Insights from Winston & Strawn

ESMA Issues Advice on the Extension of AIFMD Passport to U.S Funds and Managers

On July 19, 2016, the European Securities and Markets Authority (ESMA) issued advice on the application of the Alternative Investment Fund Manager Directive (AIFMD) passport to non-EU Alternative Investment Funds (AIFs) and their managers (AIFMs), and especially those located in the United States.

Pursuant to the AIFMD, AIFs and AIFMs located in EU member states and registered within their national supervisory authorities may request a “passport” authorizing them to operate across other EU member states, without needing to request separate authorizations from each national authority. Two types of passports may be granted: manager passports, allowing an AIFM to manage AIFs located in other member states; and fund passports, allowing the marketing of an AIF’s shares in one or several other member states.

For the time being, non-EU AIFMs and AIFs are subject to national authorization for each member state they intend to do business in. However, pursuant to Article 67 of the AIFMD, the ESMA is supposed to issue advice on whether there are significant obstacles regarding investor protection, market disruption, competition, and the monitoring of systemic risk that are impeding the extension of the passport scheme to non-EU AIFMs and AIFs so that they could market and manage funds throughout the EU in accordance with the rules set out in the AIFMD. It is in such context upon which the ESMA advice on the application of the AIFMD passport to the United States is based.

With respect to the investor protection, the ESMA considers that there are differences between EU and U.S. regulatory framework, but these differences are not deemed to be significant obstacles. With respect to the market disruption and obstacles to competition, the ESMA notes that, if the AIFMD passport is granted, market access conditions which would apply to U.S. funds involving public offerings dedicated to professional investors in the EU would be different from the market access conditions applicable to EU funds dedicated to professional investors in the United States, due to registration requirements under the U.S. regulatory framework. However, the ESMA finds that in the case of funds dedicated to professional investors, but not involving any public offering, EU market access conditions which would apply to U.S. funds would be broadly comparable to the U.S. market access conditions applicable to EU funds.

Consequently, the ESMA issues positive advice on the extension of the AIFMD passport to the United States, provided that the EU legislator includes options such as:

  • granting the passport only to those U.S. funds dedicated to professional investors not involving any public offering;
  • granting the passport only to those U.S. funds which are not mutual funds (under the 1940 Investment Company Act); and
  • granting the passport only to those U.S. funds that restrict investment to professional investors as defined in the AIFMD.

This advice, required under the AIFMD, will now be considered by the European institutions that are supposed to issue delegated regulation in the coming months. Partners in our Brussels, London, and Paris offices will continue to monitor the trends of the coming regulation.

Feature: SEC Proposes to Require Hyperlinks to Exhibits Listed in Filings Index

On August 31st, the Securities and Exchange Commission (“SEC”) announced its proposed rule and form amendments that would require certain registrants to include active hyperlinks to each exhibit listed in the exhibit index of their filings, and to submit all of those filings in HTML format as the text-based American Standard Code for Information Interchange (“ASCII”) format cannot support functional hyperlinks. Registrants affected by these proposed amendments are those who file registration statements and periodic and current reports that are subject to the exhibit requirements under Item 601 of Regulation S-K (Forms S-1, S-3, S-4, S-8, S-11, F-1, F-3, F-4, SF-1, and SF-3 under the Securities Act; and Forms 10, 10-K, 10-Q, 8-K, and 10-D under the Exchange Act), or who file on Forms F-10 or 20-F.

This initiative follows the SEC’s June 2016 announcement of a time-limited program to let registrants voluntarily file structured financial statement data using the machine-readable Inline XBRL (eXtensible Business Reporting Language), where registrants can file the required information and data tags in one document rather than having to use a separate exhibit for the interactive data.

The SEC’s initial effort to automate the receipt, processing, and distribution of documents required to be filed under the federal securities laws started in 1984, when the agency implemented the EDGAR system. Then, in 2000, the agency adopted rule and form amendments that permitted registrants to file documents in HTML format. The SEC also expanded the acceptable use of hyperlinks in EDGAR filings to let filers include hyperlinks to other documents within the same filing and to documents contained in other filings in the EDGAR database.

