Insights from Winston & Strawn

FINRA Comments on Proposed DOL Conflict of Interest Rule Regarding Retirement Investment Advice

In April of this year, the Department of Labor (“DOL”) proposed a rule which amends the definition of “fiduciary” under the Employee Retirement Income Security Act (“ERISA”). The proposed rule contains two significant changes:

  1. people paid for giving advice to a retirement plan, plan participant or individual retirement account (“IRA”) owner must place the client’s interests above their own (a so­called “best interests” standard). Up until now, people working with such clients were only held to a standard of whether the advice was “suitable.” This has lead the DOL to accuse many in the financial industry of recommending asset purchases/sales and rollover transactions that, although “suitable” for the client, were ultimately motivated by theincreased fees that would be earned by the person recommending and conducting the transaction. The DOL claims that eliminating such transactions will save investors from $40 billion (and possibly much more) in unnecessary expenses over the next ten years while costing firms a total of $3.5 billion over the same period in additional compliance costs.
  2. a fiduciary subject to ERISA would be liable to plan sponsors and plan participants who have been harmed by the fiduciary’s improper investment advice. Currently, only the DOL has had the ability to sue fiduciaries for this poor advice.

In a comment letter issued July 17 in response to the proposed rule, the Financial Industry Regulatory Authority (“FINRA”) generally agreed with the concept of moving to a best interests standard. However, FINRA voiced concerns that “[t]he proposal would impose a best interest standard on broker­dealers that differs significantly from the fiduciary standard applicable to investment advisers registered under the federal and state securities laws, and it would impose the best interest standard only on retirement accounts.” FINRA worried about the fractured nature that this would create in the industry, leading to confusion (i) among broker­dealers and investment advisers as they may be subject to up to six different sets of rules depending on their status and the status of the account they managed, and (ii) among consumers who would not know the level of protection associated with each of their accounts. The FINRA letter also made recommendations regarding improvements to compensation structure of advisers at financial institutions; conforming the rule with the current securities laws, and removal of certain ambiguities within the proposed rule. FINRA believes these changes to be necessary so that brokers will not exit the small, commission­based IRA account market, that so many U.S. investors rely upon.

With the large changes proposed by the DOL, the significant amount of money at stake on both sides, and the coordination of multiple enforcement agencies that will be necessary, we can be sure that the process of finalizing this rule is far from over. We will continue to update you as the DOL works to formulate the final rule.

Additional information on the proposed rule can be found on the Department of Labor’s website.

Sterling Sears

Feature: The Clawback of Executive Compensation in the U.S. and the U.K.

In the last four weeks, financial regulators in the U.S. and U.K. have each addressed the clawback of executive compensation. In the U.S., the Securities and Exchange Commission (“SEC”) most recently focused its attention on “erroneously” awarded compensation: incentive­based compensation paid by an issuer to an executive within three years of the issuer’s filing of a financial restatement.

As required by the Dodd­Frank Wall Street Reform and Consumer Protection Act (“Dodd­Frank”), the SEC published for comment the proposing release and text of a rule that would require national securities exchanges and national securities associations “to adopt listing standards that require issuers to adopt and comply with policies that provide for recovery of excess incentive­based compensation from ‘any current or former executive officer of the issuer who received incentive­based compensation.’” In addition, the listing standards would require the disclosure of the listed issuer’s policy on recovery of incentive­based compensation and information about actions taken pursuant to such a recovery policy. Comments on the proposed rule should be submitted on or before September 14, 2015. View the proposal here.

Professor J. Robert Brown of the Race to the Bottom wrote a five­part blog about the proposed rule. Part 1 provides historical information which helps explain some of the proposal’s historical antecedents. Part 2 discusses the Commission’s decision to propose a rule that mandates “no­fault” recovery, the recovery of compensation no matter the who, what, or why of the financial restatement. That mandated recovery was one of the reasons behind SEC Commissioner Daniel M. Gallagher’s dissent from the publication of the proposed rule. View the dissent here. As Part 2 of Professor Brown’s blog series notes, the “must recover” language was included in part because Dodd­Frank requires such language and in part because “shareholders have no meaningful recourse in the event the discretion [of a corporate board] is not properly exercised. Had fiduciary duties been more robust and shareholders had meaningful recourse under state law for improperly exercised discretion, greater discretion for the board in making a clawback decision would have been more defensible.”

