SEC adopts final rules on business conduct standards for SBS entities. The Securities and Exchange Commission approved final rules that establish business conduct standards and chief compliance officer requirements for security-based swaps dealers and major swaps participants. The final rules will be effective 60 days after publication in the Federal Register. The compliance date for nearly all of the rules will be based on the compliance date of the registration rules for SBS entities. (4/13/2016) SEC press release. SEC Chair Mary Jo White and Commissioner Kara Stein voted in favor of adopting the final rules. In opposing the final rules, Commissioner Michael S. Piwowar argued that the SEC’s rules should have aligned more closely with Commodity Futures Trading Commission rules governing SBS dealers, according to a report in Law360.
Requests for Comment
SEC issues concept release to consider revisions to business and financial disclosure framework under Regulation S-K. The SEC requested comments on a concept release that considers how the SEC might modernize and enhance certain business and financial disclosure requirements under Regulation S-K. The concept release focuses specifically on the business and financial disclosures that companies provide in their periodic reports and requests feedback on how well these disclosure requirements serve investors in making informed investment and voting decisions. Comments are due within 90 days of publication in the Federal Register. (4/13/2016) SEC press release. The SEC unanimously supported the issuance of the release, although Commissioner Stein expressed concern about the narrow scope of the release. Commissioner Piwowar reminded the Commission that its disclosure framework should focus solely on material information. See also White statement.
Exemptive Orders and No-Action Relief
Division of Investment Management grants no-action relief to J.P. Morgan investment advisers from disclosing purchase of fractional shares. The SEC’s Division of Investment Management granted no-action relief from disclosure requirements under Section 206(3) of the Investment Advisers Act to J.P. Morgan Securities LLC and their broker-dealer affiliates in their roles as investment advisers to clients that hold exchange-traded equity securities. The Division indicated that it would not recommend enforcement action if the investment advisers determine to sell out of a client position consisting of whole and fractional shares and purchase the fractional shares from the client on the same day and at the same price as the whole shares are sold. In cases where whole shares are transferred from a client’s account for reasons other than a sale, the advisers may purchase the fractional shares at that day’s market closing price. (4/14/2016) SEC no-action letter.
Division of Corporation Finance confirms Rule 902(b) designation of Norwegian marketplace. In response to a request from Norway’s independent stock exchange Oslo Børs, the SEC’s Division of Corporation Finance indicated that it would not object if the reference to Oslo Børs as “a designated off-shore securities market” under Rule 902(b) of the Securities Act also includes Merkur Market, a marketplace offered by Oslo Børs that targets small and midsized growth companies. (4/13/2016) SEC no-action letter.
Additional exchanges receive exemptions from Tick Size Pilot data collection requirements. The SEC’s Division of Investment Management granted exemptions to the Chicago Stock Exchange, Inc., the National Stock Exchange, Inc., the Nasdaq Stock Market LLC, NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, the New York Stock Exchange LLC, NYSE Arca, Inc. and NYSE MKT LLC from certain data collection requirements set forth in the Plan to Implement a Tick Size Pilot Program. (4/4/2016)
Selected Enforcement Actions
Town officials concealed revenue trouble from bond investors. The SEC filed a contested civil proceeding against a New York state town, its local development corporation, and four town officials for failing to disclose the town’s revenue shortfalls to municipal bond investors. The SEC alleged that the officials of Ramapo, NY, falsified the town’s accounting records to mask deficits in Ramapo’s operating fund caused by the cost of building a US$60 million baseball stadium as well as the town’s declining sales and property tax revenues. Ramapo’s town supervisor and its assistant town attorney conducted the bond offering through their roles at Ramapo Local Development Corp. and falsely stated in bond offering documents that the town’s operating fund had positive balances when it had accumulated deficits of almost US$14 million. The town supervisor and assistant town attorney also face related criminal charges. The SEC also charged the town attorney and the deputy finance director for their roles in inflating the town’s revenues and concealing outstanding liabilities. (4/14/2016) SEC press release.
Broker-dealer, principals failed to protect confidential customer information.The SEC announced charges against a broker-dealer and its two principals for violating Regulation S-P by failing to adopt written policies and procedures to protect confidential client information and maintain copies of business communications. The SEC alleged that the broker-dealer and its principals used personal email addresses to receive faxes from customers and other third parties that contained sensitive client information, including social security numbers, brokerage account numbers and other customer financial information. Firm employees also used personal emails to conduct firm business. The broker-dealer failed to preserve these emails and faxes and failed to adopt supervisory procedures that adequately safeguarded customer information. Without admitting or denying the allegations, the respondents settled the charges by consenting to the entry of cease-and-desist and censure orders. The firm agreed to pay a civil penalty of US$100,000, while the two principals will each pay civil penalties of US$25,000. In the Matter of Craig Scott Capital, LLC, Craig S. Taddonio, and Brent M. Porges, SEC Release No. 34-77595.
