Large Trader FAQs; Extension of Broker-Dealer Compliance Date

Posted on May 3, 2012 by Jeff

The Securities and Exchange Commission (“SEC”) recently posted two items related to the “large trader reporting rule” (i.e., Rule 13h-1 under the Securities Exchange Act of 1934). First, the staff of the Division of Trading and Markets issued FAQs with new guidance for “large traders” and registered broker-dealers about completing Form 13H and otherwise complying with Rule 13h-1. Second, the SEC issued an Order (i) granting an exemption for certain securities transactions for purposes of determining large trader filing thresholds, and (ii) extending the compliance date for most registered broker-dealers from April 30, 2012 to May 1, 2013. The delay of the compliance date gives broker-dealers more time to report large traders’ data to the SEC, but does not affect large traders’ responsibilities. Continue reading →

Form PF and Investor Representations in Subscription Agreements

Posted on May 2, 2012 by Jeff

This is a reminder for all managers of private funds to consult their counsel about representations that counsel may recommend adding to the private funds’ subscription agreements so that the managers may accurately report information about their private fund investors on Form PF. The information on Form PF will not be publicly available, but will be used to assist the Financial Stability Oversight Council in its assessment of systemic risk in the U.S. financial system. Continue reading →

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 →

Bi-Partisan Legislation Authorizing SROs for Retail Investment Advisers

Posted on April 27, 2012 by Jeff

On 4/26/12, House Financial Services Committee Chairman Spencer Bachus (R-LA) and Rep. Carolyn McCarthy (D-NY) introduced legislation to amend the Investment Advisers Act of 1940 (the “Advisers Act”) to authorize one or more self-regulatory organizations (SROs) for investment advisers, to be funded by membership fees. Generally, NIAA membership would be required only for investment advisers conducting business with retail customers; investment advisers to private funds would be among the advisers exempt from the NIAA membership requirement. As such, under the proposal, private fund advisers would be exempt from the NIAA membership requirement. Continue reading →

Upcoming Form 13H Amendment Deadline

Posted on April 9, 2012 by Jeff

Following up on our February 16th post, this is a reminder that “large traders” that are Form 13H filers may have an upcoming quarterly deadline to make an Amended Filing. Amendments are required quarterly if any information on the Form 13H has become stale. “Large traders” are traders of U.S. listed equities trading 2 million shares or $20 million on any day or 20 million shares or $200 million in any month.

As indicated in the Instructions to the Form 13H, an Amended Filing must be filed “promptly following the end of the calendar quarter in which any of the information contained in a Form 13H filing becomes inaccurate for any reason.” In the context of initial filings and reactivating filings, the SEC suggests that “under normal circumstances,” “promptly” means within ten days.

Per the Instructions, a large trader must file an Amended Filing when, for example, it changes its name, business address, organization type (e.g., the large trader partnership reincorporates as a limited liability company), or regulatory status (e.g., a hedge fund registers under the Investment Company Act), or when its organizational chart changes in a manner relevant under Item 4(a) (e.g., it adds or removes a Securities Affiliate).” The Final Rule Release gives a few other examples of information that may have changed: contact information, trading strategy, list of broker-dealers at which the large trader has an account, or description of affiliates.

SEC’s OCIE Issues Risk Alert on Unauthorized Trading and Activities

Posted on March 7, 2012 by Jeff

The Securities and Exchange Commission (SEC) Office of Compliance Inspections and Examinations (OCIE) recently released a National Examination Risk Alert titled “Strengthening Practices for Preventing and Detecting Unauthorized Trading and Similar Activities.”