Part 3 of his series highlights the internal struggles within the SEC which preceded the proposal while Part 4 and Part 5 discuss the data tagging elements of the proposed rule.

At the end of June, the U.K. Prudential Regulation Authority (“PRA”) and the Financial Conduct Authority (“FCA”) published new remuneration rules applicable to banks, building societies, and PRA­designated investment firms, including the U.K. branches of non­European headquartered firms. View the new rules here.

Like those proposed by the U.S., the new U.K. rules include a clawback requirement. Under the FCA’s rule, the variable compensation paid to an executive is subject to clawback for seven years. And for senior managers, that period is extended to ten years if an inquiry into a material failure has been commenced.

The U.K. rules also:

  • Extend for up to seven years the period during which variable remuneration is withheld from an executive;
  • Prohibit variable pay for non­executive directors; and
  • Prohibit variable and discretionary payments to the management of a firm receiving taxpayer support.

Writing for DealBook, Wayne State University Law School professor Peter J. Henning compared the U.S. and U.K. rules noting that while the U.K. rule is much tougher, the U.S. rule subjects a wider range of companies to the clawback requirement. While Professor Henning questions the eventual effectiveness of both rules, he notes that their true benefit may be in how the rules affect the executive mindset. View the article here.

Winston & Strawn has covered the proposed rules on our Executive Compensation Blog in two recent posts. View the articles here and here.

Joint Agency Developments

Volcker Rule Guidance

On July 16, federal financial regulators issued new guidance (see the last FAQ) concerning the application of Section 619 of Dodd­Frank (commonly known as the “Volcker Rule”) which created Section 13 of the Bank Holding Company Act. The new guidance provides that a registered investment company or foreign public fund will generally not be subject to the Volcker Rule’s requirements during their seeding period.

Report on the U.S. Treasury Market

On July 13, the Treasury Department, Federal Reserve Board (“FRB”), Federal Reserve Bank of New York, SEC, and Commodity Futures Trading Commission (“CFTC”) issued a joint report analyzing the significant volatility in the U.S. Treasury market which occurred on October 15, 2014. The report found that a number of developments likely contributed to the volatility. Those developments include changes in global risk sentiment and investor positions, a decline in order book depth, and changes in order flow and liquidity provision. The report recommends continued analysis of U.S. Treasury market structure and functioning, focusing on trading and risk management practices, the availability of public data, and continued efforts to strengthen monitoring and inter­ agency coordination related to trading across the U.S. Treasury cash and futures markets. Joint Press Release. On July 14, SEC Commissioner Luis A. Aguilar issued a statement calling for a full examination of the regulatory framework for U.S. Treasuries. The examination should consider, among other things: (i) revisions to SEC Regulation ATS and Regulation SCI to make both applicable to alternative trading systems that trade Treasuries; (ii) the development of a mechanism similar to the consolidated audit trail that equity market participants are creating that will give regulators the ability to properly monitor the Treasury market; (iii) the development of market safeguards such as circuit breakers; and (iv) measures to improve price transparency.

Banking Agency Developments

Banking Regulators to Hold EGRPRA Meeting

The Office of the Comptroller of the Currency (“OCC”), the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (“FDIC”) will hold the fourth in a series of outreach meetings as part of the interagency effort to reduce regulatory burden as required by the Economic Growth and Regulatory Paperwork Reduction Act of 1996. The outreach meeting will occur on August 4, 2015 in Kansas City, Missouri and will provide interested parties an opportunity to comment on regulatory burden reduction directly to the agencies’ staff members and senior management. The meeting in Kansas City will focus specifically on rural banking issues. OCC Bulletin.

