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.

General Solicitation Ban to be Lifted

Posted on March 30, 2012 by Jeff

Significant changes are imminent for the methods that may be used by private funds to market their products. Congress has approved the bi-partisan HR 3606, the Jumpstart Our Business Startups (JOBS) Act, which President Obama is expected to sign in the near future. The JOBS Act includes a provision of great interest to our private fund adviser clients: the easing of the general solicitation and general advertising ban in private offerings under Securities Act of 1993 Regulation D Rule 506 and the application of that amendment to other federal securities laws. Also included is a provision raising the threshold for an issuer’s registration under the Securities Exchange Act of 1934 (the “Exchange Act”) from 500 “holders of record” to 2,000. 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 →

SEC Tightens Advisory Performance Fee Rules

Posted on March 14, 2012 by Jeff

The Securities and Exchange Commission (the “SEC”) has issued a Final Rule on investment adviser performance compensation, adopting amendments to Investment Advisers Act of 1940 (“Advisers Act”) Rule 205-3, the “performance fee rule.” The Final Rule was published in the Federal Register on Wednesday, February 22, 2012 and the amendments are effective on May 22, 2012. Advisers should review their advisory contracts and fund offering documents prior to the May 22, 2012 effective date to confirm that these documents reflect the amendments, subject to any applicable transition provision (described below). Continue reading →

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 →

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 →

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