The Risk Alert is addressed to both broker-dealers and investment advisers. Carlo di Florio, Director of OCIE, suggested that firms consider the observations in the Risk Alert “as they review their compliance and supervisory controls to detect and deter unauthorized trading” and other unauthorized activities. As the SEC has repeatedly stated, a firm must set the tone from the top and create a culture of compliance. OCIE recommends involving management and non-management personnel in the efforts. Continue reading →

Considerations for CFTC 4.13(a)(4) Exempt Commodity Pool Operators

Posted on February 29, 2012 by Jeff

As discussed in our previous post, as a result of the Final Rule issued by the Commodity Futures Trading Commission (the “CFTC”) on February 9th, certain private fund managers that trade directly or indirectly in commodities and/or futures will need to reconsider their status as commodity pool operators (“CPOs”) or commodity trading advisors (“CTAs”). Note that when the CFTC and the Securities and Exchange Commission (“SEC”) finalize the definition of “swap” (on the SEC’s Implementation Schedule for the first half of 2012 and expected in the next few months), pool operators trading in non-security based swaps will fall within with the definition of “commodity pool operator” and, in the absence of any applicable exemption, will be required to register.

The Final Rule, published in the Federal Register on Friday, February 24, 2012, is generally effective on April 24, 2012 and alters the registration, compliance and reporting obligations for CPOs and CTAs. In particular, the Final Rule’s rescission of the section 4.13(a)(4) exemption will require advisers that have relied upon that exemption (historically, advisers to Section 3(c)(7) private funds) to determine if there is another exemption upon which they may rely. Continue reading →

Funds of Funds and FINRA 5131(b)

Posted on February 22, 2012 by Jeff

It appears that certain funds of funds are likely to see an easing up on their due diligence obligations vis-a-vis their investors under Financial Industry Regulatory Authority (“FINRA”) Rule 5131(b), the “anti-spinning” rule governing a fund’s purchase of new issues that was effective September 26, 2011. Spinning is the practice of allocating new issues to executive officers and directors of current or potential investment banking clients in exchange for their investment banking business. For your reference, Rule 5131(b) and the de minimis exception available to funds are reviewed below.

At a meeting last week, the FINRA Board of Governors authorized FINRA staff to submit a proposed rule change to the Securities and Exchange Commission (“SEC”) that would exempt certain funds of funds from the requirement to assess the status of indirect beneficial owners for purposes of purchasing new issues under the anti-spinning provisions of FINRA Rule 5131(b). 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 →

CFTC Rescinds 4.13(a)(4) Exemption Among Other Amendments to Part 4

Posted on February 12, 2012 by Jeff

The Commodity Futures Trading Commission (the “CFTC”) issued a Final Rule amending registration and compliance obligations for commodity pool operators and commodity trading advisors (“CPOs” and “CTAs”, respectively), in particular rescinding the section 4.13(a)(4) exemption upon which many investment advisers to private funds rely.

The 197-page Final Rule release as well as an explanatory Fact Sheet and Q&A document may be found here.

The Final Rule, first proposed on January 26, 2011, passed 4-1, and:

Rescinds the exemption from registration provided in section 4.13(a)(4);
Removes relief from the certification requirement for annual reports provided to operators of certain pools offered only to qualified eligible persons under section 4.7(b)(3);
Modifies the criteria for claiming relief under section 4.5;
Requires the annual filing of notices claiming exemptive relief under several sections of the CFTC’s regulations;
Adopts amendments that include new risk disclosure requirements for CPOs and CTAs regarding swap transactions; and
Adopts new data collections for CPOs and CTAs consistent with the Form PF data collection required under the Dodd-Frank Act for entities registered with both the CFTC and the Securities and Exchange Commission.

In preparing the Final Rule, the CFTC considered comment letters, including one submitted by HedgeOp Compliance, LLC, requesting that the 4.13(a)(4) exemption be retained for funds that are advised by an SEC-registered investment adviser and invest indirectly in commodity interests through a fund of funds structure. The CFTC has determined to withhold consideration of such an exemption pending receipt of data from the new Forms CPO-PQR and/or CTA-PR. The CFTC will consider requests for exemptive relief for funds of funds on a case by case basis.

The CFTC today also issued a Proposed Rule to harmonize compliance obligations for SEC-registered investment advisers to registered investment companies that would be required to register as commodity pool operators.

HedgeOp will be reviewing the Final Rule release and analyzing its potential ramifications.

Keep a look out for additional post summarizing the details and timing issues.

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