Yesterday, May 27, 2010, the SEC charged Connecticut-based hedge fund manager Pequot Capital Management, Inc., and its Chairman and CEO Arthur Samberg, with insider trading in Microsoft Corporation securities. In response, Pequot and Samberg agreed to pay $28 million to settle the SEC’s charges that the firm traded shares of Microsoft based on insider information.
On May 20, 2010, the staff of the SEC’s Division of Investment Management updated its responses to questions about Advisers Act Rule 206(4)-2 (the “Custody Rule), which was significantly amended by the SEC in December 2009.
Right on the heels of the cloture vote last night, the Senate passed its Financial Overhaul / Regulatory Reform bill in a 59-39 vote. 4 Republican senators voted for the bill. As the bill stands now, hedge fund managers with greater than $100 million AUM will need to become registered advisers with the SEC. The bill still needs to be reconciled with the House version which was passed in December. A final bill may get to President Obama’s desk by July or sooner.
In a 60-40 vote today, the US Senate passed the cloture vote needed to end debate on the Financial Reform Legislation. A final vote on the bill itself may come as early as tomorrow. If passed, it will then need to be reconciled with the House bill.
Sen. Jeff Merkley (D., Ore.) has taken advantage of the delay in cloture to force a vote on the proprietary trading amendment he co-sponsored with Sen. Carl Levin before the final Senate bill proceeds to final vote. The proposed limits on proprietary trading are known as the “Volcker Rule” because of concerns raised by former Federal Reserve Chairman Paul Volcker, and are among the more hotly contested items left to be decided by the Senate as it considers broad changes to U.S. financial-market regulation.
At a European Parliament meeting held yesterday in Brussels, the European Union moved a step closer to new rules on hedge funds and private-equity firms, with most member states backing the controversial Alternative Investment Fund Manager Directive that would regulate managers of hedge funds, private equity funds and venture capital funds in Europe.
Germany and France led the push for new rules, but the debate put much of the EU at odds with the U.K., home to almost 80% of the EU’s hedge-fund managers.
The Securities and Exchange Commission announced yesterday that in response to the market disruption of May 6, the national securities exchanges and the Financial Industry Regulatory Authority (FINRA) are filing proposed rules under which they would pause trading in certain individual stocks if the price moves 10 percent or more in a five-minute period.
The markets are proposing these rules in consultation with FINRA and staff of the SEC to provide for uniform market-wide standards for individual securities in the S&P 500® Index that experience a rapid price movement.
Senator Dodd has agreed (for now at least) to drop the last minute provisions he added to the FinReg bill that would have weakened derivatives reform authored by Agriculture Committee Chairwoman Blanche Lincoln (D-Ark.)
Over the past few weeks Sen. Lincoln, the chief advocate of the derivatives ban, has faced opposition from Wall Street, the White House, and members of her own party over a provision in her derivatives reform legislation that would force financial firms to spin off their derivatives trading desks into stand-alone entities.
Yesterday, in an eleventh-hour attempt to appease both friends and foes of the provision, Senator Chris Dodd quietly and without announcement proposed a compromise amendment that would preserve Lincoln’s original tough language, but postpone any action for two years so it can be studied.
And, more importantly, it would assign that study to a new council of regulators, headed by Treasury Secretary Timothy F. Geithner, whose members have already expressed serious reservations about Lincoln’s proposed spin-off measure. Senator Dodd did not consult with or notify Senator Lincoln (who was in Arkansas yesterday fighting for her Senate seat in a primary election) prior to proposing his amendment. Not surprisingly, Sen. Lincoln expressed surprise and dismay upon learning of Dodd’s last minute proposal. Moreover, Dodd’s compromise did not sit well with members of the banking community, who expressed worry that the two-year study period would introduce uncertainty that would create a chilling effect.
In the face of opposition from all sides, Dodd withdrew his proposal from the Senate bill this afternoon shortly after the cloture delay was announced. Dodd’s decision likely means that the financial regulatory reform will pass the Senate leaving Lincoln’s derivative reform plan untouched; however, Democratic leaders might revisit the issue when House and Senate meet to reconcile the differences between their two bills. It should particularly be noted that the House’s derivatives title is significantly weaker than the Senate’s, and the spin-off provision could prove to be a useful bargaining chip in the negotiation process.
Earlier today the Senate delayed the cloture vote that would cut off debate and move to final action on the legislation. The vote, which was scheduled for 2:00 pm today, was delayed to allow for more negotiations on amendments. As of right now a new vote time hasn’t been set. Democrats, who control the Senate with a 59-41 majority, will need at least one Republican vote to get the 60 required to end debate. Maine Republican Susan Collins said today she will join Democrats in voting for cloture.
“I would hope that we can move forward on this,” Senate Majority Leader Harry Reid, a Nevada Democrat, said. “We’ve got to finish this legislation.”