SEC Announces Order for Tick Size Pilot Plan to Assess Impact on Market Quality for Small Cap Companies

On June 25, the SEC announced that it has ordered the national securities exchanges and the Financial Industry Regulatory Authority (FINRA) to act jointly to develop and file with the Commission a national market system plan to implement a targeted 12 month pilot program that will widen minimum quoting and trading increments (tick sizes) for certain small capitalization stocks.  The Commission plans to use the program to assess whether these changes would enhance market quality to the benefit of U.S. investors, issuers and other market participants.  Press Release.

SEC Updates FAQs Regarding the Municipal Advisor Registration Rules

On May 19, the SEC updated its Frequently Asked Questions Regarding the Municipal Advisor Registration Rules to clarify when the proceeds of pension obligations bonds should be treated as “proceeds of municipal securities.”  In the staff’s view, proceeds of pension obligation bonds lose their character as proceeds of municipal securities under the Final Rules upon their contribution to the public pension plan when they are commingled with other pension funds for collective investment and are treated as “spent” to carry our their authorized purposes to fund the public pension plan under applicable state law.  FAQs.  

CFTC Implements Standard Approach for CPO Delegated Investment Management Authority

On May 12, the Division of Swap Dealer and Intermediary Oversight of the CFTC announced the implementation of a standardized, streamlined approach for processing requests for relief where a CPO that has delegated investment management authority as a CPO of a commodity pool to another person who is registered as a CPO, and the delegating CPO does not engage in the solicitation of participants for, or the management of property of, the applicable commodity pool.  Staff Letter

FINRA Issues Proposed Rule Set for Limited Corporate Financing Brokers

FINRA issued for comment a Proposed Rule Set for Limited Corporate Financing Brokers (LCFBs).  The proposed rule set would provide a lighter regulatory regime for LCFBs, defined as any broker that solely engages in one or more of the following activities:

    • advising an issuer, including a private fund, concerning its securities offerings or other capital raising activities;
    • advising a company regarding its purchase or sale of a business or assets or regarding its corporate restructuring, including a going-private transaction, divestiture or merger;
    • advising a company regarding its selection of an investment banker;
    • assisting in the preparation of offering materials on behalf of an issuer;
    • providing fairness opinions; and
    • qualifying, identifying or soliciting potential institutional investors.

The rule set would not apply to firms that carry or maintain customer accounts, handle customers’ funds or securities, accept customers’ trading orders or engage in proprietary trading or market-making.  The proposed rule set also is limited in that, among other things, it would not eliminate all exam requirements for principals and representatives that are associated with an LCFB and would not eliminate the net capital requirements. The comment period expires on April 28.  Regulatory Notice.

No-Action Letter Provides Relief to M&A Brokers

On January 31, in a significant no-action letter (Letter), the Staff of the Division of Trading and Markets provided assurances that it would not recommend enforcement action to the Commission under Section 15(a) of the Securities Exchange Act of 1934 if an “M&A Broker” (as defined in the Letter) were to engage in enumerated activities in connection with the purchase or sale of a privately-held company without registering as a broker-dealer pursuant to Section 15(b) of the Exchange Act.

The Letter is the culmination of years of effort (both political and regulatory) and provides significant relief to a broad range of activities heretofore restricted to registered broker-dealers.  Letter.

No-Action Letter Provides Guidance Regarding “Knowledgeable Employees” of Private Fund Advisers

On February 6, the staff of the SEC’s Division of Investment Management issued a no-action letter with respect to Rule 3c-5 of the Investment Company Act of 1940 (the Company Act) that represents a substantial improvement over the existing guidance regarding the definition of “knowledgeable employees” thereunder, i.e., persons who are not required to be “qualified purchasers” under Section 3(c)(7) of the Company Act, or to be counted for purposes of the 100 beneficial owner limit under Section 3(c)(1) of the Company Act.  Response.

FTC Announces Revised Thresholds for Clayton Act Antitrust Reviews for 2014

On January 17, the Federal Trade Commission revised the thresholds that determine whether companies are required to notify federal antitrust authorities about a transaction under Section 7A of the Clayton Act, the Hart-Scott-Rodino (HSR) Antitrust Improvements Act.  The FTC is required to revise various thresholds set forth in the HSR Act annually, based on the change in gross national product.  For instance, for 2014, the size of transaction threshold for reporting proposed mergers and acquisitions subject to enforcement under Section 7A of the Clayton Act will increase from $70.9 million to $75.9 million. A full listing of current thresholds can be found on the FTC’s website, which will be updated once the revised thresholds are published in the Federal Register.

The revised thresholds under Section 7A will apply to all transactions that close on or after the effective date of the notice, which is 30 days after its publication in the Federal Register.  Full Listing of Current Thresholds.

SEC Issues Interpretive Guidance on New Municipal Advisors Registration Rule

On January 10, the SEC announced that its Office of Municipal Securities has issued interpretive guidance to address questions from market participants regarding the implementation of new final SEC rules requiring municipal advisors to register with the SEC.

State and local governments frequently use paid advisors to help them decide how and when to issue municipal securities and how to invest proceeds from the sales.  The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act required these advisors to register with the SEC like other market intermediaries.  The SEC’s final rule was adopted in September 2013 and becomes effective on January 13, 2014.  Among the issues addressed in the guidance are:  (i) the advice standard, including the general information exclusion and the treatment of business promotional materials used by underwriters; (ii) the exemption for independent municipal advisors; (iii) the exclusion for registered investment advisers; (iv) the underwriter exclusion, including engagements as underwriters; and (v) the effective date of the final rules and the compliance period for using the final registration forms.  Interpretative Guidance.