Author Archives: Rachel

SEC, CFTC Seeking Public Comment on Definitions and Regulation of Mixed Swaps

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On August 13, 2010, the Securities and Exchange Commission and the Commodity Futures Trading Commission announced that they had published an advance joint notice of proposed rulemaking that requests public comment to assist the agencies in further defining certain key terms and prescribing regulations regarding “mixed swaps” as required by Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Title VII provides for the comprehensive regulation of swaps and security-based swaps and includes definitions of key terms relating to such regulation. It requires the CFTC and the SEC, in consultation with the Board of Governors of the Federal Reserve System, to jointly further define the terms “swap,” “security-based swap,” “swap dealer,” “security-based swap dealer,” “major swap participant,” “major security-based swap participant,” “eligible contract participant” and “security-based swap agreement.”

Title VII also requires the CFTC and SEC to jointly prescribe regulations regarding “mixed swaps” as necessary to carry out the purposes of Title VII.

The CFTC and SEC invite public comment with respect to all aspects of the statutory definitions of these key terms. The agencies also invite commenters to express views on the regulation of “mixed swaps.”

This request for comment is in addition to the series of email links on the CFTC’s and SEC’s websites to facilitate public comment regarding regulatory reform rulemaking under the Dodd-Frank Act.

The public comment period will remain open for 30 days following publication of the advance notice in the Federal Register. Commenters are urged to submit comments as soon as possible within the 30-day comment period.

SEC, CFTC to Host August 20 Roundtable on Clearing and Listing of Swaps and Security-Based Swaps

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The Securities and Exchange Commission and Commodity Futures Trading Commission staffs will hold a public roundtable on August 20 to discuss issues related to governance and conflicts of interest in the clearing and listing of swaps and security-based swaps.
The roundtable will assist both agencies in the rulemaking process to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The roundtable will be held at the CFTC hearing room at Three Lafayette Centre, 1155 21st Street NW, Washington, D.C. The discussion will be open to the public with seating on a first-come, first-served basis. Members of the public may also listen by telephone and should be prepared to provide their first name, last name, and affiliation.
  • U.S./Canada Toll-Free: (866) 312-4390
  • International Toll: (404) 537-3379

Conference ID: 94280143

Members of the public wishing to submit their views on the topics addressed at the discussion may do so through the comment form or e-mail address on the SEC website or the governance rulemaking page on the CFTC website.

All submissions provided to either the CFTC or the SEC in any electronic form or on paper will be published on the website of the respective agency, without review and without removal of personally identifying information.

Below is a copy of the meeting’s agenda from the SEC website.

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Agenda for the Joint CFTC-SEC Public Roundtable Discussion

9:00 a.m. Opening Statements by CFTC and SEC Staff

9:15 a.m. Panel One — Types of Conflicts
  • Securities Clearing Agencies and Derivatives Clearing Organizations
    • Access to clearing
    • Determination of swaps eligible for clearing
    • Risk management
  • Security-Based Swap Execution Facilities and Swap Execution Facilities
    • Access to trading
    • Determination of swaps eligible for trading
    • Potential for competition with respect to the same swap
  • Designated Contract Markets and National Securities Exchanges
    • Listing of swaps
    • Comparison with conflicts of interest for Swap Execution Facilities and Security-Based Swap Execution Facilities: similarities and differences
10:45 a.m. Panel Two — Possible Methods for Remediating Conflicts
  • Ownership and voting limits
  • Structural governance arrangements
    • Independent or public director requirements for Board and Board committees
    • Consideration of market participant views: Derivatives Clearing Organizations and Designated Contract Markets
    • Fair representation requirement in the Securities Exchange Act
    • Other governance matters (e.g., transparency)
  • Substantive requirements
    • Membership standards
    • Impartial access requirements
  • Appropriateness of applying the same methods to each type of entity
12:00 p.m. Roundtable concludes

FSA Publishes Rules Expanding Power to Gather Information

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On July 23, 2010, the FSA published a consultation paper which incorporates the final text of the new Financial Stability and Market Confidence Sourcebook.

FINMAR 1 contains rules on the FSA’s information gathering powers, which have been revised and expanded to, among other things, include the power to require disclosure of information and documents by certain persons whose activities the FSA views as relevant to the stability of one or more aspects of the financial system.

The new FINMAR sourebook comes into force on August 6, 2010.

FSA Publishes Revised UK Rules on Short Selling

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On July 23, 2010, the FSA published a consultation paper which incorporates the final text of the new Financial Stability and Market Confidence Sourcebook.

FINMAR 2 contains rules on short selling, which incorporate to a large extent the existing FSA short-selling disclosure regime (currently set out in the FSA Code of Market Conduct (“MAR”)), but also add new short-selling powers and penalties granted to the FSA by the UK’s outgoing Labour government under the Financial Services Act 2010 (the “FS Act”, which came into force on April 8, 2010).

Among other things, the FS Act provides that the FSA has the power to:

  1. Require a person to provide information and documents that the FSA reasonably requires for the purpose of determining whether a person, or a person connected to them, has contravened any provision of short-selling rules; and/or
  2. Impose a financial penalty or public censure on a person that contravenes any provision of short-selling rules or on a person who was knowingly concerned in the contravention.

The new FINMAR sourcebook will come into force on August 6, 2010, which is also the date on which the revised and recast rules will come into effect and the existing short-selling rules in MAR will be deleted.