The SEC explained why its most recent proposal is essential: “Under the current system, someone seeking to retrieve and access an exhibit that has been incorporated by reference must review the exhibit index to determine the filing in which the exhibit is included, and then must search through the registrant’s filings to locate the relevant filing to review for the particular exhibit. This process can be both time consuming and cumbersome.” The SEC noted that making registrants include hyperlinks from the exhibit index to the actual exhibits filed “would facilitate easier access to these exhibits for investors and other users of the information.”

SEC Chair Mary Jo White added that “[t]he proposed changes should make it significantly easier to locate documents attached to company filings … [t]his enhanced capability will benefit both investors and companies.”

The SEC is accepting comments on its proposal until 45 days following publication in the Federal Register. In its request for comments, the SEC asked for ideas on other ways it can improve access to documents filed as exhibits. Questions that the SEC is asking include:

  • As an alternative to the proposed amendments, should we require registrants to file and update a compilation of exhibits separately from the Form 10-K or other forms? If so, which exhibits should be included in the compilation and how frequently should registrants have to update them?
  • Would smaller reporting companies and non-accelerated filers that currently file in ASCII face any specific difficulties or incur any unreasonable costs in converting their filings to HTML format? If so, should we keep the ASCII format as an EDGAR filing option for these filers?
  • Should we revise the exhibit numbering scheme to help investors more readily identify exhibits?
  • Would a more detailed numbering or identification system improve investors’ access to the information filed as exhibits?

FINRA – Regulatory Matters at a Glance

Please click here to view a summary of the regulatory notices, rule filings, guidance and the like published by the Financial Industry Regulatory Authority (“FINRA”) during the previous month.

Banking Agency Developments


OCC Requests Comment on Industrial and Commercial Metals Proposed Rule

On September 8th, the OCC requested comment on a proposed rule to prohibit national banks and federal savings associations from dealing and investing in “industrial or commercial metal.” Under the proposed rule, the term “industrial or commercial metal” means metal (including an alloy) in a physical form primarily suited to industrial or commercial use, for example, copper cathodes.

Patricia Pointer Named Deputy Comptroller for Leadership, Executive and Organizational Development

On September 6th, the OCC announced the selection of Patricia Pointer to be the agency’s Deputy Comptroller for Leadership, Executive and Organizational Development, effective September 18, 2016.

OCC Issues Fourth Quarter 2016 CRA Evaluation Schedule

On September 1st, the OCC announced the release of its schedule of CRA evaluations to be conducted in the fourth quarter of 2016.


FDIC Names New Director for Center for Financial Research

On September 9th, the FDIC announced that Professor Manju Puri, Ph.D., will serve as the director of the FDIC's Center for Financial Research for two years starting October 1st. She is currently the J. B. Fuqua Professor, Finance, at the Fuqua School of Business at Duke University.

FDIC Announces New Members for the Advisory Committee on Community Banking

On September 2nd, the FDIC announced the selection of eight new members for its Advisory Committee on Community Banking.


Financial Regulators Release Revised Information Security Booklet

On September 9th, the Federal Financial Institutions Examination Council (“FFIEC”) announced its issuance of a revised Information Security booklet, which is part of the FFIEC Information Technology Examination Handbook. The revised booklet addresses the factors necessary to assess the level of security risks to a financial institution’s information systems. The booklet also helps examiners evaluate the adequacy of the information security program’s integration into overall risk management.

Federal Reserve

Nellie Liang, director of the Division of Financial Stability, to Retire

On September 9th, the Federal Reserve announced that Nellie Liang, director of the Division of Financial Stability, will retire later this year after 30 years of service to the Board, including six years as director.