OCC Workshops

The OCC will host two workshops in Wichita, Kansas on August 18­19, 2015 for directors of national community banks and federal savings associations. The Compliance Risk workshop on August 18 combines lectures, discussion, and exercises on the critical elements of an effective compliance risk management program. The workshop also focuses on major compliance risks and critical regulations. Topics of discussion include the Bank Secrecy Act, anti­money laundering, and qualified mortgage regulations. The instructors will also touch on the new Truth­in­Lending and the Real Estate Settlement Procedures Act of 1974 Integrated Disclosures Rule. Revised and updated for 2015, the Credit Risk workshop on August 19 focuses on credit risk within the loan portfolio, such as identifying trends and recognizing problems. The workshop also covers the roles of the board and management, how to stay informed of changes in credit risk, and how to effect change. OCC Press Release.

Treasury Department Developments

Office of Financial Research to Meet

The Treasury Department’s Office of Financial Research will meet on July 23, 2015 to discuss stress testing, data collection, data sharing, and analyzing operational risks. 80 FR 38513.

Treasury Department Seeks Comment on Online Marketplace Lenders

On July 16, the Treasury Department requested public comment on the online marketplace lending industry. In addition to the publication in the Federal Register of a request for information, Treasury Department staff will conduct roundtable discussions regarding online marketplace lenders. Treasury Department Press Release.

CFPB Publishes First Consumer Complaint Snapshot.

On July 16, the Consumer Financial Protection Bureau (“CFPB”) published the first in a new series of monthly reports that will highlight key trends from consumer complaints submitted to the CFPB. The monthly report includes complaint data on company performance, complaint volume, state and local information, and product trends. Each month, the report will spotlight a particular product and geographic location. The inaugural report provides a closer look at debt collection complaints and complaints from consumers in Milwaukee, Wisconsin. CFPB Press Release.

FinCEN Targets Identity Tax Refund Fraud

On July 13, the Financial Crimes Enforcement Network (“FinCEN”) issued a Geographic Targeting Order (“GTO”) for South Florida check cashers to temporarily enhance the identification requirements on customers cashing Federal tax refund checks. The GTO will require check cashers in Miami­Dade and Broward counties to obtain and record additional identifying information about customers cashing tax refund checks over $1,000. Check cashers subject to the GTO must comply with its requirements from August 3, 2015 through January 30, 2016. FinCEN Press Release.

Securities and Exchange Commission

Exemptive Applications and Orders

No­Action Relief Granted to Master­Feeder BDC

On July 15, the SEC’s Division of Investment Management granted the request of Carey Credit Income Fund and Carey Credit Income Fund 2015 T for no­action relief for feeder funds which elect to be regulated as business development companies if each feeder fund looks to its proportionate ownership interest in the assets of the master fund, and for the master fund if the master fund repurchases master fund shares in a planned liquidation of a feeder fund. No­Action Letter.

Pay­to­Play Exemptive Order Requested

On July 14, the SEC provided notice of Crescent Capital Group, L.P.’s application for an exemptive order under Section 206A of the Advisers Act and Rule 206(4)­5(e) thereunder that would allow Crescent to receive compensation from a government entity client for investment advisory services provided to the government entity within the two­year period following a contribution by a covered associate of Crescent to an official of the government entity. SEC Release No. IA­4140.

Speeches and Statements

Chair White’s Statement on Dodd­Frank’s Anniversary

On July 16, SEC Chair Mary Jo White issued a statement on the five­year anniversary of Dodd­Frank’s enactment. White summarized the SEC’s implementation of Dodd­Frank, noting that the agency has addressed almost all of its mandatory rulemaking provisions. Appended to White’s statement is a SEC spotlight on the agency’s implementation of Dodd­Frank.

Countdown to T+2

On July 16, SEC Commissioner Aguilar issued a statement in which he touted the benefits of a shortened securities settlement cycle and praised industry efforts to develop a roadmap for the adoption of a two­day settlement cycle (“T+2”). However, Aguilar cautioned that as T+2 is further considered, regulators and market participants must consider issues such as system testing and trade affirmation.

