Proposed Rules

Cross-border swaps. The US Securities and Exchange Commission (SEC) proposed rules concerning the application of certain requirements to security-based swap transactions connected with a non-US person’s dealing activity in the United States. If adopted, the rules would require a non-US firm using those in the US to conduct a transaction in connection with its dealing activity to count that transaction when deciding if it must register as a security-based swap dealer. Such transactions would also be subject to Regulation SBSR and, if the non-US firm is a registered security-based swap dealer, to the Dodd-Frank Act’s external business conduct standards. Comments should be submitted within 60 days after publication in the Federal Register, which is expected shortly. (4/29/2015) SEC press release.

Pay versus performance. The SEC proposed rules requiring companies to disclose the relationship between executive compensation and the financial performance of a company. If adopted, the new rule would require issuers to disclose executive pay and performance information for itself and companies in a peer group in a table and to tag the information in an interactive data format. Comments should be submitted within 60 days after publication in the Federal Register, which is expected shortly. (4/29/2015) SEC press release. 


Cybersecurity for investment managers. Cybersecurity guidance was issued by the Division of Investment Management to investment companies and investment advisers. (4/29/2015) Guidance. 

Money market guidance. The Division of Investment Management issued two guidance documents concerning the SEC’s July 2014 money market reforms, “2014 Money Market Fund Reform Frequently Asked Questions” and “Valuation Guidance Frequently Asked Questions.” (4/22/2015)

OCIE risk alert. A risk alert on the SEC’s initiative to examine registered investment company complexes that have not previously been examined was issued by the Office of Compliance Inspections and Examinations. These examination will focus on compliance; annual contract review; advertising and distribution; portfolio valuation; and leverage. (4/20/2015) Risk Alert. 

Selected Enforcement Actions

Compliance officer to receive whistleblower award. The SEC announced its second whistleblower award to someone with an internal audit or compliance responsibilities. The Commission awarded over US$1 million to a compliance professional who provided information that assisted the SEC in an enforcement action against the whistleblower’s company. The compliance officer had a reasonable basis to believe that disclosure to the SEC was necessary to prevent imminent misconduct from causing substantial financial harm to the company or investors. (4/22/2015) SEC press release.

Willful breach of fiduciary duty lands investment advisor with US$25,000 fine. A SEC Administrative Law Judge (ALJ) found that respondent David J. Montanino violated subsections (1) and (2) of Section 206 of the Investment Advisors Act but did not commit violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 thereunder, or Section 206(4) of the Advisers Act. The Division of Enforcement alleged that Montanino deceived and defrauded clients into investing in American Private Equity; however, the ALJ found that Montanino did not intend to deceive those clients. (4/16/2015) In the Matter of David J. Montanino, SEC Release No. ID-773.

Speeches and Testimony

House Financial Services subcommittee testimony. Testifying before a House subcommittee, Chair Mary Jo White explained the SEC’s 2016 budget request. Under the proposed budget the agency would hire additional staff to increase examination coverage of investment advisers and other entities who service retail and institutional investors; improve its information technology; and strengthen the agency’s economic and risk analysis functions. (4/15/2015) White testimony.

Commissioner Gallagher discusses the financial system. In an appearance before a Harvard Law School symposium, Commissioner Daniel M. Gallagher questioned the goals of organizations such as the Financial Stability Board and the Basel Committee. He called upon these entities to return to their original pre-financial crisis purposes of facilitating cooperation among regulators from different jurisdictions (4/15/2015) Gallagher speech. 

Commissioner Aguilar discusses enforcement at Securities Administrators Association Conference. At the North American Securities Administrators Association conference, Commissioner Luis A. Aguilar discussed the SEC’s Complex Financial Instruments Unit, which focuses on structured and new products sold to retail investors. (4/14/2015) Aguilar speech.

Other Developments

Equity Market Structure meeting. The Equity Market Structure Advisory Committee announced it will hold a public meeting on May 13, 2015. (4/23/2015) SEC Release No. 34-74793.

Compliance Outreach Program. The SEC published the schedule for its 2015 Compliance Outreach Program regional seminars. Jointly sponsored by the Office of Compliance Inspections and Examinations, Division of Investment Management and Division of Enforcement’s Asset Management Unit, the programs present the staff’s views regarding risks, priorities and deficiencies observed in examinations or investigations. (4/30/2015) SEC press release.

Withdrawn CDIs. Two Compliance and Disclosure Interpretations (CDI) related to the Trust Indenture Act were withdrawn. CDI 202.01 and 203.01 both concerned beneficial ownership interests in a trust administered pursuant to a “pooling and servicing agreement.” (4/24/2014) Withdrawn CDIs.

Securities-based swaps research. “Single-Name Corporate Credit Default Swaps: Background Data Analysis on Voluntary Clearing Activity” was published by the Division of Economic and Risk Analysis. (4/24/2015) Report.

Shareholder proposal to closed-end fund may not be excluded as too vague.The Division of Investment Management denied Clough Global Equity Fund’s request for no-action relief to exclude a shareholder proposal. While the Division found some basis for the view that the proposal may be excluded under Rules 14a-8(i)(2) and 14a-8(i)(6), those defects could be cured if the proposal were revised to state that the fund’s board should take the steps necessary to liquidate or convert the fund. However, the Division disagreed with the belief that the proposal is so vague that it could be excluded under Rule 14a-8(i)(3). (4/16/2015) Response.

SEC-FINRA report on senior investor initiative. The SEC and the Financial Industry Regulatory Authority (FINRA) published a report on the policies and procedures brokers and dealers should consider when meeting with investors preparing for retirement. The report focuses on the types of securities purchased by senior investors, suitability, training, marketing, communications, use of designations, account documentation, disclosures, customer complaints and supervision. (4/15/2015) SEC press release.