Articles Tagged with Rules Regulations

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Written by Jay Gould

On October 26, 2011, the SEC adopted a new rule requiring SEC-registered advisers to hedge funds and other private funds with at least $150 million in private fund assets under management to report information to the Financial Stability Oversight Council (“FSOC”) to enable it to monitor risk to the U.S. financial system.  The information which must be reported to the FSOC on Form PF will remain confidential, and not accessible to the general public.

These private fund advisers are divided into (1) large private fund advisers and (2) smaller private fund advisers.  Large private fund advisers are advisers with at least $1.5 billion in hedge fund, $1 billion in liquidity fund, and $2 billion in private equity fund assets under management.  All other advisers are regarded as smaller private fund advisers.  The SEC anticipates that most advisers will be smaller private fund advisers, but that the large private fund advisers represent a significant portion of private fund assets. 

Smaller private fund advisers must file Form PF once a year within 120 days of the end of the fiscal year, and report only basic information about their hedge funds, private equity funds and/or other private funds, such as information regarding size, leverage, investor types and concentration, liquidity, fund performance, fund strategy, counterparty credit risk and the use of trading and clearing mechanisms.

Large private fund advisers must provide more detailed information than smaller advisers.  The focus and frequency of the reporting depends on the type of private fund the adviser manages.

  • Large advisers to hedge funds must report on Form PF within 60 days of the end of each fiscal quarter, on an aggregated basis, information regarding exposures by asset class, geographical concentration and turnover.  If a hedge fund has a net asset value of at least $500 million, the adviser must report information regarding the fund’s exposures, leverage, risk profile, and liquidity.
  • Large advisers to liquidity funds must report on Form PF within 15 days of the end of each fiscal quarter, the types of assets in their liquidity funds, information relevant to the risks of the funds, and the extent to which the liquidity funds comply with Rule 2a-7 of the Investment Company Act of 1940, as amended.
  • Large advisers to private equity funds must file Form PF annually within 120 days of the end of the fiscal year and respond to questions regarding the extent of leverage incurred by their funds’ portfolio companies, the use of bridge financing and their funds’ investments in financial institutions.

Two-stage phase-in compliance with Form PF filing requirements:

  1. Advisers with at least $5 billion in hedge fund, liquidity fund, and private equity fund assets under management must begin filing Form PF following the end of their first fiscal year or fiscal quarter, as applicable, to end on or after June 15, 2012.
  2. Other private fund advisers must begin filing Form PF following the end of their first fiscal year or fiscal quarter, as applicable, to end on or after December 15, 2012.

Form PF Filing Fees:  $150 for initial, quarter or annual filing.

A full text of the SEC release is available here. 

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Written by Michael Ouimette

On October 11, 2011, the Federal Financial Regulators published for public comment a jointly proposed regulation implementing the so-called “Volcker Rule” requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Volcker Rule generally contains two prohibitions, both of which are subject to certain exemptions. First, it generally prohibits insured depository institutions, bank holding companies, and their subsidiaries or affiliates (“Banking Entities”) from engaging in short-term proprietary trading of any security, derivative, and certain other financial instruments for their own accounts. Second, it generally prohibits Banking Entities from owning, sponsoring, or having certain relationships with, a hedge fund or private equity fund.

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A MANAGERS-ONLY EVENT

RSVP NOW ! 

Thursday, October 27, 2011
3:30 – 4:00pm Registration
4:00 – 5:30pm Presentation
5:30 – 6:30pm Reception

Pillsbury’s San Francisco office
50 Fremont Street
San Francisco, CA 94105

How can hedge fund managers that seek more efficient methods for raising capital avail themselves of the public markets?

Now, many private fund managers are finding that a registered fund product can address the needs of certain investors, and with turnkey solutions available, the complexity that has traditionally been associated with registered funds may no longer be a deterrent.

Please join the California Hedge Fund Association, Pillsbury, and JD Clark & Company for a panel discussion on solutions for registered funds. All the questions you have regarding how to organize and operate a registered fund will be addressed at this Managers-Only Event, including:

  • What is the process for registering an alternative investment product?
  • What are the tax, regulatory and operational issues for a registered fund?
  • Interval funds, closed-end funds and open-end funds—why choose one over the other?
  • Who are the investors I will reach with a registered fund?
  • Can I run both hedge funds and registered funds at the same time?
  • How do I minimize regulatory scrutiny and outsource the back office?

SPEAKERS

Tony Fischer, UMB Fund Services
Paul Kangail, Ernst & Young
Vic Fontana, Registered Fund Solutions
Rachel Minard, Minard Capital
Jay Gould, Pillsbury Winthrop Shaw Pittman LLP

 

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Written by Jay B. Gould and Michael Wu

On October 9, 2011 Governor Brown signed into law Senate Bill 398 which is intended to clarify the current law regarding placement agents and lobbyist requirements.

