SEC

SEC Approves Interim Final Rules Implementing Two Provisions of the FAST Act

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On January 13, the Securities and Exchange Commission announced that it approved interim final rules implementing two provisions of the Fixing America’s Surface Transportation (FAST) Act, adopted by Congress in December, that revise financial reporting forms for emerging growth companies and smaller reporting companies.

The Congressionally mandated rules revise Forms S-1 and F-1 to provide that as long as emerging growth companies’ registration statements include all required financial information at the time of the offering, they will be allowed to omit certain historical period financial information prior to the offering.  In addition, the rules revise Form S-1 to allow smaller reporting companies to use incorporation by reference for future filings the companies make under the federal securities laws after the registration statement becomes effective.

The interim final rules also include a request for comment on whether the rules should be expanded to include other registrants or forms.

The rules will become effective when published in the Federal Register and the public comment period will remain open for 30 days following their publication.

SEC Announces 2016 Examination Priorities

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On January 11, the SEC announced its Office of Compliance Inspections and Examinations’ (OCIE) 2016 priorities.  New areas of focus include liquidity controls, public pension advisers, product promotion, and two popular investment products – exchange-traded funds and variable annuities.  The priorities also reflect a continuing focus on protecting investors in ongoing risk areas such as cybersecurity, microcap fraud, fee selection, and reverse churning.

The 2016 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.  Areas of examination include:

  • Retail Investors –  OCIE will continue several 2015 initiatives to assess risks to retail investors seeking information, advice, products, and services to help them plan for and live in retirement. It also will undertake examinations to review exchange-traded funds (ETFs) and ETF trading practices, variable annuity recommendations and disclosure, and potential conflicts and risks involving advisers to public pension funds.
  • Market-Wide Risks –  OCIE will continue its focus on cybersecurity controls at broker-dealers and investment advisers.  New initiatives for 2016 include an evaluation of broker-dealers’ and investment advisers’ liquidity risk management practices, and firms’ compliance with the SEC’s Regulation SCI, designed to strengthen the technology infrastructure of the U.S. securities markets.
  • Data Analytics – OCIE’s enhanced ability to analyze large amounts of data will assist examiners’ ongoing initiatives to assess anti-money laundering compliance, detect microcap fraud, and review for excessive trading.  Data analytics also will help examinations focused on promotion of new, complex, and high-risk products.

The published priorities for 2016 are not exhaustive and may be adjusted in light of market conditions, industry developments and ongoing risk assessment activities.

SEC Reopens Comment Period for Proposed Amendments to Rule 13n-4 under the Securities Exchange Act of 1934

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On January 15, the Securities and Exchange Commission reopened the comment period for proposed amendments to rule 13n-4 through a release entitled “Access to Data Obtained by Security-Based Swap Data Repositories and Exemption from Indemnification Requirement[.]”  The SEC reopened the comment period due to the recent passing of the Surface Transportation Reauthorization and Reform Act of 2015, which contained provisions that affected the language in the prior proposal.  Release.

SEC Adopts Rule for Pay Ratio Disclosure

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On August 5, the SEC adopted a final rule that requires a public company to disclose the ratio of the compensation of its CEO to the median compensation of its employees. The new rule was mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act and provides companies with flexibility in calculating this pay ratio.  Release.  Final Rule.

SEC Adopts Registration Rules for Security-Based Swap Dealers and Major Security-Based Swap Participants

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On August 5, the SEC proposed new rules to provide a comprehensive, efficient process for security-based swap dealers and major security-based swap participants to register with the SEC.  The new rules address all aspects of the registration regime for security-based swap dealers and major security-based swap participants, setting forth the extensive set of information required to be provided and kept up to date by a registrant.  Comments must be received on or before 60 days after publication in the Federal Register.  Release.  Proposed Rule.

Summary of Crescent No-Action Letter

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On July 17, 2015, the SEC published a no-action letter addressing the effect on the sponsor’s credit risk retention requirement of the refinancing of one or more tranches of existing CLO debt, an issue which has been of considerable interest to the CLO sector as it directly affects the utility of the refinancing option in transactions done before the adoption of the credit risk retention rules.  In response to a request submitted by Crescent Capital Group LP, the SEC indicated that under the terms and conditions described in the request, such a refinancing of collateralized loan obligations priced prior to the December 24, 2014 publication of the final credit risk retention rules would not trigger the application of the credit risk retention requirement to the CLO.  In order to be entitled to such treatment, among other things, (i) the refinancing must be completed within four years of the original closing date, (ii) the interest rate of the refinancing notes must be lower than the rate of the refinanced notes, (iii) other than the reduction in rates, the capital structure must remain unchanged and the principal amount, priority of payment, voting and consent rights and stated maturity of the refinancing notes must be the same as the refinanced notes, (iv) the investment criteria applicable to the CLO must remain unchanged, (v) the proceeds from the refinancing must be applied to repay the refinanced notes (and not applied as a means to acquire other assets), (vi) no additional subordinate interests may be issued in connection with the refinancing nor may the identities of the subordinated interest holders be changed as a result of the refinancing and (vii) while refinancing of different classes of notes may occur on different dates, each class may be refinanced only once.  In addition, the offering document for the refinancing notes must prominently state, among other things, that the sponsor is not retaining a risk retention interest in connection with the refinancing.  The no-action request and the SEC’s response are available through this link.

Responses to Frequently Asked Questions Regarding the Commission’s Rule under Section 13 of the Bank Holding Company Act (the “Volcker Rule”)

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The Staff of the SEC Division of Trading and Markets, Investment Management, and Corporate Finance provided updated guidance on June 12, 2015 in response to frequently asked questions (“FAQs”) regarding the SEC’s final rule implementing section 13 of the Bank Holding Company Act of 1956, commonly referred to as the “Volcker Rule.”  The responses to these FAQ’s address a broad range of issues arising under the restrictions imposed by the Volcker Rule on banking entities proprietary trading activities and the ownership, sponsorship and management of “covered funds.”  FAQ Responses.

SEC and FINRA to Hold National Compliance Outreach Program for Broker-Dealers

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On May 12, the SEC and FINRA announced the opening of registration for their 2015 National Compliance Outreach Program for Broker-Dealers.  The program is intended to provide an open forum for regulators and industry professionals to discuss compliance practices and exchange ideas on compliance structures.  Release.

SEC Adopts Updated EDGAR Filer Manual

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On April 13, the SEC adopted revisions to EDGAR Filer Manual and related rules to reflect updates to the EDGAR system. The updates are being made primarily to support the 2015 US GAAP financial reporting and 2015 EXCH taxonomies; add new form types for registration of Security-based swap data repositories (SDR); revise the Form ID Application Confirmation screen; remove references to the Paper Form ID; and revise Item 1 on submission form type MA-A.  Final Rule.

SEC Proposes Rule to Require Broker-Dealers Active in Off-Exchange Market to Become Members of National Securities Association

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On March 25, the SEC proposed to narrow Rule 15b9-1 under the Securities Exchange Act, which exempts certain brokers or dealers from membership in a registered national securities association, in an effort to enhance regulatory oversight of active proprietary trading firms, such as high frequency traders.  Release.  Proposed Rule.