SEC Proposes New Rules for Security-Based Swap Information Reporting

On February 11, the SEC issued proposed new rules and rule amendments to Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information.  New rules would require platforms to report to a registered security-based swap data repository (“registered SDR”) a security-based swap executed on such platform, would require a registered clearing agency to report to a registered SDR any security-based swap to which it is a counterparty, and certain other changes. Comments must be received within 45 days after the proposal is published in the Federal Register.  Proposed Rule.

 

SEC Proposes Rules for Disclosure of Hedging Policies

On February 9, the SEC issued proposed rules that are intended to enhance disclosure of company hedging policies for directors and employees, as mandated by Dodd-Frank. The proposal would require disclosure about whether directors, officers and other employees are permitted to hedge or offset any decrease in the market value of equity securities held, directly or indirectly, by employees or directors. The proposed rules would require disclosure in proxy and information statements for the election of directors and apply to companies subject to the federal proxy rules, including smaller reporting companies, emerging growth companies, business development companies, and registered closed-end investment companies with shares listed and registered on a national securities exchange.  ReleaseProposed Rule.

The SEC’s Office of Compliance Inspections and Examinations (OCIE) Publishes Risk Alert On Addressing Cybersecurity Issues for Broker-Dealers and Investment Advisers

On February 3, the SEC’s Office of Compliance Inspections and Examinations (OCIE) published a Risk Alert that contains observations based on examinations of more than 100 broker-dealers and investment advisers.  The examinations focused on how these firms:

  • Identify cybersecurity risks
  • Establish cybersecurity policies, procedures, and oversight processes
  • Protect their networks and information
  • Identify and address risks associated with remote access to client information, funds transfer requests, and third-party vendors
  • Detect unauthorized activity

A second publication, an Investor Bulletin issued by the SEC’s Office of Investor Education and Advocacy (OIEA), provides core tips to help investors safeguard their online investment accounts, including:

  • Pick a “strong” password
  • Use two-step verification
  • Exercise caution when using public networks and wireless connections

Risk AlertInvestor BulletinPress Release.

SEC Publishes Technical Corrections to Regulation AB II

On February 4, the SEC released certain technical corrections to rules that were published in the Federal Register on September 24, 2014. The changes effect Regulation AB and other rules governing the offering process, disclosure, and reporting for asset-backed securities. The corrections are effective February 6, 2015Release.

SEC Extends Expiration Dates to Interim Final Rules Providing Exemptions for Certain Security-Based Swaps

On February 5, the SEC adopted amendments to the expiration dates in its interim final rules that provide exemptions under the securities laws for certain security-based swaps. Under the amendments, the expiration dates in the interim final rules will be extended to February 11, 2017Release.

SEC Suspends S&P From Rating Certain CMBS As Part Of $77 Million Settlement

On January 21, 2015, the SEC suspended Standard & Poor’s Rating Services (S&P) from rating conduit/fusion CMBS for one year as part of a settlement between McGraw-Hill Financial Inc., S&P’s parent company, and the SEC.  The settlement stems from S&P’s disclosures in 2011 that it would utilize a certain methodology to rate six CMBS transactions and provide a preliminary rating for two others, when it actually used a different methodology, forcing S&P to pull a rating on a $1.5 billion bond that same year.  In addition, S&P agreed to retract an allegedly untrue and misleading article that it published in 2012 and settled another claim that it failed to maintain and enforce internal controls regarding changes to its monitoring standards for certain RMBS.  S&P further agreed to parallel settlements with New York Attorney General Eric Schneiderman and Massachusetts Attorney General Maura Healey.  The rating agency has also agreed to pay more than $77 million to settle these claims with the federal and state regulators ($58 million to the SEC and another $19 million to New York and Massachusetts).  SEC Settlement Order 1SEC Settlement Order 2SEC Settlement Order 3.

Fee Rate Advisory #3 for Fiscal Year 2015

On January 15, the SEC announced that starting on Feb. 14, 2015, the fee rates applicable to most securities transactions will be set at $18.40 per million dollars.  Each SRO will continue to pay the Commission a rate of $22.10 per million for transactions occurring on charge dates through Feb. 13, 2015, and a rate of $18.40 per million for transactions occurring on charge dates on or after Feb. 14, 2015.  ReleaseOrder.

Priorities Focus on Protecting Retail Investors, Assessing Market-Wide Risks and Using Data Analytics

On January 13, the Securities and Exchange Commission announced its Office of Compliance Inspections and Examinations’ (OCIE) priorities for 2015 which focus on three areas: protecting retail investors, especially those saving for or in retirement; assessing market-wide risks; and using data analytics to identify signs of potential illegal activity.

The 2015 examination priorities address issues across a variety of financial institutions, including investment advisers, investment companies, broker-dealers, transfer agents, clearing agencies, and national securities exchanges. Of particular interest are the following areas of examination:

Retail Investors – Retail investors are being offered products and services that were formerly characterized as alternative or institutional, including private funds, illiquid investments, and structured products. Additionally, financial services firms are offering a broad array of information, advice, products, and services to help retail investors plan for and live in retirement.

Market-Wide Risks – OCIE will examine for structural risks and trends that involve multiple firms or entire industries, including: monitoring large broker-dealers and asset managers in coordination with the SEC’s policy divisions, conducting annual examinations of clearing agencies as required by the Dodd-Frank Act, assessing cybersecurity controls across a range of industry participants, and examining broker-dealers’ compliance with best execution duties in routing equity order flow.

Data Analytics – OCIE will use its enhanced analytic capabilities to focus on registrants and registered representatives that appear to be potentially engaged in illegal activity.  Press ReleaseFull Report.

SEC Adopts New Rules for Security-Based Swap Market

On January 14, the SEC adopted new rules that will require security-based swap data repositories (SDRs) to register with the SEC and prescribe reporting and public dissemination requirements for security-based swap transaction data. The SEC also proposed certain additional rules, rule amendments and guidance related to the reporting and public dissemination of security-based swap transaction data.  The rules implement  Title VII of the Dodd-Frank Act. The new rules will become effective 60 days after they are published in the Federal Register.  Release.

SEC Proposes Amendments to Implement JOBS Act Mandate for Exchange Act Registration Requirements

As mandated by the Jumpstart Our Business Startups Act (JOBS Act), on December 17 the Securities and Exchange Commission approved the issuance of proposed amendments to revise the rules related to the thresholds for registration, termination of registration, and suspension of reporting under Section 12(g) of the Securities Exchange Act of 1934.

Among other things, the proposal would:

  • Amend Exchange Act Rules 12g-1 through 4 and 12h-3 which govern the procedures relating to registration, termination of registration under Section 12(g), and suspension of reporting obligations under Section 15(d) to reflect the new thresholds established by the JOBS Act
  • Apply the definition of “accredited investor” in Rule 501(a) under the Securities Act of 1933 to determinations as to which record holders are accredited investors for purposes of Exchange Act Section 12(g)(1).  The accredited investor determination would be made as of the last day of the fiscal year.

The JOBS Act revised Exchange Act Section 12(g) to raise the threshold at which an issuer is required to register a class of equity securities.  Under the revised threshold, an issuer that is not a bank or bank holding company is required to register a class of equity securities under the Exchange Act if it has more than $10 million of total assets and the securities are “held of record” by either 2,000 persons, or 500 persons who are not accredited investors

The SEC will seek public comment on the proposed rule amendments for 60 days following their publication in the Federal Register.