While acknowledging the challenges in applying the securities laws to digital assets, the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA), in a joint statement on July 8, 2019, reaffirm that those rules equally apply to digital assets, and promise they will continue to engage the industry in finding solutions.
Read the full public statement HERE.
In a press release issued by the Securities and Exchange Commission on December 20, 2018, the SEC’s Office of Compliance Inspections and Examinations (OCIE) announced its 2019 Examination Priorities.
This year’s examination priorities, although not exhaustive, are divided into 6 categories:
Read the OCIE 2019 Examination Priorities in full HERE.
T+2 Settlement becomes mandatory for most broker-dealer transactions on September 5. While Rule 15c6-1(d) allows, in connection with firm commitment underwritings, the issuer and underwriters to agree to different settlement cycles, as noted in the SIFMA guidance, SIFMA expects equity offerings, including IPOs, to transition to T+2 settlement cycles. SIFMA expects debt offerings to continue with current market practice (i.e., either conform to T+2 or to continue with extended settlement cycles as with many high yield issuances). It may well be that offerings of convertible debt and other equity-linked securities retain, at least in the near term, adherence to the current T+3/T+4 cycle given the documentation process involved with shorter settlement cycles (i.e., typically, drafting of indentures does not start until the deal is launched or priced).
It is recommended that, at the beginning of any underwritten offering process, the parties should agree upon the settlement cycle to be used as that will, of course, affect documentation and process timing. SIFMA provides some guidance in that regard.
For general T+2 questions, the securities industry has set up a T+2 implementation website.
In a press release today, The U.S. Commodity Futures Trading Commission (the “Commission”) unanimously approved a final rule amending Regulation 1.31.
The Commission is amending the recordkeeping obligations set forth in Commission regulations along with corresponding technical changes to certain provisions regarding retention of oral communications and record retention requirements applicable to swap dealers and major swap participants, respectively. The amendments modernize and make technology neutral the form and manner in which regulatory records must be kept, as well as rationalize the rule text for ease of understanding for those persons required to keep records pursuant to the Commodity Exchange Act and regulations promulgated by the Commission thereunder. The amendments do not alter any existing requirements regarding the types of regulatory records to be inspected, produced, and maintained set forth in other Commission regulations.
The global compliance deadline for implementation of variation margin requirements for uncleared swap transactions is March 1, 2017. Unless an exception is available, the rules generally require swap dealers to collect and post variation margin with no credit threshold. The rules require the parties to enter into new or amended credit support documentation, limit the types of collateral that may be posted, prescribe minimum transfer amounts and effectively require new operational processes to be put in place. Moreover, different rules can apply depending on who the swap dealer’s regulator is and/or the jurisdiction of the counterparty. Not surprisingly, many market participants, particularly smaller financial firms, buy-side firms, asset managers, pension funds and insurance companies are unlikely to be compliant by the March 1 deadline. This has caused immense consternation among buy-side market participants who feared that they would be unable to trade until they came into compliance.
On February 23, 2017, following requests from numerous trade associations, U.S. banking regulators and IOSCO, the umbrella body for global securities regulators, issued statements encouraging leniency in enforcement of the documentation requirements. More specifically, the Federal Reserve provided guidance to examiners of CFTC-registered swap dealers that, except for transactions with financial end users that present “significant exposures” (which must still comply with the March 1 deadline), examiners should focus on swap dealer’s good faith efforts to comply as soon as possible but no later than September 1, 2017. Similarly, though less explicitly, IOSCO issued a statement that, while it expects all parties to make every effort to meet the March 1 deadline, it believes that the global regulators should take “appropriate measures … to ensure fair and orderly markets during the introduction and application of such variation margin requirements.” These statements follow the release by the CFTC on February 13, 2017 of a time-limited no-action letter delaying compliance by swap dealers under their jurisdiction until September 1, 2017.
There are a number of paths to compliance for buy-side firms, including negotiating bilateral agreements or amendments directly with swap dealers or using an industry-wide questionnaire-style protocol developed by ISDA and available through their ISDA Amend automated service run jointly with Markit.
If you have questions regarding the current deadlines or need assistance with compliance, please contact our derivatives partner, Daniel Budofsky (daniel.budofsky@pillsburylaw.com), or your regular Pillsbury contact.
The CFTC has approved a final rule that removes reporting and recordkeeping requirements for trade option counterparties that are neither swap dealers nor major swap participants (Non-SD/MSPs). The removal of the reporting requirements also applies to commercial end users transacting in trade options connected to their business.
