CFTC and SEC Adopt Joint Final Rules on Definitions of “Swap Dealer” and “Security-Based Swap Dealer”

Posted on May 1, 2012 by Jeff

The Securities and Exchange Commission (“SEC”), unanimously, and the Commodity Futures Trading Commission (“CFTC”), 4-1, have approved the joint Final Rules on Further Definition of “Swap Dealer,” “Security-Based Swap Dealer,” “Major Swap Participant,” “Major Security-Based Swap Participant,” and “Eligible Contract Participant” with interpretive guidance. The vast majority of the swaps markets will be governed by the CFTC which has already adopted a number of final swap market related rules and has other proposed rules out for comment. The SEC’s rulemaking activity in the derivatives market area may be found here. Continue reading →

Identity Theft Red Flags Rules Proposed by SEC and CFTC

Posted on March 23, 2012 by Jeff

The Securities Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”) (collectively, the “Commissions”) recently issued Proposed Identity Theft Red Flags Rules (“Proposed Rules”) requiring certain of their regulated entities to put identity theft prevention programs (“Programs”) in place, similar to Fair Credit Reporting Act (“FCRA”) rules adopted in 2007 (the “2007 Rules”) by the Federal Trade Commission (“FTC”) and other federal financial regulatory agencies. The Dodd-Frank Wall Street Reform and Consumer Protection Act transferred authority over certain parts of the FCRA to the SEC and CFTC, respectively, for entities regulated by those Commissions. The deadline for comments is May 7, 2012. Continue reading →

Upcoming 2012 SEC Regulatory Deadlines

Posted on February 16, 2012 by Jeff

Congratulations to all newly registering investment advisers that have submitted their Forms ADV Part 1A and Part 2A via the Investment Adviser Registration Depository (“IARD”) in anticipation of the March 30, 2012 deadline! The Securities and Exchange Commission (“SEC”) generally has up to 45 days after receipt of the Form ADV to declare the registration effective and generally will notify an adviser via email once its registration is declared effective. Registrations may be declared effective at any time during that 45-day period. An adviser can also check on IARD under the heading “Registration/Reporting Status” to see if its registration has been declared effective.

Below is a review and reminder of certain of the annual regulatory requirements that may be applicable to investment advisers. This is not intended to be an exhaustive list of SEC regulatory requirements and does not cover state-specific requirements. In particular, it should be noted that the below information does not address any regulatory filings or reports required by the Internal Revenue Service, Department of the Treasury (such as TIC forms) or the Commodity Futures Trading Commission (“CFTC”). We expect to release future articles on other required regulatory filings. The information below is for informational purposes only and is not legal advice. Continue reading →

SEC Provides Guidance on Registration of Advisers Related to Registered Investment Advisers

Posted on January 27, 2012 by Jeff

On January 18, 2012, the Securities and Exchange Commission (the “SEC”) issued a No-Action letter (the “2012 ABA Letter”) to the American Bar Association (the “ABA”), Business Law Section, providing guidance as to when certain entities affiliated with a registered investment adviser would be permitted to rely on the registered investment adviser’s registration, and would not be required to register separately as investment advisers under the Investment Advisers Act of 1940 (the “Advisers Act”). The 2012 ABA Letter confirms the SEC’s guidance on these issues in Question and Answer G.1. of its December 8, 2005 letter addressed to the ABA’s Subcommittee on Private Investment Entities and responds to additional related questions. Question and Answer G.1. is referred to as the “2005 ABA Letter” and is further described below. The continued applicability of the 2005 ABA Letter had been called into question by the amendments resulting from the repeal of the section 203(b)(3) private adviser exemption under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). Continue reading →

Final Form PF Approved by CFTC

Posted on November 27, 2011 by Jeff

Recently, the Commodity Futures Trading Commission (the “CFTC”) approved joint final rules under the Commodity Exchange Act (the “CEA”) and the Investment Advisers Act of 1940 (the “Advisers Act”) and the final Form PF (report by private fund advisers). The new rules implement provisions of Title IV of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Continue reading →

SEC To Finally Clarify Registration Extension?

Posted on June 16, 2011 by Jordan

Weeks after an unofficial comment by a senior SEC staffer, we may finally find out the plans for a registration extension for hedge fund and other private fund managers. The SEC announced that it will be holding an Open Meeting on June 22nd where Item 1 of discussion includes:

The Commission will consider whether to adopt new rules and rule amendments under the Investment Advisers Act of 1940 to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. These rules and rule amendments are designed to give effect to provisions of Title IV of the Dodd-Frank Act that, among other things, increase the statutory threshold for registration of investment advisers with the Commission, require advisers to hedge funds and other private funds to register with the Commission, and address reporting by certain investment advisers that are exempt from registration.

Hopefully this will finally allow worried managers to know whether or not they will have until next year to file their Form ADVs. We will keep you posted of any developments coming out of the meeting.

SEC Adopts Final Rules for Whistleblower Provisions under Dodd-Frank

Posted on June 6, 2011 by Marissa

The U.S. Securities and Exchange Commission (the “SEC”) voted 3-2 on May 25, 2011 to adopt final rules implementing whistleblower provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rule is called “Securities Whistleblower Incentives and Protection” which falls under Section 21F of the Securities and Exchange Act of 1934.

The new rule will require the SEC to pay an award, subject to certain limitations, to eligible whistleblowers who voluntarily provide the SEC with original information about a violation of federal securities laws that leads to successful enforcement of a covered judicial or administrative action, or a related action. Further, employers are prohibited to retaliate against employees that provide the SEC with information about possible violations.

