conduct business in the event that its data centers become inoperable or otherwise unavailable for use due to a significant systems failure, disaster or other unusual circumstances. Comments should be submitted within 21 days of publication in the Federal Register, which is expected the week of December 5, 2016. SEC Release No. 34-79423.
CBOE Proposes Amendments to Rules on Complex Orders on the Hybrid Trading System
On November 28 , the SEC provided notice of a proposed rule change filed by CBOE that would allow complex orders in Hybrid 3.0 classes consisting of series in both the group authorized for trading on the Hybrid 3.0 Platform and the group authorized for trading on the Hybrid Trading System to execute electronically in the same manner as complex orders consisting solely of series in the Hybrid 3.0 group. Comments should be submitted on or before December 23, 2016. SEC Release No. 34-79406.
Depository Trust Company
SEC Takes More Time to Consider DTC’s Proposed Changes to Processing of Money Market Instrument Transactions
On November 18 , the SEC designated January 9, 2017, as the date by which it will approve, disapprove, or institute disapproval proceedings regarding The Depository Trust Company’s (“DTC”) proposal to establish a change in the processing of transactions in money market instruments. SEC Release No. 34-79351.
Financial Industry Regulatory Authority
FINRA Prepares Members for New Arbitration Panel Selection Procedures
In a Regulatory Notice published on December 1 , the Financial Industry Regulatory Authority (“FINRA”) advised members that new rule amendments to FINRA’s arbitration rules for customer disputes will become effective on January 3, 2017. Under the rule amendments, the number of arbitrators on the public arbitrator list that FINRA sends to parties during the arbitration panel selection process will increase from 10 to 15 and the number of strikes to the public arbitrator list will increase from four to six.
International Swaps and Derivatives Association
ISDA Revises OTC Derivatives Compliance Calendar
On November 30 , the International Swaps and Derivatives Association (“ISDA”) published an updated version of its OTC Derivatives Compliance Calendar.
ISDA Announces New ISDA Amend Functionality for 2016 Variation Margin Protocol
On November 28 , ISDA, along with IHS Markit, announced the launch of the ISDA 2016 Variation Margin Protocol on ISDA Amend. The ISDA Amend platform will automate the process for complying with new variation margin requirements by allowing counterparties to amend existing collateral documents, set up new agreements, and share and reconcile specially designed questionnaires. ISDA also published a fact sheet to assist counterparties in complying with the March 1, 2017, variation margin deadline.
Municipal Securities Rulemaking Board
MSRB Clarifies Obligations of Dealers in Transactions Involving Managed Accounts
On December 1 , the Municipal Securities Rulemaking Board (“MSRB”) published new guidance that addresses questions from municipal securities dealers about the application of certain MSRB rules to municipal bond transactions with registered investment advisers having full discretion to purchase or sell municipal securities on behalf of their investor clients. The guidance clarifies that dealers do not owe obligations to the clients of registered investment advisers classified as “sophisticated municipal market professionals” beyond those under Rule G-48. MSRB Press Release.
National Futures Association
NFA Addresses Questions about Annual Affirmation Requirement for Exemptions from CPO or CTA Registration
On December 1 , the National Futures Association (“NFA”) published guidance on the annual affirmation requirement for entities currently operating under an exemption from Commodity Pool Operator (“CPO”) or Commodity Trading Advisor (“CTA”) registration. The guidance explains how to complete the affirmation process and addresses frequently asked questions about exemptions. NFA Notice I-16-29.
NFA Solicits Public Representative Nominations for Its Board of Directors
On November 29 , the NFA issued a request for nominations to fill the five Public Representative vacancies on its Board of Directors. Nominations should be submitted on or before January 13, 2017. NFA Notice I-16-28.
NFA Announces Changes to Minimum Security Deposits for Forex Transactions
On November 28 , the NFA announced changes to the minimum security deposits required to be collected and maintained by Forex Dealer Members (“FDMs”) under NFA Financial Requirements Section 12. Effective December 5, 2016, the NFA has increased the minimum security deposits for Forex transactions involving the Mexican peso to 8%, the Japanese yen to 4%, and the New Zealand dollar to 3%. The NFA has also decreased the minimum security deposits for transactions involving the Swiss franc to 3%, which will also become effective on December 5, 2016. NFA Notice I-16-27.
NFA’s Board Names Thomas Sexton as Next NFA President and CEO
On November 18 , the NFA announced that Thomas Sexton has been appointed to serve as the NFA’s President and CEO. Sexton, whose tenure will begin on March 1, 2017, will succeed Daniel Roth, who announced his retirement last May. NFA Press Release.
