New Final Rules
On November 19th, the Securities and Exchange Commission (“SEC”) adopted Regulation Systems Compliance and Integrity (“Regulation SCI”). The new rule will require self-regulatory organizations, certain alternative trading systems (“ATSs”), plan processors, and certain exempt clearing agencies to have comprehensive policies and procedures in place for their technological systems. The rules also provide a framework for these entities to take appropriate corrective action when systems issues occur; provide notifications and reports to the SEC regarding systems problems and systems changes; inform members and participants about systems issues; conduct business continuity testing; and conduct annual reviews of their automated systems. The new rules will be effective 60 days after publication in the Federal Register. Entities subject to Regulation SCI generally must comply with the requirements nine months after the effective date. SEC Press Release. SEC staff has also released guidance on the new rule.
Notice to Revise Two Existing Systems of Records
On November 19th, the SEC advised it is proposing revisions to two existing systems of records, “Administrative Proceeding Files (SEC-36),” and “Information Pertaining or Relevant to SEC Regulated Entities and Their Activities (SEC-55).” The Administrative Proceedings Files (SEC-36) records are used in any proceeding where the federal securities laws are in issue or in which the Commission, or past or present members of its staff, is a party or otherwise involved in an official capacity. The SEC-36 system of records contains records on individuals that are involved in administrative proceedings before the SEC, including participants, witnesses, attorneys, and SEC employees. The Information Pertaining or Relevant to SEC Regulated Entities and Their Activities (SEC-55) records are used by SEC personnel in connection with their official functions, including but not limited to, conducting examinations for compliance with federal securities law, investigating possible violations of federal securities laws, and other matters relating to SEC regulatory and law enforcement functions. Comments should be submitted within 30 days after publication in the Federal Register, which is expected during the week of November 24. SEC Release No. PA -52.
Order Extending Temporary Conditional Exemption for NRSROs from Requirements of Rule 17g- 5 under the Securities Exchange Act of 1934
On November 19th, the SEC extended to December 2, 2015, its conditional exemption which provides that nationally recognized statistical rating organizations (“NRSRO”) are not required to comply with Securities and Exchange Act Rule 17g-5(a)(3) with respect to credit ratings where the issuer of the structured finance product is a non-U.S. person; and the NRSRO has a reasonable basis to conclude that the structured finance product will be offered and sold upon issuance, and that any arranger linked to the structured finance product will effect transactions of the structured finance product after issuance only in transactions that occur outside the U.S. SEC Release No. 34-73649.
Staff Accounting Bulletin on Pushdown Accounting
On November 18th, the SEC’s Office of the Chief Accountant and Division of Corporation Finance released Staff Accounting Bulletin No. 115. The new Staff Accounting Bulletin (“SAB”) brings existing guidance into conformity with FASB Accounting Standards Update No. 2014-17 - Business Combinations (Topic 805): Pushdown Accounting, a consensus of the FASB Emerging Issues Task Force, which was also published on November 18, 2014. In addition, SAB No. 115 rescinds SAB Topic 5.J. entitled New Basis of Accounting Required in Certain Circumstances. SEC Press Release. See also FASB Accounting Standards Update Page.
Advisory Committee on Small and Emerging Companies
The SEC announced that its Advisory Committee on Small and Emerging Companies will hold its next meeting on December 17, 2014. SEC Press Release.
Commissioner Gallagher Addresses Forum on Small Business Capital Formation
On November 20th, the SEC held its forum on small business capital formation. SEC Commissioner Daniel Gallagher discussed his hope that the agency will soon complete the process for implementing Regulation A+ and voiced support for the creation of Venture Exchanges. Gallagher also questioned why the accredited investor standard should be revised, asking “Why should we spend limited Commission resources ‘protecting’ the wealthiest 2-3 percent of investors in this country? This obsession with ‘protecting’ millionaires - potentially at the cost of hindering the wildly-successful and critically-important private markets - strains logic and reason. Millionaires can fend for themselves.” Gallagher Remarks.
Ebola Investor Alert
On November 20th the SEC issued an Investor Alert about investment scams involving companies that claim their products or services relate to Ebola. See also SEC Press Release (announcing the suspension of trading in the shares of four firms that claim to be developing Ebola-related services and about whom there is a lack of publicly available information).
Enforcement Director Discusses the FCPA
On November 19th, Enforcement Division Director Andrew Ceresney discussed the SEC’s enforcement of the Foreign Corrupt Practices Act (“FCPA”). After addressing the elements of an effective FCPA compliance program and noting the Enforcement Division’s focus on individuals, Ceresney touched on the benefits of self-reporting violations. While the agency generally assesses penalties for FCPA violations at 100 percent of the disgorgement ordered, penalties assessed against self-reporters can be as low as 10 percent of the disgorged amount. Ceresney also clarified what constitutes “items of value” under the FCPA. He notes that charges have been brought for contributions to charities affiliated with foreign officials and for gifts to family members of officials. Ceresney Remarks.
States as Crowdfunding Incubators
On November 18th, DealBook contributor Steven Davidoff Solomon, a law professor at the University of California, Berkeley, discussed how the SEC’s failure to adopt crowdfunding laws has allowed individual states to do so, permitting a smaller scale test of whether crowdfunding works. Crowdfunding Incubators.
Office of the Whistleblower’s 2014 Annual Report
On November 17th, the SEC’s Office of the Whistleblower published its annual report for fiscal year 2014. The report notes that in FY 2014, the SEC issued more whistleblower awards to more individuals and for more money than in any other year, including one $30 million award. The report notes that persons with internal audit or compliance-related functions may be eligible under the program in certain limited circumstances, including where the individual reports the securities law violation internally and then waits 120 days before reporting the information to the Commission.
Draft EDGAR Filer Manuals
On November 14th, the SEC published four draft EDGAR Filer Manuals:
DRAFT EDGARLink Online XML Technical Specification (Version 14)
DRAFT EDGAR Filer Manual (Volume II) EDGAR Filing(Version 29)
DRAFT EDGAR Filer Manual (Volume I) - General Information (Version 19)
DRAFT EDGAR Form TA-2 XML Technical Specification (Version 5.5.0)