Division of Investment Management Requests Extensions of Deadlines for Mid-Sized Advisers and Private Fund Advisers

Posted on May 9, 2011 by Yonina

IA Watch is reporting that the Division of Investment Management has formally requested that the Securities and Exchange Commission (SEC) move to next year the deadlines for mid-sized advisers (certain advisers with between $25 million and $100 million in assets under management) to switch to state registration and for private fund advisers with more than $150 million in assets under management to register with the SEC. IA Watch states: “The formal request moves this closer to becoming reality, should the Commission act on it.”

Robert E. Plaze, Associate Director of the Division of Investment Management, had suggested that extensions to the first quarter of 2012 were a possibility in his April 8, 2011 letter to David Massey, President, North American Securities Administrators Association, Inc. and Deputy Securities Administrator, North Carolina Securities Division.

“We anticipate that the Commission will complete its implementing rulemaking by July 21,2011 in accordance with the Dodd-Frank Act, but expect in connection therewith that the Commission will consider providing additional time for investment advisers affected by these provisions to come into compliance.”

With respect to the switch of mid-sized advisers to state registration, Mr. Plaze’s letter noted that once the SEC adopts the implementing rulemaking, the Investment Adviser Registration Depository system (lARD) will “require re-programming to accept advisers’ transition filings” and that they “understand that the re-programming process will take until the end of the year to complete.” As a result, under consideration was the possibility that “all SEC-registered advisers would be required to report their eligibility for registration with the Commission in the first quarter of 2012.” He went on to say that, even if the implementing rulemaking is completed prior to July 21, 2011, private fund advisers will need time to register and come fully into compliance with the accompanying obligations, and that they “expect that the Commission will consider extending the date by which these advisers must register and come into compliance with the obligations of a registered adviser until the first quarter of 2012.”

IA Watch‘s report is not surprising given recent reports in industry publications (including a May 2 report by IA Watch) that SEC staff members have indicated the expectation that the delays will go through. One such statement was reported to have been made by Sara Crovitz, a Branch Chief in the Office of Chief Counsel in the Division of Investment Management, as a participant in a DC bar luncheon panel discussion on “Cross Border Issues Affecting Investment Advisers in the World of Dodd-Frank.”

SEC Division of Investment Management Staff Responds to Questions about Form ADV Part 2

Posted on March 22, 2011 by Yonina

On March 18, 2011, the staff of the SEC’s Division of Investment Management issued responses to questions about the amended Part 2 of Form ADV.

The Division answered questions regarding the following topics, generally restating information already known about the compliance dates for delivery questions, but providing guidance not previously offered on the remaining issues:

compliance dates for delivery of Part 2A and Part 2B
Part 2A brochure format, material change and risk disclosure, filing and delivery requirements
“covered persons” for Part 2B brochure supplements
Part 2B brochure supplement delivery requirements

Among the responses offered are the following:

An offshore adviser whose only clients are offshore funds would not have to prepare or file a brochure as part of its Form ADV. (Question II. 6)
An adviser that is not required to deliver a brochure, but nevertheless chooses to prepare and deliver one, is not required to file the brochure with the SEC. (Question III. 1)
An adviser to a hedge or other private fund could meet its delivery obligation to the fund client by delivering the brochure to a “legal representative of the fund, such as the fund’s general partner, manager or person serving in a similar capacity.” In its response, the staff cites the U.S. Court of Appeals D.C. Circuit 2006 decision in Goldstein v. Securities and Exchange Commission (“Goldstein”) that the “client” of an investment adviser managing a hedge fund is the fund itself and not any of the investors in the fund. (Question III. 2)

Despite the Goldstein decision, many advisers provide copies of their brochures to all investors in their funds, as a matter of best business practice. It is expected that many advisers will continue to do so, as a matter of best business practice, despite the staff’s response to Question III. 2.

In their introduction to these responses, the staff of the Division of Investment Management state that they expect to update the site with their responses to additional questions “from time to time.” Investment advisers will continue to look for further guidance from the staff.

The full text of the Division of Investment Management staff responses may be found here and the final rule adopting the related amendments to Part 2 may be found here.

Proposed: Private Fund Adviser Systemic Risk Report Rules and Changes to CFTC Regulations

Posted on January 28, 2011 by Yonina

This past week, the Securities and Exchange Commission (the “SEC”) and the Commodity Futures Trading Commission (“CFTC”) jointly proposed rules requiring SEC-registered investment advisers, CFTC-registered commodity pool operators (“CPOs”) and CFTC-registered commodity trading advisers (“CTAs”) that advise private funds to report certain information about their businesses and the private funds they manage. Information reported on the new proposed forms will be confidential, to the extent permitted under applicable law, and will be used by the Financial Stability Oversight Council to help the Council assess and monitor the potential risk posed to the U.S. financial markets by the private funds.

The CFTC separately proposed related modifications to CPO and CTA regulations, including rescinding Commodity Exchange Act Rule 4.13(a)(3) and Rule 4.13(a)(4), two exemptions from CFTC registration used by many advisers to private funds investing in commodities. Unless otherwise exempt or excluded from the requirement to register, advisers previously exempt under these Rules would be required to register with the CFTC and the advisers and the commodity pools they advise would become subject to certain requirements, including disclosure, financial reporting and recordkeeping. Registration with the CFTC generally includes registration of the adviser’s principals and associated persons, who would have to satisfy certain proficiency or examination requirements.

The Comment Period on the Proposed Rules will be open for 60 days following publication of the Proposed Rules in the Federal Register.

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