Regarding the reporting requirement, the annual notice reporting requirement for otherwise unreported trade options under CFTC regulation 32.3(b) has been eliminated from Form TO. Additionally, the position limit requirements referenced in regulation 32.3(c) have been eliminated.
Regarding the recordkeeping requirement, the swap-related recordkeeping requirements for Non-SD/MSPs stemming from their trade option activities have been eliminated. However, Non-SD/MSPs that transact in trade options with swap dealers or major swap participants must obtain a legal entity identifier and provide it to their swap dealer or major swap participant counterparties.
Once the Trade Options Final Rule becomes effective, upon publication of the final rule in the Federal Register, CFTC No-Action Letter 13-08 which provides conditional relief for trade option counterparties that are Non-SD/MSPs from certain swap related recordkeeping and reporting requirements will be withdrawn.
The full CFTC release can be read here.
On January 11, the Office of Compliance Inspections and Examinations (OCIE) of the SEC announced its 2016 Examination Priorities (“Priorities”). To promote compliance, prevent fraud and identify market risk, OCIE examines investment advisers, investment companies, broker-dealers, municipal advisors, transfer agents, clearing agencies, and other regulated entities. In 2016, OCIE will continue to rely on the SEC’s sophisticated data analytics tools to identify potential illegal activity.
This year, private fund advisers should pay attention to the following OCIE Priorities:
Highlights for other market participants:
Broker-Dealers
:
For additional details, visit the SEC’s Examination Priorities for 2016. Please call an Investment Funds and Investment Management Attorney to discuss your firm’s risk areas.
On November 18, 2015, the staff from the U.S. Commodity Futures Trading Commission’s (“CFTC”) Division of Swap Dealer and Intermediary Oversight issued a swap dealer de minimis exception preliminary report (“Preliminary Report”).
The Preliminary Report was issued pursuant to the SEC and CFTC joint regulation defining the term “swap dealer” and providing for a de minimis exception to the swap dealer definition. Under the regulation, a person shall not be deemed to be a swap dealer unless its swap dealing activity exceeds an aggregate gross notional amount threshold of $3 billion (measured over the prior 12-month period), subject to a phase-in period during which the gross notional amount threshold is set at $8 billion. Under the terms of the regulation, the phase-in period will terminate on December 31, 2017, and the de minimis threshold will fall to $3 billion, unless the CFTC sets a different termination date for the phase-in period or modifies the de minimis exception.
The Preliminary Report discusses:
Comments on the Preliminary Report must be submitted on or before January 19, 2016 and may be submitted electronically via the CFTC’s Comment Online Process. The staff will complete and publish for public comment a final report after considering the comments it receives on the Preliminary Report.
The SEC’s final crowdfunding rules, which are largely consistent with the proposed rules, provide broader access to capital for startups and small businesses, though concerns over cumbersome disclosure and regulatory requirements persist.
On October 30, 2015, the Securities and Exchange Commission (SEC) voted to adopt final rules implementing Title III of the Jumpstart Our Business Startups Act (JOBS Act), known as “crowdfunding”. The final rules, to be codified as “Regulation Crowdfunding” in furtherance of Section 4(a)(6) of the Securities Act of 1933, are expected to become effective in May 2016. A copy of the final rules can be found here.
Regulation Crowdfunding will allow smaller, non-public U.S. companies to raise up to $1 million in any 12-month period by selling securities over the Internet (including through apps and other technologies) to individual investors who are not required to meet any sophistication or wealth standards, but will be subject to relatively small investment limits.
Read this article and additional publications at pillsburylaw.com/publications-and-presentations. You can also download a copy of the Client Alert.
On October 30, 2015, the Securities and Exchange Commission (SEC) adopted Regulation Crowdfunding. The final rule permits companies to offer and sell securities through crowdfunding. The “Regulation Crowdfunding Exemption” is created under Section 4(a)(6), Title III of the JOBS Act.
The key features of the final rules
In addition, the SEC is proposing to amend the existing Securities Act Rule 147 and Rule 504. Rule 147 would be amended to, among other things, permit companies to raise money from investors within their state (intrastate offering) without registering the offers and sales with the SEC. Rule 504 would be amended to increase the aggregate amount of securities that may be offered and sold in any 12-month period from $1 million to $5 million. Bad actor disqualification would also apply in Rule 504 offerings.
A full copy of the final rules is available HERE.
Investment Fund Law Blog