New Final Rules
Cross-Border Security-Based Swap Rules
On June 25th, the Securities and Exchange Commission (the “SEC”) adopted the first of a series of rules and guidance on cross-border security-based swap activities. The rules and guidance explain when a cross-border transaction must be counted toward the requirement to register as a security-based swap dealer or major security-based swap participant. The rules also address the scope of the SEC’s cross-border anti-fraud authority, clarifying that the authority applies where the fraud occurs or is felt within the U.S. In addition, the SEC adopted a procedural rule regarding the submission of “substituted compliance” requests. The rules will be effective 60 days after publication in the Federal Register, which is expected shortly. SEC Release No. 34-72472; SEC Press Release.
FOIA Fee Schedule and Appeals Process Proposed
On June 20th, the SEC published for comment proposed amendments to the SEC’s regulations under the Freedom of Information Act to allow the SEC to collect fees that reflect its actual costs, add an appeals time frame that will create a more practical and systematic administrative process and clarify other issues in the regulations. Comments should be submitted within 30 days after publication in the Federal Register, which is expected shortly. SEC Release No. 34-72440.
Exchanges to Develop Tick Size Pilot Plan
On June 24th, the SEC issued an order directing U.S. equities exchanges and the Financial Industry Regulatory Authority (“FINRA”) to jointly develop a pilot program that would widen the quoting and trading increments for certain small capitalization stocks. The securities to be included in the pilot will be national market system common stocks with a market capitalization of $5 billion or less; an average daily trading volume of one million shares or less; and a share price of $2 per share or more. The pilot plan should be filed with the SEC on or before August 25, 2014. SEC Release No. 34-72460. See also SEC Press Release.
Speeches and Testimony
Division of Trading and Markets Director Testifies Before House Subcommittee
On June 26th, Stephen Luparello, SEC Director, Division of Trading and Markets, testified before the House capital markets subcommittee. Luparello discussed his Division’s implementation of the Dodd-Frank Act, its efforts to reform market structure, and its plans to introduce new rules for financial utilities. The Division also continues to consider whether to harmonize the fiduciary duty standards for advisers and brokers. Division of Investment Management staff are working with the Department of Labor in that agency’s effort to develop a fiduciary duty standard under the Employee Retirement Income Security Act. Luparello Testimony.
Chair White Discusses What Directors Should Know about the SEC
On June 23rd, SEC Chair Mary Jo White addressed the role corporate directors play as gatekeepers for their shareholders; the SEC’s view on self-reporting of wrongdoing and cooperating in SEC investigations; and the SEC’s whistleblower program. White emphasized the importance which self-reporting plays when the SEC (and the Justice Department) considers corporate cooperation. She further noted that tone and substance of early communications are critical in establishing the tenor of an investigations and how the staff and the SEC will view a company’s cooperation. Holding back information in an effort to keep options open can foreclose the opportunity for cooperation credit. Once a firm has chosen to self-report and cooperate, its investigation should be thorough and its compliance with Enforcement Division requests complete. White said: “Cooperation means more than complying with our subpoenas for documents and testimony - the law requires you to do that. If you want your company to get credit for cooperation - and you should - then sincere and thorough partnering with the Division of Enforcement to uncover all the facts is required.” White Remarks.
Chair White Seeks Transparency for Fixed Income Markets
On June 20th, SEC Chair Mary Jo White discussed the fixed income markets. The SEC is working with the Municipal Securities Rulemaking Board to finalize a best execution rule for the municipal securities market. The SEC is also working with the MSRB and FINRA to provide practical guidance on how brokers might effectively achieve best execution. In addition, the SEC is working with FINRA and the MSRB in their efforts to develop rules by the end of this year regarding disclosure of markups in “riskless principal” transactions for both corporate and municipal bonds. White Remarks.
Investment Management Guidance
The Division of Investment Management provided updated guidance regarding private funds and the application of the custody rule to special purpose vehicles and escrows. The Division also updated its guidance on mutual fund enhanced disclosure.
Investor Advisory Committee to Meet
The SEC’s Investment Advisory Committee will meet on July 10, 2014. Among other things, the agenda for the meeting includes a discussion of the definition of accredited investor. SEC Meeting Notice.