Federal Reserve Approves Final Policy Statement Detailing Framework for Setting Countercyclical Capital Buffer

On September 8th, the Board announced its release of a policy statement detailing the framework the Board will follow in setting the Countercyclical Capital Buffer (“CCyB”) for private-sector credit exposures located in the U.S. The CCyB can be used to increase the resilience of the financial system by raising capital requirements on internationally active banking organizations when the risk of above-normal losses is elevated. It would then be available to help banking organizations absorb shocks associated with declining credit conditions. Implementation of the buffer could also help moderate fluctuations in the supply of credit. The policy statement provides background on the range of financial-system vulnerabilities and other factors the Board may take into account as it evaluates settings for the buffer.

Securities and Exchange Commission

Final Rules

SEC Adopts Amendments Providing Authorities Access to Data Obtained by Security-Based Swap Data Repositories

On August 29th, the SEC announced that it has adopted amendments to a rule that would require security-based swap data repositories to make data available to regulators and other authorities, allowing them to share information and more effectively oversee the security-based swap market.

Proposed Rules

SEC Proposes Amendments to Require Hyperlinks to Exhibits in Filings

On August 31st, the SEC announced its proposed rule and form amendments that would require registrants that file registration statements and periodic and current reports that are subject to the exhibit requirements under Item 601 of Regulation S-K, or that file on Forms F-10 or 20-F to include a hyperlink to each exhibit listed in the exhibit index of the filings. The amendments would also require that registrants submit all of these filings in HTML format. According to SEC Chair Mary Jo White, “[t]he proposed changes should make it significantly easier to locate documents attached to company filings … [t]his enhanced capability will benefit both investors and companies.” The SEC will accept comments until 45 days following publication in the Federal Register.


SEC Issues Technical Support FAQs for EDGAR Filers

On September 6th, the SEC published answers to frequently asked questions prepared by the EDGAR Filer Technical Support Team. The FAQs address questions about obtaining CIKs for EDGAR access, error messages, and browser requirements, among other things. SEC EDGAR Filer Technical Support Frequently Asked Questions.

SEC Updates C&DI on Item 1101(c) of Regulation AB

The SEC’s Division of Corporation Finance revised its Compliance and Disclosure Interpretations (“C&DIs”) on Regulation AB on September 6th. The revised C&DIs clarify that under Item 1101(c) of Regulation AB, funding agreement-backed notes issued by an insurance company through a special purpose vehicle in which payments on the funding agreement are backed by the general account of the insurance company would not be considered asset-backed securities.  SEC Regulation AB C&DIs.

No-Action Letters and Exemptive Orders

SEC Agrees that Firm’s Proposed Applicable Margin Reset Mechanism for CLOs Not Subject to Credit Risk Retention Requirements

In a no-action letter published on September 1st, the SEC’s Division of Corporation Finance concurred with Sancus Capital Management LP’s understanding that the firm’s use of a proposed applicable margin reset with respect to notes pursuant to a collateralized loan obligation would not constitute an “offer and sale of asset-backed securities by an issuing entity” within the meaning of Regulation RR. 

Speeches and Statements

Piwowar Discusses Challenges in Corporate and Municipal Bond Markets

In remarks at the Financial Industry Regulatory Authority’s (“FINRA”) 2016 Fixed Income Conference on September 7th, SEC Commissioner Michael S. Piwowar discussed recent regulatory efforts related to the fixed income market structure and other topics that warrant additional consideration, including pre-trade price transparency and changes to the reach of the Tower Amendment to permit the SEC to regulate certain issuers of municipal debt. Piwowar Remarks.

Other Developments

MIAX PEARL Applies to Register as National Securities Exchange

The SEC provided notice on September 8th of MIAX PEARL, LLC’s application seeking registration as a national securities exchange. According to the notice, MIAX PEARL would operate a fully automated electronic trading platform for the trading of listed options and would not maintain a physical trading floor. Comments should be submitted within 45 days of publication in the Federal Register. SEC Release No. 34-78793.