Investment adviser and director failed to supervise representative who misappropriated client funds. The SEC announced charges against an investment adviser and a regional director of the firm for failing to supervise a firm representative who conducted a fraudulent scheme to misappropriate client funds. The SEC claimed that the investment adviser’s compliance department developed a plan to place the representative under heightened supervision after it learned about a FINRA investigation into his termination by his previous employer; however, the representative’s supervisor, a regional director at the firm, failed to implement any of the heightened supervisory procedures in the plan and the adviser failed to ensure that he executed the plan. In addition, the adviser failed to implement systems, policies, and procedures to prevent fraudulent activities. The representative went on to misappropriate funds from clients by forging their signatures on agreements and adding additional costs to agreements after they had been signed by his clients. Without admitting or denying the allegations, the adviser and director agreed to settle the SEC’s charges by paying civil penalties of US$225,000 and US$20,000, respectively. The adviser also consented to the entry of cease-and-desist and censure orders as well as the requirement to retain an independent compliance consultant. The director agreed to a twelve-month suspension from the industry. (4/5/2016) In the Matter of Cambridge Investment Research Advisors, Inc., SEC Release No. IA-4361, and In the Matter of Alexander R. Bastron, SEC Release No. 34-77528.
Speeches and Statements
White informs FSOC that SEC will develop its own asset management rules. In a statement at a public meeting of the Financial Stability Oversight Council, SEC Chair Mary Jo White expressed her support for FSOC’s Update Statement on its review of asset management products and activities for potential financial stability risks. White noted that although there is overlap between the topics addressed in FSOC’s update and the SEC’s proposed reforms, the SEC will develop its own final asset management rules based on information it receives from public comment and analysis performed by its Division of Economic and Risk Analysis. (4/18/2016) White statement.
White says SEC will hire 250 additional staff in testimony on budget request.SEC Chair Mary Jo White testified before the US Senate Appropriations Subcommittee on Financial Services and General Government to support the SEC’s budget request of $1.781 billion for Fiscal Year 2017. White indicated that the SEC would use its additional budget resources to hire 250 more staff and to improve the SEC’s information technology. (4/12/2016) White testimony.
White emphasizes technology and cooperation in address to global securities conference. SEC Chair Mary Jo White told the International Institute for Securities Market Growth and Development that technological tools and innovative methods of information sharing among global regulators are essential for the SEC to keep pace with the increasing size, sophistication and complexity of the securities markets. (4/8/2016) White remarks.
Equity Market Structure Advisory Committee meeting. The SEC’s Equity Market Structure Advisory Committee will meet on April 26, 2016, to discuss updates and consider recommendations from its four subcommittees. SEC Commission Notice 34-77543.
SEC releases new online tool to improve accuracy of filing fee calculations. The SEC released the Registration Fee Estimator, an online tool to assist filers in estimating filing fees for certain form submissions to EDGAR. The tool covers the most common filings used by companies to register initial public offerings, debt offerings, asset-backed securities, close-ended mutual funds, limited partnerships, and small business investment companies. (4/18/2016) SEC press release.
Investor Advisory Committee holds meeting. At a recent meeting, the SEC’s Investor Advisory Committee approved a recommendation from its Investor as Purchaser subcommittee that the SEC consider requiring mutual funds to disclose actual dollar amount costs on customer account statements, in addition to discussing cybersecurity and related investor protection concerns. SEC Chair Mary Jo White addressed the Committee by providing an update on recent SEC rulemaking activities related to security-based swap dealers. White indicated that the Division of Investment Management is preparing to recommend a program of independent compliance assessments for registered investment advisers. (4/14/2016)
EDGAR updates. The SEC published the EDGAR Form N-MFP1 XML Technical Specification (Version 1). (4/14/2016)
Staff announcements. The SEC announced that Marshall S. Sprung, co-chief of the Division of Enforcement’s Asset Management Unit, will depart the agency later this month. (4/11/2016) SEC press release.
PCAOB proposes changes to inspections of ‘substantial role only’ firms. The SEC requested comments on the Public Company Accounting Oversight Board’s proposal to amend its rules related to inspections of firms that play a substantial role in audits but do not issue audit reports. Comments are due on or before May 4, 2016. (4/7/2016) SEC Release No. 34-77558.