Guidance

Mixed and Shared Funding Orders

The Securities and Exchange Commission (“SEC”) Division of Investment Management published guidance on whether (i) a mutual fund that offers its shares as an investment option under a variable life and/or variable annuity contract is required to obtain a so-called “mixed and shared funding” Commission order prior to making any such offer; and (ii) a mutual fund that has previously obtained a mixed and shared funding order must, in all circumstances, comply with the terms and conditions of that order. In the staff’s view, a mutual fund is not required to obtain a “mixed and shared funding” order prior to offering its shares as an investment option under a variable life and/or variable annuity contract. In addition, a fund that has previously obtained a mixed and shared funding order need not comply with the terms and conditions of that order if the exemptions granted by the order are not being relied upon by any person.

Other Developments

SEC and FINRA Issue Investor Alert on Penny Stock Frauds

On October 30th, the SEC’s Office of Investor Education and Advocacy and the Financial Industry Regulatory Authority issued an alert warning investors that some penny stocks being aggressively promoted as great investment opportunities may in fact be stocks of dormant shell companies with little to no business operations. The investor alert provides tips to avoid pump-and-dump schemes. SEC Press Release.

Investment Division Director Addresses SIFMA Conference

On October 29th, Norm Champ, SEC Director, Division of Investment Management, discussed the Division’s enhanced risk monitoring efforts in the asset management industry and alternative mutual funds. Champ noted how the Division’s monitoring of no-action and exemptive requests allows it to track industry trends. Regarding alternative mutual funds, Champ highlighted the areas in which the Division sees heightened risk. They are valuation, liquidity, and leverage. All funds that use or intend to use alternative investment strategies should assess the accuracy and completeness of their disclosure, including whether the disclosure is presented in an understandable manner, and the adequacy of the fund’s disclosure of its principal investment strategies. Champ Remarks

Rigged Data Feed?

On October 29th, the Financial Times summarized a paper which found that those who paid for direct access to EDGAR filings from the SEC’s third-party service provider received the data 10 seconds faster than those who did not. Rigged Data Feed.

Rigged Data Redux

On October 29th, California Healthline, covering a Wall Street Journal article, reported the SEC is examining whether officials from the Centers for Medicare and Medicaid Services, a division of the Department of Health and Human Services, inappropriately provided stock analysts with non-public information. The probe appears to be one of the first to involve insider trading on federal information. Rigged Data Redux.

Private Equity Prob

On October 29th, Reuters said the SEC is examining how private equity funds report their net internal rate of return. Probe.

Portentous Trends

On October 27th DealBook contributor Peter J. Henning discussed recent developments in SEC enforcement policy and what those trends portend. Portentous Trends.

Outgoing Municipal Securities Director Calls for More Price Transparency

On October 26th, Bloomberg summarized the remarks of John Cross, Director of the Office of Municipal Securities. Cross wants retail bond investors to have equal access to prices, lessening their dependence on dealers. Cross Remarks.

Commissioner Gallagher’s Rulemaking Priorities

On October 24th, SEC Commissioner Daniel Gallagher discussed what he believes the Commission’s rulemaking priorities should be. Topping the list of issues is the need to immediately address the fixed income markets. Gallagher’s two principle concerns with the debt markets are the heavy exposure of retail investors to products and trading practices that they do not understand and that are too opaque, and the danger of illiquidity in the debt market. Gallagher Remarks.

Staff Announcements

On October 28th, the SEC announced it has named Steven J. Levine as the Associate Director for the Investment Adviser/Investment Company examination program in the Chicago office.