Final Rules

SEC approves final rules and guidance for security­based swap transaction reporting. The Securities and Exchange Commission voted unanimously to adopt final rules and guidance related to the reporting and public dissemination of security­based swap transaction data, also known as Regulation SBSR. The rules also establish a new compliance schedule for certain portions of Regulation SBSR, which will be phased in over a period of months. The final rules will be effective 60 days after publication in the Federal Register. (7/13/2016) SEC press release. See also remarks by Chair Mary Jo White and SEC Commissioners Piwowar and Stein.

SEC approves modifications to Rules of Practice for administrative proceedings. The SEC approved amendments to its Rules of Practice regarding administrative proceedings that, among other things, extend the length of the prehearing period to a maximum of ten months; allow parties in cases with the longest timelines to notice three depositions per side in single­respondent cases and five per side in multi­respondent cases; clarify the types of dispositive motions that may be filed at certain stages of proceedings; and make additional clarifying and conforming changes to rules regarding admissibility of certain evidence, expert disclosures, and procedures for appeals. The amendments will become effective

60 days after publication in the Federal Register. In addition to all proceedings initiated after the effective date, the amended rules will also apply to pending proceedings based on the phase of the proceeding. (7/13/2016) SEC press release.

Proposed Rules

SEC proposes new disclosure requirements for broker­dealers’ handling of institutional orders. The SEC proposed rules that would require broker­dealers for the first time to provide standardized information to customers, upon request, about their institutional order handling practices and execution quality. The customer­ specific reports would require detailed order handling information for each venue to which the broker­dealer routed institutional orders for the customer, which would be aggregated and broken down by passive, neutral, and aggressive order routing strategies. Broker­dealers would also have to make aggregated reports of their handling of institutional orders. The proposed rules would also expand the information provided in current retail order disclosures to include, among other things, more detailed information about payments received by broker­dealers from execution venues or paid to such venues. The proposal would require broker­ dealers to make the disclosures publicly available for three years. Comments are due on or before September 26, 2016. (7/13/2016) SEC press release. See also remarks by Chair White, Commissioner Piwowar, and Commissioner Stein.

SEC proposes changes to update and simplify disclosure requirements. The SEC voted at its Open Meeting to propose amendments to update and simplify certain disclosure requirements by eliminating requirements that duplicate or overlap with US Generally Accepting Accounting Principles, International Financial Reporting Standards, or other Commission disclosure requirements. The proposed amendments would also apply to disclosure requirements that are outdated or have been superseded by recent legislation or updates to GAAP or other Commission disclosures. Comments are due within 60 days of publication in the Federal Register. The SEC published a demonstration version of the proposed amendments to assist commenters in understanding the proposed changes. (7/13/2016) SEC press release. SEC Commissioner Kara Stein supported the proposal, but criticized the highly technical presentation of the release for limiting the public’s ability to comment on the proposal. See also statements by Chair White and Commissioner Piwowar.


OCR offers guidance on timeline for NRSROs to review credit ratings of former NRSRO employees for possible conflicts of interest. The SEC’s Office of Credit Ratings reminded designated compliance officers at nationally recognized statistical rating organizations of their obligations under the Securities Exchange Act to review and revise any credit rating determinations for issuers or instruments that employ former employees of the NRSRO. The OCR explained that the one­ year period preceding the date an action was taken with respect to the credit rating would include the most recent rating action taken by the NRSRO prior to the employee’s departure. (7/18/2016) OCR letter.

SEC issues new C&DI on the filing of Schedules 13D and 13G. The SEC’s Division of Corporation Finance published a new Compliance and Disclosure Interpretation that addresses the impact of an acquiror’s disqualification from relying on an exemption from the Hart­Scott­Rodino Act’s notification and waiting provisions, due to efforts to influence an issuer’s business decisions, on the acquiror’s ability to report beneficial ownership on Schedule 13G. (7/14/2016) SEC C&DI 103.11.

Corporation Finance answers questions regarding required representations for “Exxon Capital” exchange offers. The SEC’s Division of Corporation Finance updated its C&DIs on Securities Act Section 2(a)(11) and Securities Act Form S­4 to include new questions relating to the representations that issuers must make about the absence of a distribution of securities received in an “Exxon Capital” exchange offer. (7/11/2016) SEC C&DIs 125.13 and 111.02.