In 2009, AB 1584 was enacted.  AB 1584 imposed disclosure requirements for investment placement agents associated with public pension funds in California.  It required public employee pension funds to adopt a disclosure policy requiring the disclosure of fees paid to investment placement agents and contributions and gifts made by placement agents to board and staff members.

In 2010, AB 1743 was passed.  That bill subjected investment managers and placement agents to lobbyist registration.  It also defined “placement agents” and revised the definition of “lobbyist” to include a placement agent.  A placement agent includes employees of an external manager unless the employee spends more than 1/3 of his time managing assets for the external manager.  AB 1743 also exempts from lobbyist registration requirements those advisers and broker-dealers who are registered with the SEC, obtained the business through competitive bidding process, and agreed to the California fiduciary standard imposed on public employee pension fund trustees.

The newly enacted and immediately effective SB 398 changes the current law to this extent:

1.  It revises the definition of “external manager” to mean a person or an investment vehicle managing a portfolio of securities or other assets, or a person managing an investment fund offering an ownership interest in the investment fund to a board or an investment vehicle.

2.  It revises the definition of “placement agent” to include an investment fund managed by an external manager offering investment management services of the external manager and an ownership interest in an investment fund managed by the external manager.

3.  It defines “investment fund” and includes private equity fund, public equity fund, venture capital fund, hedge fund, fixed income fund, real estate fund, infrastructure fund, or similar pooled investment entity.  It excludes an investment company that is registered with the SEC pursuant to the Investment Company Act of 1940 and that makes a public offering of its securities.

4.  It defines “investment vehicle” to mean a “corporation, partnership, limited partnership, limited liability company, association, or other entity, either domestic or foreign, managed by an external manager in which a board is the majority investor and that is organized in order to invest with, or retain the investment management services of, other external managers.”

5.  The exemptions from lobbyist registration for managers of local retirement system funds are extended to include the three exemptions similarly available to managers of state retirement system funds.

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Written by Michael Wu

On September 29, 2011, the SEC’s examination staff issued a Risk Alert warning of significant concerns regarding trading through sub-accounts, and offered suggestions to help securities industry firms address these risks.  In the alert, the staff identified certain risks associated with the master/sub-account trading model such as: i) money laundering, ii) insider trading, iii) market manipulation, iv) account intrusions, v) information security, vi) unregistered broker-dealer activity, and (vii) excessive leverage.  The alert is the first in a continuing series of Risk Alerts that the staff expects to issue.

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Written by Michael Wu

The SEC is recommending filing fees related to the new report filing on Form ADV for exempt reporting advisers and Form PF filing for private fund advisers.  The filing fee for exempt reporting advisers is expected to be $150 for each initial and annual report on Form ADV.  The filing fee for private fund advisers’ Form PF filing is expected to be $150 for each quarterly and annual filing.  Both Form ADV report and Form PF filings will be submitted through FINRA’s Investment Adviser Registration Depository system (IARD).

A full text of the SEC notice is available here.

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Written by Michael Wu

Market regulators in France, Italy, Spain and Belgium, in coordination with the European Securities and Markets Authority (ESMA), have decided to extend their current short selling ban that was enacted on August 11, 2011.  A summary of the action taken by each regulator is summarized below.

France.  The Autorité Des Marchés Financiers (“AMF”) extended the ban until November 11, but will determine whether to lift the ban by the end of September.  The AMF press release can be found here.

Italy.  The Commissione Nazionale per le Società e la Borsa (“Consob”) extended the ban until September 30.  The Consob press release can be found here.

Spain.  The Comisión Nacional del Mercado de Valores (“CNMV”) also extended the ban until September 30.  The CNMV press release can be found here.

Belgium.  The Financial Services and Markets Authority (FSMA) is continuing its indefinite ban on short selling.

In addition, Greece’s Hellenic Capital Market Commission (“HCMC”) will reassess before the end of September its current short selling ban that is in effect until October 7.  The HCMC press release can be found here.

Other European countries have not implemented a short selling ban.

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Written by Michael Wu

Foreign Account Tax Compliance Act (FATCA), comprising of sections 1471 through 1474 of the Internal Revenue Code, was enacted in March 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act.  FATCA imposes information reporting requirements on foreign financial institutions (FFIs) and withholding, documentation, and reporting requirements with respect to certain payments made to certain foreign entities.  IRS Notice 2010-60 was released on August 29, 2010 to provide preliminary guidance regarding the implementation of FATCA.  IRS Notice 2011-34 was released on April 8, 2011 which modified and supplemented Notice 2010-60.  On July 14, 2011, the IRS released IRS Notice 2011-53 (the “Notice”).  This Notice provides and describes the timeline for FFIs and U.S. withholding agents to implement the various FATCA requirements.

