SEC amends Investment Adviser Act rules to reflect FAST Act changes. The SEC adopted final rules that amend certain definitions under Investment Adviser Act Rule 203(l)-1 and Rule 203(m)-1 to reflect changes made by the Fixing America’s Surface Transportation Act of 2015. The amendments revise the definition of a venture capital fund to include “small business investment companies” and modify the definition of “assets under management” in the rule that implements the private fund adviser exemption to exclude the assets of “small business investment companies.” The rule amendments will become effective 60 days following publication in the Federal Register. (1/5/2018) SEC final rules.
SEC adopts final rules on treatment of certain communications involving security-based swaps. The SEC approved a final rule providing that certain communications involving security-based swaps will not be deemed to constitute “offers” of security-based swaps for purposes of Section 5 of the Securities Act. The final rule, which will be effective upon publication in the Federal Register, applies to the publication or distribution of price quotes that relate to security-based swaps that may be purchased only by eligible contract participants and are traded or processed on certain trading platforms, as well as publications that discuss covered SBS and that meet the definition of a “research report” in Securities Act Rule 139(d). (1/5/2018) SEC final rule.
SEC sets compliance date for Form 10-D hyperlink requirements. The SEC set a June 1, 2018 compliance date for its previously-adopted exhibit hyperlinking requirements for Form 10-Ds that require hyperlinks to any exhibits filed with Form ABS-EE. (12/11/2017) Release No. 33-10446.
SEC adopts updated EDGAR Filer Manual. The SEC adopted revisions to the EDGAR Filer Manual and related rules to reflect updates to the EDGAR system. (12/8/2017) Release No. 33-10444.
Approach to Form N-PORT filing requirements is modified. The SEC announcedthat it has modified its approach to the pending requirement for registered investment companies to file Form N-PORT electronically. The agency has adopted a temporary final rule that requires funds in larger fund groups to maintain in their records the information that is required to be included in Form N-PORT, in lieu of filing reports with the agency, until April 2019. (12/8/2017) Release No. 33-10442.
SEC proposes amendments to FOIA regulations. The SEC requested comments on a proposed rule that would revise its regulations under the Freedom of Information Act to reflect changes required by the FOIA Improvement Act of 2016 and clarify the language of several procedural provisions. Comments are due on or before February 2, 2018. (12/21/2017) SEC proposed rule.
Staff provides regulatory guidance for accounting impacts of Tax Cuts and Jobs Act. The SEC announced publication of staff guidance for publicly traded companies, auditors, and others to help ensure timely public disclosures of the accounting impacts of the Tax Cuts and Jobs Act. Specifically, the staff of the Office of the Chief Accountant and the Division of Corporation Finance issued Staff Accounting Bulletin No. 118, which expresses views of the staff regarding application of U.S. GAAP when preparing an initial accounting of the income tax effects of the Act, and Compliance and Disclosure Interpretation 110.02, which expresses views of the staff regarding the applicability of Item 2.06 of Form 8-K with respect to reporting the impact of a change in tax rate or tax laws pursuant to the Act. IM Information Update (Applicability of Staff Accounting Bulletin No. 118 to Investment Companies Impacted by the Tax Cuts and Jobs Act). (12/22/2017)
No-Action Relief and Exemptive Orders Division will not recommend enforcement against broker-dealers in treatment of revenue from contracts with customers. The Division of Trading and Markets determined that it will not recommend enforcement action for if a broker-dealer, when computing net capital, adds back to net worth the amount of the deferred tax liability to the extent that amount directly relates to the non-allowable asset consisting of an “incremental costs of obtaining a contract with a customer” as well as “costs incurred in fulfilling a contract with a customer” as defined under the FASB’s Accounting Standards Codification 340-40, Other Assets and Deferred Costs – Contracts with Customers. (1/4/2018)
In looking to conduct public offerings of debt securities in the US, Philippines may file annual reports and incorporate filings into registration statements. The Republic of Philippines requested an interpretive letter that would facilitate the process by which it conducts public offerings of its debt securities in the US. The SEC’s Office of International Corporate Finance determined that it would not object if the Republic files with the agency annual reports on Form 18-K under the Securities Exchange Act of 1934 and amendments to those annual reports on Form 18-K/A, and if the Republic incorporates by reference those filings into registration statements, including shelf registration statements, and related prospectuses filed with the SEC under the Securities Act of 1933. (12/6/2017)
Selected Enforcement Actions
Investment adviser settles charges of Investment Adviser Act violations. The SEC announced that it has reached a settlement with a formerly registered investment adviser and its principal over charges of several Investment Adviser Act violations and compliance deficiencies. The SEC alleged that the firm and its principal filed Forms ADV stating that the principal had no outside financial industry activities and no interests in client transactions when, in fact, the principal encouraged advisory clients to invest in private funds in which he held managerial interests. Additionally, the SEC alleged that the firm failed to provide clients with a revised ADV Part 2A brochure, which disclosed that the firm had inflated its assets under management by nearly US$30 million. Without admitting or denying the allegations, the firm and its principal consented to the entry of cease-and-desist and censure orders and agreed to pay civil penalties of US$100,000 and US$50,000, respectively. The principal also agreed to be prohibited from acting in a compliance capacity. (1/3/2017) In the Matter of LKL Investment Counsel LLC and Mark H. Love, SEC Release No. IA-4836.