Chair White Addresses Compliance Outreach Program for Broker­Dealers

On July 15, SEC Chair White gave the opening remarks at the SEC’s Compliance Outreach Program for Broker­ Dealers. White emphasized that the Commission is not targeting compliance professionals saying, “[w]e do not bring cases based on second guessing compliance officers’ good faith judgments, but rather when their actions or inactions cross a clear line that deserve sanction.” White went on to list the agency’s examination priorities, which include fee structures, suitability, order routing conflicts, recidivist representatives, microcap activity, excessive trading, transfer agent activity, and investors saving for retirement. White Statement.

Other Developments

Advisory Committee on Small and Emerging Businesses

The SEC published the discussion topics for the July 15, 2015 meeting of the Advisory Committee on Small and Emerging Businesses concerning finders and other intermediaries in small­business capital raising. It also issued the outline for the Committee’s discussion on disclosure effectiveness.

Chair White Keeps Penalties Promise and U.S. Chamber of Commerce Fights Back

On July 13, The Wall Street Journal published its analysis of SEC penalties, finding that SEC Chair White has kept her promise to make aggressive use of the Commission’s authority to levy penalties. Kept Promises. On July 15, the U.S. Chamber of Commerce published “Examining U.S. Securities and Exchange Commission Enforcement: Recommendations on Current Processes and Practices. The report makes recommendations on SEC enforcement policies, Commission oversight of the enforcement program, and SEC investigation processes and practices. Specific recommendations call for the adoption of due process reforms concerning the use of administrative proceedings. U.S. Chamber of Commerce Press Release.

Commodity Futures Trading Commission

Energy and Environmental Markets Advisory Committee to Meet

The CFTC announced that the Energy and Environmental Markets Advisory Committee will hold a public meeting on July 29, 2015. The meeting will focus on the agency’s proposed rules with respect to position limits, trade options, and its recent final interpretation concerning forward contracts with embedded volumetric optionality and how these initiatives will impact energy and environmental markets. CFTC Press Release.

Federal Rules Effective Dates

July 2015 ­ September 2015

Commodity Futures Trading Commission

July 10, 2015             Proceedings Before the Commodity Futures Trading Commission; Rules Relating to Suspension or Disbarment From Appearance and Practice. 80 FR 32855.

Consumer Financial Protection Board

August 31, 2015         Defining Larger Participants of the Automobile Financing Market and Defining Certain Automobile Leasing Activity as a Financial Product or Service. 80 FR 37495.

August 10, 2015         Minimum Requirements for Appraisal Management Companies. 80 FR 32657.

August 1, 2015           Amendments to the 2013 Integrated Mortgage Disclosures Rule Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth In Lending Act (Regulation Z) and the 2013 Loan Originator Rule Under the Truth in Lending

                                       Act (Regulation Z). 80 FR 8767.

                                       Integrated Mortgage Disclosures Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth In Lending Act (Regulation Z). 78 FR 79730.

Federal Deposit Insurance Corporation

August 10, 2015         Minimum Requirements for Appraisal Management Companies. 80 FR 32657.

July 23, 2015             Regulation D: Reserve Requirements for Depository Institutions. 80 FR 35565.

July 1, 2015               Restrictions on Sale of Assets of a Failed Institution by the Federal Deposit Insurance Corporation. 80 FR 22886.

Federal Housing Finance Agency

August 10, 2015         Minimum Requirements for Appraisal Management Companies. 80 FR 32657.

July 6, 2015               Minority and Women Inclusion Amendments. 80 FR 25209.

Federal Reserve System

August 10, 2015         Minimum Requirements for Appraisal Management Companies. 80 FR 32657.

July 23, 2015             Regulation D: Reserve Requirements for Depository Institutions. 80 FR 35565.

National Credit Union Administration

July 6, 2015               Chartering and Field of Membership Manual. 80 FR 25924.