NASDAQ OMX Group
SEC Starts Disapproval Proceedings to Consider Nasdaq’s Proposed Third Party Connectivity Service
On November 30 , the SEC instituted proceedings to determine whether to approve or disapprove the Nasdaq Stock Market LLC’s (“Nasdaq”) proposal to amend its rules to segregate connectivity to Nasdaq and its proprietary data feeds from connectivity to third party services and data feeds and establish the Third Party Connectivity Service, which would provide customers with third party market data feeds, including SIP data, and other non-exchange services. Comments should be submitted within 21 days of publication in the Federal Register, which is expected the week of December 5, 2016. Rebuttal comments are due within 35 days. SEC Release No. 34-79431.
Nasdaq Proposes to Adopt a New Extended Life Priority Order Attribute
On November 30 , the SEC requested comments on Nasdaq’s proposed rule change to establish a new Extended Life Priority Order Attribute, which would allow Displayed Orders that are committed to a one-second or longer resting period to receive higher priority than other Displayed Orders of the same price on the Nasdaq Book. Comments should be submitted within 21 days of publication in the Federal Register, which is expected the week of December 5, 2016. SEC Release No. 34-79428.
SEC Designates Longer Period to Consider Changes to Nasdaq’s Continued Listing Requirements for Exchange-Traded Products
On November 25 , the SEC designated January 15, 2017, as the date by which it will approve, disapprove, or institute disapproval proceedings regarding Nasdaq’s proposed rule change to amend the continued listing requirements for exchange-traded products in the Nasdaq Rule 5700 Series, as well as certain requirements under Nasdaq Rule 5810 (Notification of Deficiency by the Listing Qualifications Department). SEC Release No. 34-79399.
NYSE Arca Proposes Changes to Complex Order Prioritization and Auction Process
On November 28 , the SEC provided notice of the filing of a proposed rule change by NYSE Arca, Inc. (“NYSE Arca”) that would amend its rules on electronic complex order trading to clarify the priority of Electronic Complex Orders and to modify aspects of its Complex Order Auction Process. Comments should be submitted on or before December 23, 2016. SEC Release No. 34-79404.
NYSE MKT Proposes Rules for Unlisted Trading Privileges of Exchange Traded Products
On November 25 , the SEC requested comments on NYSE MKT LLC’s (“NYSE MKT”) proposed rule change that would allow NYSE MKT to trade pursuant to unlisted trading privileges (“UTP”) for any NMS Stock listed on another national securities exchange; establish rules for the trading pursuant to UTP of exchange traded products; and adopt new equity trading rules relating to trading halts of securities traded pursuant to UTP on the Pillar platform. Comments should be submitted on or before December 22, 2016. SEC Release No. 34-79400.
SEC Takes Additional Time to Consider NYSE Arca’s Proposed Widening of Price Collar Thresholds
On November 23 , the SEC designated January 12, 2017, as the date by which it will approve, disapprove, or institute disapproval proceedings regarding NYSE Arca’s proposal to amend its rules to widen price collar thresholds for the Core Open Auction on volatile trading days. SEC Release No. 34-79388.
Pharmaceutical Company Management Created an Impermissible Risk of Misleading Investors
Following a drop in the share price of ARIAD Pharmaceuticals, investors sued ARIAD and four corporate officers for securities fraud. On November 28th, the First Circuit reversed the district court's dismissal of the Sec. 10(b), Rule 10b-5, and Sec. 20 (a) claims based on a press release in which management was quoted as saying that it is “optimistic about [a drug’s] prospects for approval … with a favorable label.” The panel concluded that management created an impermissible risk of misleading investors by expressing this hope without disclosing that the FDA had rejected the proposed label weeks earlier. In re ARIAD Pharmaceuticals, Inc. Securities Litigation.
Gender Parity Has Not Improved in Fund Management
Bloomberg reported on a Morningstar study, which found that four out of five funds worldwide operate without any female managers. According to the study of 26,340 mutual fund and ETF managers in 56 countries, gender parity has not improved much since 2008. The study determined that, in the U.S. at the end of 2015, 9.7% of fund managers were women – this is down from 11.4% before the financial crisis. The study further found that women are more likely to manage passive funds than active funds, and are more likely to oversee fund of funds as opposed to funds that buy and sell individual securities. In addition, female fund managers are more likely to share management responsibilities with other staffers, as opposed to managing the funds by themselves.
The Evolution of Shareholder Activism
On November 29th, DealBook interviewed Chris Cernich, the former head of mergers and contested elections research at Institutional Shareholder Services (“I.S.S.”), who directed the company’s recommendations for how investors should vote on over 1,000 deals and 250 proxy contests. Cernich, who recently left I.S.S. and just announced that he and others have opened a new firm that advises companies on how to engage with their shareholders, shared his thoughts on how shareholder activism has changed over the years. His ideas include the fact that shareholders will no longer tolerate large pay packages for corporate chiefs; heightened shareholder engagement means that companies need to focus on crisis management year-round; and proxy contests should be avoided.