Investment advisors and affiliated broker-dealer failed to supervise their former president. The SEC announced that Coastal Investment Advisors, Inc. and its affiliated broker-dealer, Coastal Equities, Inc., have agreed to settle charges that they failed reasonably to supervise their former president, Michael Donnelly who, in 2015, the SEC charged with fraud for stealing nearly US$2 million from his advisory clients and brokerage customers. (12/11/2017)
Company halts ICO after SEC raises registration concerns. The SEC announced that Munchee Inc., a California-based company that sells digital tokens to investors to raise capital for its blockchain-based food review service, has halted its initial coin offering after being contacted by the agency, and agreed to an order in which the agency found that Munchee’s conduct constituted unregistered securities offers and sales. (12/11/2017)
Speeches and Statements
SEC responds to NASAA’s warning to investors about cryptocurrencies. In response to the North American Securities Administrators Association’s release on cryptocurrencies, initial coin offerings and other cryptocurrency-related investment products, SEC Chairman Jay Clayton, SEC Commissioner Michael S. Piwowar, and SEC Commissioner Kara M. Stein warned investors that the SEC’s efforts to pursue violations of federal securities laws by promoters of these products may not result in the recovery of their investment. (1/4/2018) SEC statement.
Clayton statement on cryptocurrencies and ICOs. SEC Chairman Jay Clayton published a statement providing his general views on the cryptocurrency and ICO markets. Clayton’s statement was directed mainly to “main street” investors and market professionals including broker-dealers, investment advisers, exchanges, lawyers, and accountants. (12/11/2017)
Stein addresses ICI’s Securities Law Developments Conference. SEC Commissioner Kara M. Stein discussed exchange-traded funds, disclosure, and investor trust at the Investment Company Institute’s 2017 Securities Law Developments Conference. (12/7/2017) Stein remarks.
Blass explains new investor engagement and board responsibilities initiatives.Speaking at the ICI 2017 Securities Law Developments Conference, SEC Division of Investment Management Director Dalia Blass discussed the Division’s new “investor experience” initiative, which focuses on making disclosures work better for investors, and “board outreach initiative,” which will consider the possible recalibration of board responsibilities. (12/7/2017) Blass remarks.
Other Developments Fixed Income Advisory Committee inaugural meeting. The SEC announced that its new Fixed Income Market Structure Advisory Committee will meet on January 11, 2018, to discuss, among other things, liquidity in the bond markets. SEC meeting notice.
SEC adjusts civil monetary penalty amounts. The SEC provided notice that it will make annual adjustments for inflation to the maximum amount of civil monetary penalties administered by the Commission under the Securities Act, the Securities Exchange Act, the Investment Company Act, the Investment Advisers Act, and certain penalties under the Sarbanes-Oxley Act. The adjusted amounts will be effective beginning on January 15, 2018. (1/8/2018) SEC commission notice.
DERA discusses analysis of option penny pilot program. Staff in the SEC’s Division of Economic and Risk Analysis released a memorandum that concurs with the analysis performed by an economic and financial consulting firm on its behalf regarding the effects on market quality of the continuing pilot program that allows certain exchange-traded options to be quoted in reduced price increments. (1/5/2018) DERA memorandum.
SEC issues annual NRSRO reports. The SEC published two staff reports on nationally recognized statistical rating organizations. The annual exam reportsummarizes the staff examinations of each NRSRO, while the annual reportdiscusses the state of competition, transparency, and conflicts of interest among NRSROs. (12/29/2017) SEC press release.
Staff announcements. Gerald W. Hodgkins, an Associate Director of the Division of Enforcement, announced plans to leave the agency at the end of 2017. (12/21/2017) Marc P. Berger has been named Director of the SEC’s New York Regional Office. (12/18/2017) Kenneth A. Johnson will serve as the SEC’s Chief Operating Officer. (12/14/2017) The SEC announced that Gary Barnett, Deputy Director in the Division of Trading and Markets, will retire at the end of 2017. (12/13/2017) Daniel Michael will serve as chief of the Enforcement Division’s Complex Financial Instruments Unit. (12/7/2017)
DERA examines effects of LULD plan. DERA released two staff white papers on the Limit Up-Limit Down Plan. The first paper looks at the impact of certain mechanisms of the LULD Plan on extraordinary transitory volatility, while the second paper analyzes the effect of Amendment 10 to the LULD Plan on trading pauses. (12/21/2017) See also DERA memorandum.
Office of Investor Advocate fiscal year 2017 activities report. The SEC’s Office of the Investor Advocate released its annual report on its activities and recommendations made during fiscal year 2017. (12/20/2017) SEC Investor Advocate report.
Money market fund statistics. The SEC’s Division of Investment Management updated its money market fund statistics to reflect data as of November 30, 2017. (12/18/2017) Money market fund statistics.
New Chairman and Board members appointed to PCAOB. The SEC announcedthat it has appointed William D. Duhnke III as Chairman and J. Robert Brown, Kathleen M. Hamm, James G. Kaiser, and Duane M. DesParte as Board members of the PCAOB. (12/12/2017) See Chairman Jay Clayton’s statement on appointment of new PCAOB Board members.
DERA examines off-exchange closing volume and price discovery. DERA published an analysis of the correlation among closing price discovery and closing price efficiency with off-exchange trading activity at the close in connection with Bats BZX Exchange Inc.’s proposal to introduce a closing match process for non-BZX listed securities. (12/7/2017) DERA memorandum.
DERA paper considers effect of social interactions on financial market bubbles. DERA staff released an analysis of the implications for financial markets of social interactions between investors with different degrees of sophistication. (12/6/2017) DERA working paper.