On July 18, 2018, the U.S. Securities and Exchange Commission approved amendments to Regulation ATS and Rule 3a1-1 under the Securities Exchange Act of 1934, as amended. The Amendments impose extensive new transparency requirements on alternative trading systems (“ATSs”) that effect transactions in NMS Stocks. With the increase in regulatory burdens associated with operating an NMS Stock ATS and the new requirement to disclose potentially sensitive business information, the competitive landscape among NMS Stock ATSs could be extremely altered. Click here to read more.
On July 11, 2018, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (“OCIE”) issued a Risk Alert focusing on the most common deficiencies relating to best execution found by the SEC staff in recent examinations of investment advisers. The Risk Alert provides a snapshot of OCIE’s expectations regarding a fund manager’s best execution policies and procedures.
Click here to read more about how OCIE’s recent Risk Alert will affect private fund managers.
In an interview with Private Funds Management, partners Marc Elovitz and Joseph Smith discuss regulator views on conflicts of interest and how to best deal with these issues as the fund formation climate becomes more complex. Marc and Joe also share their insights on how conflicts of interests are viewed by the SEC within the private equity space and how they are best dealt with in the industry.
Click here to read the interview.
On Aug. 25, 2016, the U.S. Securities and Exchange Commission adopted a final rule that amends Form ADV — the filing that investment advisers registered with the SEC use to apply for and maintain their registration and that exempt reporting advisers utilize to claim and maintain their registration exemption. The SEC also amended its books and records rule to require more documentation with respect to performance reporting records. While these amendments will go into technical effect in this calendar year, the SEC has delayed the substantive effectiveness of the amended ADV and the new books and records requirements until October 2017. This means that many advisers will not implement these new requirements until their first quarter 2018 annual updating amendment.
Click here to read this article, which discusses the effects of the SEC’s adoption of a final Form ADV amendment on private fund advisers.
After the financial crisis, 2011 saw a revival in the United States of offerings of collateralized loan obligations (CLOs), one of the structured credit products that proved resilient during the financial crisis. CLOs primarily invest in loans to non-investment-grade commercial and industrial enterprises and, unlike collateralized debt obligations (CDOs), which invest in mortgage-backed securities, CLOs suffered few events of default and still fewer liquidations that resulted in losses to investors.
Click here to read the article in which partner Craig Stein discusses the evolution of CLOs and changes in regulations affecting CLOs since the financial crisis.
On July 12, 2016, the U.S. Department of Justice (the “DOJ”) announced that investment firm ValueAct had entered into a consent decree in which it agreed to pay $11 million to settle charges that two of its affiliated funds acquired large stakes in Halliburton Company (“Halliburton”) and Baker Hughes Incorporated (“Baker Hughes”) in violation of the notification and waiting requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”). The DOJ asserted that ValueAct was required to make an HSR Act filing, but ValueAct had asserted that no such filing was required due to the “investment-only” or so-called “passive investor” exemption. On the heels of such announcement, the Securities and Exchange Commission (the “SEC”) provided clarification that it does not view the inability to utilize the “passive investor” exemption under the HSR Act as equivalent to an investor not being considered “passive” for purposes of Section 13(d) under the Securities Exchange Act of 1934 (the “Exchange Act”).
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As we move deeper into another election season, investment advisers should consider refreshing their efforts to comply effectively with the Securities and Exchange Commission’s rule on their political contributions — known as the pay-to-play rule. Although it’s more than five years old, Rule 206(4)-5 has not been easily integrated into many advisers’ compliance programs. If your firm allows its covered persons to make political contributions, there is not one simple step to avoid triggering Rule 206(4)-5. A carefully designed program of training, pre-approval and quarterly certifications can help reduce the risk.
On April 7, 2016, the Securities and Exchange Commission approved the Financial Industry Regulatory Authority’s proposed amendments to NASD rule 1032 (Categories of Representative Registration). These amendments will require FINRA members to register associated persons who are primarily responsible for the design, development or significant modification of “algorithmic trading strategies” (or for the day-to-day supervision or direction of such activities) as “Securities Traders.”
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Over the past year, there have been regulatory actions that implement or modify the risk retention regulations and requirements applicable to collateralized loan obligations (“CLOs”) in both the U.S. and the EU. In light of these regulatory changes, CLO managers have developed legal structures to enable them to comply with risk retention requirements.
Click here to read this chapter, published in the 2016 edition of The International Comparative Legal Guide to: Securitisation, in which SRZ partners Craig Stein and Paul N. Watterson, Jr. review the U.S. and EU risk retention requirements and discuss the challenges facing CLO managers in complying with the requirements. SRZ partner Anna Maleva-Otto assisted in the preparation of this chapter.
The Securities and Exchange Commission issued a release on Dec. 11, 2015 proposing a new rule that would establish new limitations on the use of derivatives by registered investment companies and business development companies under the Investment Company Act of 1940. Proposed Rule 18f-4 would also regulate other trading practices of such funds, including short sales of securities, that are deemed to involve the issuance of “senior securities.” Hedge funds and other private investment funds would not be subject to the rule.
Click here to read this article, in which SRZ partners Kenneth S. Gerstein and John J. Mahon and special counsel Pamela Poland Chen and associate Karen Spiegel review the requirements of the proposed rule, which is intended to provide a clearer regulatory framework applicable to the use of derivatives by regulated funds.