Office of the Comptroller of the Currency

August 10, 2015         Minimum Requirements for Appraisal Management Companies. 80 FR 32657.

July 1, 2015               Integration of National Bank and Federal Savings Association Regulations: Licensing Rules. 80 FR 28345.

Office of Foreign Assets Control

July 10, 2015             Venezuela Sanctions Regulations. 80 FR 39676.

Securities and Exchange Commission

August 14, 2015         Freedom of Information Act Regulations: Fee Schedule, Addition of Appeals Time Frame, and Miscellaneous Administrative Changes. 80 FR 41432.

Exchanges and Self­Regulatory Organizations

BATS Global Markets

EDGA Exchange Withdraws Order Types Proposal

On July 15, the SEC provided notice of EDGA Exchange’s and EDGX Exchange’s withdrawal of their separately submitted proposed rule changes that would have clarified and added additional specificity regarding the current functionality of their respective exchange system, including the operation of their order types and order instructions.

Chicago Board Options Exchange

New Clearance and Settlement Procedures Approved

On July 10, the SEC granted accelerated approval to the Chicago Board Options Exchange’s proposed amendment of CBOE Rules 24A.1 (Definitions), 24A.4 (Terms of FLEX Options), 24B.1 (Definitions) and 24B.4 (Terms of FLEX Options) to permit Asian style settlement and Cliquet style settlement for FLEX Broad­Based Index options. SEC Release No. 34­75425.

Financial Industry Regulatory Authority

FINRA and MSRB Propose Academic Data Products

On July 16, the Financial Industry Regulatory Authority (“FINRA”) requested comment on a proposal to create a new Academic TRACE Data product that would be available to institutions of higher education. The Municipal Securities Rulemaking Board (“MSRB”) also is soliciting comment on a similar proposal that would establish a historical data product of post­trade municipal securities transaction data collected though the MSRB’s Real­time Reporting System for institutions of higher education. Comments should be submitted on or before September 14, 2015. FINRA Regulatory Notice 15­26; MSRB Press Release.

Debt Research Conflict of Interest Rule Approved

On July 16, the SEC approved FINRA’s proposed adoption of new FINRA Rule 2242 (Debt Research Analysts and Debt Research Reports) to address conflicts of interest relating to the publication and distribution of debt research reports. SEC Release No. 34­75472.

Adoption and Amendment of Research Analyst Rules Approved

On July 16, the SEC approved FINRA’s proposed adoption of NASD Rule 2711 (Research Analysts and Research Reports) as a FINRA rule, with several modifications: (i) amended NASD Rule 1050 (Registration of Research Analysts), (ii) incorporated NYSE Rule 344 to create an exception from the research analyst qualification requirement, and (iii) renumbered NASD Rule 2711 as FINRA Rule 2241 in the consolidated FINRA rulebook. SEC Release No. 34­75471.

Codification of TRACE Reporting Requirement Proposed

On July 10, the SEC provided notice of FINRA’s filing of a proposal that would codify in FINRA Rule 6730 the requirement that members are expected to report transactions in TRACE­Eligible Securities that are subject to dissemination as soon as practicable following the Time of Execution, but no later than within 15 minutes of the Time of Execution, or other timeframe specified in Rule 6730, and must not deliberately delay their reporting. The proposed amendment includes new Supplementary Material .03 to provide additional guidance around FINRA’s expectations regarding the timeliness of reports submitted to TRACE. Comments should be submitted on or before August 6, 2015. SEC Release No. 34­75428.

FINRA Investor Alert on Bond Liquidity

On July 10, FINRA issued an Investor Alert entitled “Bond Liquidity­Factors to Consider and Questions to Ask” which advises investors about bond liquidity, particularly the potential for decreased liquidity and investment losses for those who sell their bonds before maturity at a time of market stress. FINRA Press Release.


Clearance of Additional Sovereign CDS Proposed.