SEC Releases Revised Form ADV

On September 7th, the SEC published an amended version of FORM ADV that highlights many of the revisions to the form in connection with the SEC’s recently adopted amendments to disclosure requirements for investment advisers under the Investment Advisers Act. Revised Form ADV.

Staff Announcements

The SEC announced on September 7th that Sarah G. ten Siethoff will serve as the Deputy Associate Director in the Division of Investment Management’s Rulemaking Office. In her new role, ten Siethoff will develop rulemaking and policy initiative recommendations under the Investment Company and Investment Advisers Acts and oversee management of key rulemaking projects. SEC Press Release.

SEC Seeks Comments on Rulemaking Agenda That Will Impact Small Entities

On September 2nd, the SEC published for public comment an agenda of its rulemaking actions pursuant to the Regulatory Flexibility Act. The agenda identifies the rules that the SEC will consider in the next 12 months that are expected to have a substantial economic impact on a significant number of small entities. Comments should be submitted within 30 days of publication in the Federal Register. SEC Release No. 33-10203.

SEC Makes Fiscal Year 2017 Annual Adjustments to Registration Fee Rates

On August 31st, the SEC announced that in fiscal year 2017, the fees that public companies and other issuers pay to register their securities with the agency will be set at $115.90 per million dollars. Release Nos. 33-10200; 34-78726.

SEC Approves SIPC’s Proposed Bylaw Amendment Related to Fund Assessments

On August 30th, the SEC approved a proposed bylaw amendment filed by the Securities Investor Protection Corporation (“SIPC”) relating to assessments on SIPC member broker-dealers. The SEC found that the proposed bylaw amendment, which imposes an intermediary assessment rate that would apply when the SIPC Fund’s balance is expected to be $2.5 billion for at least six months but its unrestricted net assets are less than $2.5 billion, is in the public interest and consistent with the purposes of the Securities Investor Protection Act. The SEC also approved the proposed amendment with respect to when a change in assessments becomes effective. SEC Release No. SIPA-178.

SEC Announces Second-Largest Whistleblower Award

On August 30th, the SEC announced an award of over $22 million to a whistleblower whose detailed tip and extensive assistance helped the agency stop a well-hidden fraud at the company where the whistleblower was an employee. This is the second-largest award that the SEC has given a whistleblower.

Commodity Futures Trading Commission

No-Action Letters

CFTC Issues No-Action Letter to Swap Dealers to Extend Collateral Rule Deadline due to Limitations with Custodial Accounts

On September 1st, the CFTC’s Division of Swap Dealer and Intermediary Oversight announced that it has issued a time-limited, no-action letter stating that it will not recommend an enforcement action against a swap dealer subject to the September 1, 2016 compliance date for the CFTC’s uncleared swap margin rules, subject to certain conditions, for failing to fully comply with the custodial arrangement requirements of CFTC regulation 23.157 prior to October 3, 2016. Chairman Massad Statement.

Requests for Comment

CFTC Seeks Public Comment on Proposed Whistleblower Rule Amendments

On September 1st, the CFTC announced its request for comment on proposed amendments to the Whistleblower Rules found in Part 165 of the agency’s Regulations. The amendments would enhance the process for reviewing whistleblower claims and make related changes to clarify staff authority to administer the whistleblower program. The proposal would also strengthen the CFTC’s anti-retaliation authority to provide whistleblowers protection from retaliation through CFTC enforcement action under the Commodity Exchange Act. Comments must be submitted by September 29, 2016.

CFTC Extends Comment Period on Proposed Amendments to Regulation 4.22 Regarding CPO Annual Reports

On August 30th, the CFTC announced that it has extended the comment period on its proposed amendments to Regulation 4.22, which concerns the Annual Report that each commodity pool operator registered or required to be registered with the CFTC must distribute for each commodity pool that it operates. The comment period will now expire on September 20, 2016.

