SEC

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

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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 Release.  Full Report.

SEC Adopts New Rules for Security-Based Swap Market

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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

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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.

SEC Extends Expiration of Rule 206(3)-3T, Regarding Principal Trades, to December 31, 2016

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On December 17, the Securities and Exchange Commission amended Rule 206(3)-3T under the Investment Advisers Act of 1940 to extend the expiration date of the Rule from December 31, 2014 to December 31, 2016.  Rule 206(3)-3T is a temporary rule that establishes an alternative means for investment advisers that are registered with the Commission as broker-dealers to meet the requirements of Section 206(3) of the Advisers Act when they act in a principal capacity in transactions with certain of their advisory clients.  Report.

SEC Issues Revisions to Regulation AB Telephone Interpretations

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On December 9, the SEC issued Compliance and Disclosure Interpretations (“C&DIs”) that comprise the SEC’s interpretations of the rules adopted under Regulation AB II and the Securities Act and the Exchange Act.  The new C&DIs replace the interpretations published in the Regulation AB Manual of Publicly Available Telephone Interpretations. C&DIs update previously-issued telephone interpretations to reflect the final Regulation AB II.  Release.

SEC Adopts Rules to Improve Systems Compliance and Integrity Rules to Strengthen Technology Infrastructure of Securities Markets

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On November 19, the Securities and Exchange Commission voted to adopt new rules designed to strengthen the technology infrastructure of the U.S. securities markets. The rules – together comprising Regulation Systems Compliance and Integrity (Regulation SCI) – impose requirements on certain key market participants intended to reduce the occurrence of systems issues and improve resiliency when systems problems do occur.  Release.  Rule.  SEC Staff Guidance.

SEC Releases Accounting Bulletin to Update Guidance on Pushdown Accounting

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On November 18, the SEC released a Staff Accounting Bulletin (SAB) to rescind portions of the interpretive guidance included in its SAB Series for what is known as pushdown accounting. The new bulletin brings existing guidance into conformity with Accounting Standards Update No. 2014-17 – Business Combinations (Topic 805).  Release.  Bulletin.

SEC’s Office of Investor Education and Advocacy Provides an Overview of How the Division of Enforcement Conducts Investigations

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On October 22, SEC’s Office of Investor Education and Advocacy issued an Investor Bulletin to provide investors with a general overview of how the SEC’s Division of Enforcement conducts investigations.  The Bulletin states that the Division of Enforcement may be more likely to initiate an investigation if the matter:

  • Requires immediate action to protect investors;
  • Relates to conduct that may threaten the fairness or liquidity of the securities markets;
  • Involves individuals with a history of misconduct;
  • Involves a subject matter the SEC or Enforcement has designated as a priority;
  • Fulfills a programmatic goal of the SEC and Enforcement; or
  • Concerns an industry practice that may be widespread and should be addressed.  Bulletin.

MSRB Creates Supervision and Compliance Requirements for Municipal Advisors

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On October 23, the Municipal Securities Rulemaking Board received approval from the SEC to create the first new rule for municipal advisors since the SEC released its final registration rule for these professionals in September 2013.

The new supervision requirements take effect April 23, 2015, providing firms six months to implement the required policies and procedures. By April 23, 2016, the chief executive officers (or the equivalent) of municipal advisor firms must make the first of their annual certifications in writing that the municipal advisor has in place processes to establish, maintain, review, test and modify written compliance procedures and written supervisory procedures reasonably designed to achieve compliance with applicable rules.  MSRB Rule.