On July 15, the SEC provided notice of ICE Clear Credit’s (“ICC”) proposed adoption of rules that would provide the basis for ICC to clear additional credit default swap contracts. ICC currently clears seven Standard Western European Sovereign CDS (“SWES”) Contracts: the Republic of Ireland, the Italian Republic, the Portuguese

Republic, the Kingdom of Spain, the Kingdom of Belgium, the Republic of Austria, and the Kingdom of the Netherlands. ICC is proposing to amend Subchapter 26I of its rules to provide for the clearance of additional SWES Contracts, specifically the Federal Republic of Germany, the French Republic, and the United Kingdom of Great Britain and Northern Ireland. Comments should be submitted within 21 days after publication in the Federal Register, which is expected during the week of July 20. SEC Release No. 34­75456.

Changes Proposed to CDS Risk Policies

On July 10, the SEC provided notice of ICE Clear Europe’s filing of a proposed rule change to amend certain ICE Clear Europe risk policies relating to the CDS product category to incorporate enhancements to the existing CDS risk model. The relevant policies being modified are the CDS Risk Policy and the CDS Risk Model Description. The proposed rule change would, among other matters: (i) modify the credit spread response component of the risk model to devolatilize returns; (ii) enhance the portfolio spread response component of the risk model to limit procyclicality; (iii) establish a new framework for recovery rate sensitivity requirement parameters; (iv) modify the CDS Guaranty Fund allocation methodology, (v) modify index liquidity and concentration charges; and (vi) revise procedures for intraday margin calls. Comments should be submitted on or before August 6, 2015. SEC Release No. 34­75426.

International Swaps and Derivatives Association

ISDA Publishes FpML Recommendations

On July 15, the International Swaps and Derivatives Association (“ISDA”) published its Recommendation for Financial products Markup Language (“FpML”) version 5.8. The revised FpML has been expanded to include 28 new foreign exchange products from the accrual, target and volatility families; to provide support for a variety of commercial loan processes, such as loan servicing and position­inventory messages; and to provide schema changes to improve data quality of regulatory reporting. ISDA Press Release. On July 13, Reuters, reporting on the revisions affecting commercial loans, noted how the FpML revisions will improve communication in that market. Leveraged Improvements.

NEW EMIR Classification Letter

On July 14, the ISDA published a new classification letter that will enable counterparties to notify each other of their status for clearing and other regulatory requirements under the European Market Infrastructure Regulation. ISDA Press Release.

National Futures Association

CPOs with Consolidated CFTC Filings

On July 13, the National Futures Association (“NFA”) published an important request for commodity pool operators (“CPO”) that operate commodity pools that are utilizing wholly­owned subsidiaries and wish to consolidate filings under CFTC Regulation 4.22 and/or 4.27. On September 8, 2014, the CFTC issued No­Action Letter 14­112, which provides relief from certain reporting obligations under Part 4 of CFTC Regulations to certain wholly­owned subsidiaries of commodity funds. Specifically, the No­Action Letter permits a CPO of a parent commodity pool ("parent pool") that is not registered as an investment company under the Investment Company Act of 1940 that uses a wholly­owned subsidiary to trade in commodity interests to file reports for the subsidiary on a consolidated basis when complying with financial reporting requirements under CFTC Regulations 4.22(c) and 4.27(c). In order to ensure that NFA’s records are accurate for determining annual financial reporting requirements under CFTC Regulations 4.22(c) and 4.27(c), NFA is requiring any CPO that has already filed a claim of notice under CFTC No­Action Letter 14­112 to notify NFA of the notice filing on or before July 31, 2015. NFA Notice I­15­17.


NYSE Software Glitch Draws Unwanted Attention

On July 14, DealBook discussed how the software glitch which caused the New York Stock Exchange to close for almost four hours on July 8, 2015 has drawn attention to recent job cuts there. Unwanted Attention.