Other Developments

Final Rules Approved for System Safeguards Testing Requirements, Comparability Determination for Japan Uncleared Swap Margin Rules for Substituted Compliance

On September 8th, the U.S. Commodity Futures Trading Commission (“CFTC”) announced that it approved final rules for system safeguards testing requirements for designated contract markets, swap execution facilities, swap data repositories, and derivatives clearing organizations. The CFTC also approved a comparability determination that would allow substituted compliance with certain of Japan’s margin requirements for uncleared swaps as compared to the uncleared swap margin provisions of Title VII of Dodd-Frank and CFTC regulations.

CFTC Signs MOU with Mexican Authorities to Enhance Supervision of Cross-Border Regulated Entities

On September 6th, the CFTC announced that CFTC Chairman Timothy Massad signed a Memorandum of Understanding (“MOU”) with the Comisión Nacional Bancaria y de Valores and the Banco de México regarding cooperation and the exchange of information in the supervision and oversight of certain regulated entities that operate on a cross-border basis in the U.S. and Mexico. The scope of the MOU includes central counterparties and trade repositories.

Federal Rules Effective Dates

September 2016 – November 2016

Click here to view table

Exchanges and Self-Regulatory Organizations

Depository Trust Company

Clearing Agencies Jointly Propose Clearing Agency Investment Policy

On September 7th, the SEC provided notice of a proposal filed by The Depository Trust Company (“DTC”), the Fixed Income Clearing Corporation (“FICC”), and the National Securities Clearing Corporation (“NSCC”) to adopt a Clearing Agency Investment Policy, which would govern the management, custody, and investment of funds of the clearing agencies. Comments should be submitted within 21 days of publication in the Federal Register, which is expected the week of September 12, 2016. SEC Release No. 34-78778.

Financial Industry Regulatory Authority

FINRA Notifies Members of Upcoming Election for Small Firm Advisory Board and District Committees

FINRA published two Election Notices on September 7th that inform members about upcoming elections for itsSmall Firm Advisory Board and for vacant positions on FINRA District Committees. All eligible candidates must submit candidate profiles and nomination forms to the Corporate Secretary of FINRA on or before October 7, 2016, if they wish to be included on the ballots.

SEC Approves FINRA’s Proposed Academic Corporate Bond TRACE Data Product

On September 2nd, the SEC issued an order approving FINRA’s proposal to amend its rules to create a new Academic Corporate Bond TRACE Data product for use by institutions of higher learning that would contain transaction-level data on historic transactions in corporate bonds and would include masked counterparty information. SEC Release No. 34-78759.

FINRA Requests Comment on Proposal Related to Inter-Dealer Quotation System for OTC Equity Securities

On August 31st, FINRA published a Regulatory Notice soliciting comment on a proposal to provide FINRA-sponsored inter-dealer quotation facility for all OTC equity securities. Comments must be submitted by November 29, 2016. FINRA Regulatory Notice 16-34.

Municipal Securities Rulemaking Board

MSRB Proposes Rule Amendments to Require Disclosure of Mark-Ups and Mark-Downs to Retail Customers and Guidance on Prevailing Market Price

On September 7th, the SEC requested comments on a proposed rule change filed by the Municipal Securities Rulemaking Board (“MSRB”) to amend MSRB Rules G-30 and G-15 to require brokers, dealers and municipal securities dealers to disclose mark-ups and mark-downs to retail customers on certain principal transactions and to provide guidance on prevailing market price for the purpose of calculating mark-ups and mark-downs and other Rule G-30 determinations. Comments should be submitted within 21 days of publication in the Federal Register, which is expected the week of September 12, 2016. SEC Release No. 34-78777.

International Swaps and Derivatives Association

ISDA Issues Memorandum on Enforceability and Other Legal Issues Involving Collateral in China

On September 7th, the International Swaps and Derivatives Association (“ISDA”) published the ISDA 2016 China Collateral Memorandum.  The memorandum contains information on the legal issues surrounding the exchange of collateral with a counterparty in China and examines the enforceability of collateral rights contained in ISDA credit support documentation under Chinese law. ISDA Press Release.