Phased Implementation

The IRS anticipates issuing proposed regulations incorporating guidance provided in all three notices by December 31, 2011 and final regulations along with final form of FFI Agreement and reporting forms in the summer of 2012.

In summary, the phased implementation of FATCA is as follows:

January 1, 2013:  IRS will begin accepting FFI Applications no later than this date.

June 30, 2013:  FFIs must register with the IRS and enter into FFI Agreement by this date to avoid the 30% withholding tax.

  • By entering into FFI Agreements by June 30, 2013, withholding agents are given sufficient time to refrain from withholding on those participating FFIs by January 1, 2014.
  • The effective date of FFI Agreements entered into on or before June 30, 2013 will be July 1, 2013.
  • The effective date of FFI Agreements entered into after June 30, 2013 will be the date the FFIs entered into such agreements.
  • FFIs who enter into FFI Agreements after June 30, 2013 but before January 1, 2014 will be considered FFIs for 2014 but might not be identified as FFIs in time to prevent withholding beginning January 1, 2014.

January 1, 2014:  IRS begins 30% withholding tax on certain payments by non-participating FFIs and account holders who are unwilling to provide the required information.

January 1, 2015:  Withholding on all withholdable payments will be fully phased in.

Due Diligence

Due diligence procedures are required in order for FFIs to identify U.S. accounts.  These procedures were prescribed in the prior IRS notices and will be finalized in forthcoming regulations.  The Notice provides phased implementation of these due diligence procedures.  A participating FFI with pre-existing private banking accounts with a balance or value equal to or greater than $500,000 on the FFI Agreement’s effective date has one year from its FFI Agreement’s effective date to complete its due diligence procedures.  Those with pre-existing private banking accounts with a balance or value of less than $500,000 must have completed their due diligence procedures by December 31, 2014 or within one year following their FFI Agreements’ effective date.  For all other pre-existing accounts, a participating FFI has two years from its FFI Agreement’s effective date to complete due diligence procedures.

Reporting

FATCA requires a participating FFI to annually report to the IRS certain information regarding its U.S. accounts.  An account for which a participating FFI has received a Form W-9 from the account holder (or if the account is held by a U.S. owned foreign entity, from the substantial owner of such entity) by June 30, 2014, must report the account to the IRS as a U.S. account by September 30, 2014.  By this first reporting deadline, a participating FFI needs to report only: i) the name, address and TIN of the U.S. account holder, ii) the account balance as of December 31, 2013, or if the account was closed after the effective date of the FFI’s FFI Agreement, the account balance immediately before such account closure, and iii) the account number.

Additional information will be required in subsequent reporting years.

Withholding

The Notice provides delayed implementation of the 30% withholding requirement.  For withholdable payments made on or after January 1, 2014, withholding agents will be obligated to withhold the 30% tax only on U.S. source FDAP payments.  (FDAP means fixed, determinable, annual or periodical income or payments and includes interest and dividends.)  For payments made on or after January 1, 2015, withholding agents will be obligated to withhold the 30% tax on all withholdable payments, including gross proceeds.

The Notice also provides that a participating FFI is not obligated to withhold with respect to passthru payments made before January 1, 2015.  (A passthru payment is a withholdable payment or other payment to the extent attributable to a withholdable payment.)  FATCA requires a participating FFI to withhold the 30% tax on passthru payments made to a recalcitrant account holder or non-participating FFI.

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Written by Michael Wu

The SEC has adopted a new rule pursuant to Section 13(h) of the Securities Exchange Act of 1934 requiring large traders to register with the SEC and imposing reporting requirements on their broker-dealers.

In her speech on July 26, 2011, SEC Chairman Mary L. Shapiro said, “[t]his new rule…would significantly bolster our ability to oversee the U.S. securities markets by allowing the Commission to promptly and efficiently identify significant market participants on a cross-market basis, collect data on their trading activity, reconstruct market events, conduct investigations and, as appropriate, bring enforcement matters.”

Under the rule, large traders are required to register with the SEC using a new form, Form 13H.  Upon registration, each large trader is issued a unique large trader identification number (LTID).  Large traders are required to provide such LTID to their broker-dealers.  In addition, the rule imposes recordkeeping, reporting and limited monitoring requirements on certain registered broker-dealers through whom large traders execute their transactions.

A large trader is defined as a person whose transactions in exchange-listed securities equal or exceed 2 million shares or $20 million during any calendar day, or 20 million shares or $200 million during any calendar month.

A full text of the final rule is available here.