New York Passes Budget, Without Hedge Fund Tax

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As reported by FINAlternatives, the New York Legislature managed—finally—to pass the last piece of the state’s very late budget without increasing taxes on hedge fund managers who work in the state but live elsewhere.

The State Assembly agreed to drop the proposed tax, which would have raised $50 million to help close the state’s $9.2 billion budget deficit by subjecting the performance fees earned by out-of-state hedge fund managers to the state’s income tax. Late last night, the State Senate also approved the bill, finalizing the budget 125 days late.

Instead of taxing hedge funds, the bill will raise $1 billion in new revenue in part by doing away with a sales tax exemption on clothing.

The potential hedge fund tax led to a major push by Connecticut Governor Jodi Rell to lure New York’s hedge funds north of the border.

For previous Compliance Avenue posts on this subject, see:

NY Gov Paterson Drops Tax On Nonresident Hedge-Fund Managers

NY Hedge Fund Tax Update: Not Moving to Connecticut Just Yet

N.Y. Hedge Fund Tax May Fall by the Wayside

SEC Publishes Revised Form ADV Part 2

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This is a follow up on our July 21 blog post reporting that the SEC announced approval for amendments to Form ADV Part II – now officially renamed “Part 2″), which  (among other things) will require advisers to make their brochures publicly available via electronic filing, and will change the format of the brochure from its current “check the box” approach to a more narrative, “plain English” approach.

On July 28, the SEC published the Adopting Release along with the revised Form ADV Part 2 .  More on the specific disclosure items contained within the new Part 2 will be discussed on upcoming blogs.

SEC Approves Form ADV Part 2 Amendments to Require Narrative Disclosure and Electronic Filing

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On July 21 — the same the day that President Obama signed into law a landmark piece of financial legislation that (among other things)  significantly increases the number of managers that will be required to register with the SEC as investment advisers — the SEC voted unanimously to adopt significant amendments to the Form ADV Part 2, which is the principal disclosure document (commonly referred to as the “brochure”) that an SEC-registered investment adviser must provide to its clients and prospective clients.

As described more fully below, the amendments will (among other things) require advisers to make their brochures publicly available via electronic filing, and will change the format of the brochure from its current “check the box” approach to a more narrative, “plain English” approach.

The amendments are intended to substantially improve the quality of the disclosures advisers provide to their clients.  As stated by SEC Chairman Mary L. Schapiro:

“These changes are designed to provide clients with greater information about the individuals who will provide them with investment advice.  These amendments will help transform the brochure into a plain English narrative that is well-suited to serve investors’ needs and describes the adviser’s conflicts, compensation, business activities, and disciplinary history.”

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NY Gov Paterson Drops Tax On Nonresident Hedge-Fund Managers

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On Friday June 23, Governor Paterson’s press secretary confirmed via email that New York’s controversial proposal for an extra tax on hedge fund managers that do business in New York but live elsewhere has officially been taken off the table.

In an email, press secretary Morgan Hook wrote:

“The Governor re-submitted a revenue bill that does not contain the hedge fund tax, and he would prefer the legislature pass his version of the revenue bill.”

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Obama Signs Sweeping Financial Overhaul into Law

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It’s official: President Obama has signed into law the most sweeping financial regulatory overhaul since the Great Depression, and in so doing declared that the new laws will foster innovation, not hamper it.

Speaking at the Ronald Reagan Building in Washington, D.C., Obama noted that over the past two years the nation has faced the worst recession since the Great Depression, with millions of Americans losing their jobs and watching the value of their retirement savings decline.

“The primary cause was a breakdown in our financial system,” Obama said. For years, the U.S. financial system was governed by “antiquated” rules, he added; rules that “left abuse unchecked and taxpayers on the hook if a financial institution failed.”

“There will be no more tax-funded bailouts … period,” Obama added, and he noted that lawmakers will still need to “make adjustments” to the rules as the financial system adapts to the changes.

Obama also touted the broader economic benefits of new consumer financial protections.

“These reforms represent the strongest consumer financial protections in history,” Obama said in a prepared statement on the new financial rules.

After a burst of applause the President added: “Because of this law, the American people will never again be asked to foot the bill for Wall Street’s mistakes.”

“These protections will be enforced by a new consumer watchdog with just one job: looking out for people — not big banks, not lenders, not investment houses — in the financial system. Now, that’s not just good for consumers, that’s good for the economy,” he said.

SEC Votes to Seek Public Comment on U.S. Proxy System

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On July 14, the SEC voted unanimously to issue a concept release seeking public comment on the U.S. proxy system and asking whether rule revisions should be considered to promote greater efficiency and transparency.

The SEC’s concept release, as described in the Fact Sheet published with the SEC’s announcement, focuses on the accuracy and transparency of the voting process, the manner in which shareholders and corporations communicate, and the relationship between voting power and economic interest.

There will be a 90-day public comment period for the concept release after it is published in the Federal Register.

“The proxy is often the principal means for shareholders and public companies to communicate with one another, and for shareholders to weigh in on issues of importance to the corporation,” said SEC Chairman Mary L. Schapiro during the SEC’s Open Meeting on July 14.

“To result in effective governance, the transmission of this communication between investors and public companies must be timely, accurate, unbiased, and fair.”