ISDA Announces Live Launch of ISDA SIMM for Calculating Initial Margin

On September 1st, ISDA announced that it had deployed the ISDA Standard Initial Margin Model, a methodology which is being adopted by many market participants to help them calculate initial margin for non-cleared derivatives trades. ISDA SIMM is part of an ISDA initiative to establish industry standards to reduce risk and increase efficiency for market participants. ISDA Press Release.

ISDA Updates OTC Derivatives Compliance Calendar

On September 1st, ISDA released a revised version of its OTC Derivatives Compliance Calendar.


NYSE Proposes Changes to SPACs’ Eligibility for Complimentary Products and Services

On September 7th, the SEC provided notice of the New York Stock Exchange LLC’s (“NYSE”) proposal to adjust the service entitlements of special purpose acquisition companies (“SPACs”) by excluding newly-listed SPACs from the definition of Eligible New Listings and providing complimentary products and services to an SPAC that remains listed after meeting the Business Combination Condition. Comments should be submitted within 21 days of publication in the Federal Register, which is expected the week of September 12, 2016. SEC Release No. 34-78782.

SEC Takes More Time to Consider NYSE MKT’s FLEX Options Proposal

On August 31st, the SEC designated October 19, 2016, as the date by which it will approve, disapprove, or institute disapproval proceedings regarding NYSE MKT LLC’s (“NYSE MKT”) proposal to amend certain rules related to Flexible Exchange (“FLEX”) Options. SEC Release No. 34-78744.

NYSE Arca Withdraws Proposed Changes to Clearing Member Requirements for Entering Orders into the EOC

On August 31st, the SEC provided notice that NYSE Arca, Inc. (“NYSE Arca”) withdrew its proposal to amend its rules to change the timing for recording the name of the Clearing Member in the Electronic Order Capture system (“EOC”).  SEC Release No. 34-78743.

Judicial Developments

Panel Overturns Dismissal of Suit Alleging That Employee Stock Plan Fiduciary Violated ERISA

Home healthcare employees sued the fiduciary for their stock ownership plan after the plan purchased shares in the company with a loan from the company itself and the shares turned out to be worth much less than the plan paid. This left the plan with no valuable assets and heavily indebted to the company’s principal shareholders. Also, the plan’s participants wound up being on the hook for interest payments on the loan. On August 25th, the Seventh Circuit reversed dismissal of the complaint, holding that plaintiffs plausibly alleged both a prohibited transaction and a breach of fiduciary duty under ERISA. GreatBanc

Industry News

Federal Reserve Asks Congress to Limit Wall Street Merchant Banking

In a joint statement on the types of banking activities that might pose risks to the financial system, the Federal Reserve, along with the FDIC and the OCC, recommended that Congress limit Wall Street’s ability to own physical commodities and engage in other aspects of merchant banking because of possible risks to the financial system. According to Reuters on September 8th, the Fed’s opposition to merchant banking, where banks take direct ownership shares in non-financial businesses, was a surprise. The Fed said that existing rules allowing commodity investments raise “safety and soundness concerns as well as competitive issues.”

NYSE to Apply Changes to Volatility Procedures Next Week

Reuters reported that the New York Stock Exchange will be implementing changes to its opening procedures on Monday, September 12th, as it looks to speed up trading and make it more efficient even on volatile days. The new procedures would remove “Rule 48,” which lets market makers delay opening a stock when markets are volatile.

Winston & Strawn Publications

Antitrust and Competition – The EU Weekly Briefing, Vol 4, Issue 34

The EU Weekly Briefing is designed to provide timely updates on recent European Union competition law by including a short description of, and links to, recent developments. Newsletter.

Antitrust and Competition – The EU Weekly Briefing, Vol 4, Issue 33

The EU Weekly Briefing is designed to provide timely updates on recent European Union competition law by including a short description of, and links to, recent developments. Newsletter.