Selected Enforcement Actions

SEC charges accountant for failing to detect fraud during company’s audit. An accountant has been suspended by the SEC for failing to detect fraud committed by a public company during an audit of the company’s financial statements. The SEC alleged that a partner at accounting firm EFP Rotenberg LLP conducted audits of  an internet company whose executives were subsequently charged by the SEC for engaging in a scheme to inflate the company’s revenue through fraudulent sales.

The partner and EFP allegedly failed to perform sufficient audit procedures to detect the fraudulent sales, including failing to obtain sufficient audit evidence over revenue recognition and accounts receivable and failing to identify related­party transactions. Without admitting or denying the allegations, the partner and EFP settled the charges by consenting to the entry of cease­and­desist orders and agreeing to pay civil penalties of US$25,000 and US$100,000, respectively. EFP also agreed to be censured and to refrain from accepting new public company clients for one year. An independent compliance consultant must certify that the  firm has addressed the causes of its audit failures before it can accept audit engagements from new public company clients. (7/22/2016) In the Matter of EFP Rotenberg, LLP and Nicholas Bottini, CPA, SEC Release No. 34­78393.

SEC brings charges against investment adviser for misleading disclosures of transaction costs. An investment advisory firm settled charges that it failed to adequately disclose to clients additional transaction costs beyond the “wrap fees” they paid to cover bundled services, according to an announcement by the SEC. The SEC alleged that the investment adviser told investors it used a sponsoring broker to execute client trades and that the costs of these transactions would be covered by the clients’ annual wrap fees. In fact, the adviser used brokers other than the sponsoring broker to execute the majority of its wrap program trading, which resulted in additional costs to clients. While the firm disclosed that it used brokers aside from the sponsoring broker to execute trades, its disclosure was materially misleading because it failed to accurately describe the frequency of its use of other brokers. Without admitting or denying the allegations, the investment adviser settled the charges by consenting to the entry of cease­and­desist and censure orders and agreeing to pay a US$300,000 penalty. (7/14/2016) In the Matter of RiverFront Investment Group, LLC, SEC Release No. IA­4453.

Other Developments

Equity Market Structure Advisory Committee meeting. The SEC’s Equity Market Structure Advisory Committee will hold a public meeting on August 2, 2016. SEC Release No. 34­78308.

Staff announcements. Vincente L. Martinez, Chief of the SEC’s Office of Market Intelligence, will leave the agency early next month, according to an  announcement by the SEC. The SEC announced that Brian T. Croteau, who serves as Deputy Chief Accountant, also plans to leave the agency. (7/22/2016) Deputy Chief Accountant Wesley R. Bricker has been named as the SEC’s Interim Chief Accountant while current Chief Accountant James V. Schnurr recovers from a serious bicycle accident. (7/21/2016) Kurt L. Gottschall will serve as Associate Regional Director for enforcement in the SEC’s Denver Regional Office. (7/20/2016)

Advisory Committee on Small and Emerging Companies meeting. The SEC’s Advisory Committee on Small and Emerging Companies met to discuss Regulation A+ and its draft recommendation on the accredited investor definition, which advised the SEC to expand the definition by accounting for measures of non­ financial sophistication to expand the pool of accredited investors. SEC Chair Mary Jo White addressed the Committee, providing an update on, among other things, Regulation A+ and Regulation Crowdfunding. White noted that 60 offerings have been made under Regulation Crowdfunding’s exemption since May and that the SEC has approved 50 of the over 100 Regulation A+ offering statements filed with the agency. (7/19/2016)

Investor Advisory Committee meeting. The SEC’s Investor Advisory Committee met to discuss sustainability reporting and investment company reporting modernization. SEC Chair Mary Jo White updated the Committee regarding recent SEC rulemaking activity, including final rules on reporting requirements for security­based swaps and proposed rules to increase order routing transparency for institutional and retail investors. See also Commissioner Piwowar’s statement. (7/14/2016)

OCIE announces 2016 Share Class Initiative. The SEC’s Office of Compliance Inspections and Examinations announced that it will conduct risk­based examinations to identify conflicts of interest tied to advisers’ compensation or financial incentives for recommending mutual fund and 529 Plan share classes that have substantial loads or distribution fees as part of its 2016 Share Class Initiative. (7/13/2016) OCIE risk alert.