Accelerated Approval Granted to Order Type Proposal

On July 13, the SEC granted accelerated approval to NYSE MKT’s and the New York Stock Exchange’s individually proposed amendments to their respective rules to re­group and re­number existing order types and order modifiers. The exchanges also propose amendments to revise the definitions of certain order types and modifiers in both substantive and non­substantive ways and to add text stating that unless otherwise specified in their rules, orders and modifiers are available for all member organizations. The exchanges represent that these revisions are not intended to reflect changes to the functionality of any order type or modifier, but rather to clarify their rules to make it easier to navigate.

Principles­Based Approach to Insider Trading is Approved

On July 13, the SEC approved NYSE MKT’s proposed adoption of a principles­based approach to prohibit the misuse of material nonpublic information by Specialists and e­Specialists by deleting NYSE MKT Rule 927.3NY and Section (f) of NYSE MKT Rule 927.5NY. SEC Release No. 34­75432.

The Options Clearing Corporation

New Clearance and Settlement Procedures Approved

On July 10, the SEC approved The Options Clearing Corporation’s proposed implementation of new risk models to support the clearance and settlement of Asian­style and Cliquet flexibly structured options. SEC Release No. 34­75427.

Judicial Developments

Dodd­Frank Associational Bars Cannot be Imposed Retroactively

On July 14, the D.C. Circuit partially granted the petition filed by an investment advisory firm. Petitioner challenged an SEC administrative enforcement action against them for marking the close, buying and selling shares immediately before the stock markets’ close in order to increase the share price. Although the Court agreed that petitioner manipulated the market, it vacated an SEC order barring association with municipal advisers and rating organizations. The Court held that the SEC impermissibly applied the provision of Dodd­ Frank which authorizes the SEC to impose municipal advisor and rating organization associational bars. Petitioner’s activities occurred in 2009 but Dodd­Frank was not adopted until 2010. The imposition of the associational bars was therefore impermissibly retroactive and must be vacated. Associational Bars Cannot be Retroactive.

Appraisal Rights Under Delaware Law are Lost When Shares are Re­Tilted in the Name of Custodian/Nominee

On July 13, the Delaware Chancery Court “reluctantly” granted respondent’s motion for summary judgment, dismissing a petition seeking appraisal. Petitioners, five investment funds which own respondent’s common stock, sought appraisal after respondent announced its going­private merger. But because the funds hold their respondent shares through custodial banks, and because under Delaware law the record holder is the name that appears on the stock ledger, a new record holder was created in the name of the custodial bank when the petitioners’ shares were removed from the Depository Trust Company and paper certificates issued. Thus the Continuous Holder Requirement was not met and petitioners could not demand appraisal. In re Appraisal

Industry News

Push Out Fall Out

On July 16, Senators Elizabeth Warren and Elijah Cummings requested federal banking regulators to explain the effect of last year’s partial repeal of the swaps push­out rule, Section 716 of the Dodd­Frank Act, which had required banks to “push­out” certain swaps trading activities to non­federally insured subsidiaries. The Senators’ letter asks for the total value of derivatives contracts and swaps derivatives four of the largest banking institutions hold for “hedging” and “risk management” purposes, as well as the total value of swaps transactions each institution would have “pushed out” under Section 716 as originally enacted. Warren Press Release.

Massachusetts Targeting Alternative Mutual Fund Advice.

On July 15, Reuters reported that the Massachusetts Secretary of the Commonwealth is examining the investment advice state­registered investment advisers provide concerning alternative mutual funds. Alternative Advice.

Responding to a Structured Death

On July 15, Bloomberg discussed structured certificates of deposits, how they have been used, and the restrictions issuers have placed on them. Death Puts.

Asset Managers Dodge Systemic Bullet

On July 14, the Financial Times reported that the Financial Stability Board will not seek to designate asset managers as systemically important. Instead, the global regulator will focus on whether any of the activities in which asset managers are engaged may pose systemic risks. Systemic Dodges.

Knock­Off News

On July 14, Forbes discussed the latest on­line financial hoax, the fake news story saying that Twitter was a takeover target. Forbes noted how easy it was for a human to identify the fake article’s obvious errors but questioned what the proliferation of these scams may bring. Knock­Offs.