Corporate & Financial Weekly Digest

Corporate & Financial Weekly Digest

FINRA and SIPC Agree To Streamline the Annual Report Filing Process for Broker-Dealers

Posted in Broker-Dealer

On August 1, the Financial Industry Regulatory Authority and the Securities Investor Protection Corporation (SIPC) announced a services agreement designed to streamline the annual report filing process for member firms. Effective September 1, member firms that currently file separate annual reports with SIPC and FINRA will be able to make a single filing using FINRA’s existing reporting portal. This arrangement is intended to (1) ease reporting burdens and compliance costs for member firms, and (2) reduce the number of inconsistent or incomplete annual audited financial statements and supplementary reports being filed.

The press release announcing the services agreement is available here.


CFTC Releases Rule Enforcement Review of the North American Derivatives Exchange

Posted in CFTC

The Commodity Futures Trading Commission Division of Market Oversight (DMO) recently released the results of a rule enforcement review of the North American Derivatives Exchange Inc. (Nadex). The review covered a one-year target period and evaluated Nadex’s compliance with elements of Core Principles 2 (Compliance with Rules) and 12 (Protection of Markets and Market Participants), including compliance with relevant CFTC regulations related to these Core Principles.

DMO found that Nadex allocates staff, information technology and other resources to comply with Core Principles 2 and 12. Nadex also maintains a rulebook and written policies and procedures for its staff. However, DMO identified certain deficiencies relating to Nadex’s trade practice investigations and made recommendations regarding Nadex’s capacity to detect and investigate rule violations. In addition, DMO also identified a deficiency related to Core Principle 7 (Availability of General Information), noting that Nadex had failed to disclose relevant information regarding its market maker programs. Nadex has since cured this deficiency.

For more information, click here.

OCC Seeks Volcker Rule Comments

Posted in Banking

On August 2, the Office of the Comptroller of the Currency provided further evidence that change may be forthcoming for banks subject to the Volcker Rule (Section 13 of the Bank Holding Company Act of 1956) by issuing a notice soliciting suggestions and recommendations for revising the regulations implementing the Volcker Rule to better accomplish the purposes of the statute. All aspects of the implementing regulations are open for discussion, but the notice includes specific questions relating to 1) the scope of entities subject to the regulations; 2) the proprietary trading prohibition; 3) the covered funds prohibition; and 4) compliance programs and metrics reporting requirements.

No changes in the implementing regulations can be made without the concurrence of the Federal Reserve, the Federal Deposit Insurance Corp, the Securities and Exchange Commission and the Commodity Futures Trading Commission. With respect to the notice, Acting Comptroller of the Currency Keith Noreika said, “I look forward to reviewing the comments and to joining the other regulators soon on a Notice of Proposed Rulemaking to amend the regulation.”

The notice requests commenters to respond no later than 45 days after publication of the notice in the Federal Register.

The notice is available here.


FCA Opens MiFID II Passporting Gateway

Posted in UK Developments

On July 31, the UK Financial Conduct Authority (FCA) began accepting applications for passport notifications under the revised Markets in Financial Instruments Directive (MiFID II).

Firms are required to make a passporting application under MiFID II if they intend to be conducting European Economic Area (EEA) activities that have been implemented as new MiFID II activities (such as operating an organized trading facility (OTF)), or if they will become newly authorized under MiFID II and need to passport after January 3, 2018. Further to publishing the relevant forms in July 2017 (for further information see the July 21 Corporate Financial Weekly Digest), the FCA is now accepting such forms for MiFID II passport applications.

The FCA has stated that MiFID II passporting forms should only be submitted once firms have received confirmation that their MiFID II authorization or variation of permission application has been processed.

Further information is available here.

SEC Cautions Securities Laws May Apply to Interests in Virtual Organizations

Posted in Broker-Dealer, CFTC

On July 25, the Securities and Exchange Commission issued a Report of Investigation cautioning that certain offers and sales of digital assets of virtual organizations (e.g., “coin offerings” or “token sales”) could be deemed securities offerings and therefore subject to the federal securities laws. More details relating to the Report of Investigation are available in Gary DeWaal’s posting in the July 26 edition of Bridging the Week. Katten will also publish a separate client advisory on the subject in the near future.

See also “CFTC Grants DCO Registration to LedgerX” in the CFTC section.

ISDA To Publish T+2 Protocol

Posted in Derivatives, Dodd-Frank Developments

On September 5, the regular settlement cycle for most securities transactions in the United States will change from three days (T+3) to two days (T+2). In order to assist derivative market participants that have existing equity derivative transactions with payment dates based on T+3, the International Swaps and Derivatives Association (ISDA) has developed the 2017 OTC Equity Derivatives T+2 Settlement Cycle Protocol (“T+2 Protocol”). Continue Reading

CFTC Grants DCO Registration to LedgerX

Posted in CFTC, Derivatives

The Commodity Futures Trading Commission has issued an order granting LedgerX LLC registration as a derivatives clearing organization (DCO). As specified in the order, LedgerX is permitted to clear fully collateralized digital currency swaps. A transaction will be fully collateralized if LedgerX holds, at all times, funds in the form of the required payment sufficient to cover the maximum possible loss a counterparty could incur upon liquidation or expiration of the contract. Continue Reading

CFTC Extends Relief From Transaction-Level Requirements for Non-US Swap Dealers

Posted in CFTC, Derivatives

The Division of Swap Dealer and Intermediary Oversight, the Division of Clearing and Risk and the Division of Market Oversight (collectively, the Divisions) of the Commodity Futures Trading Commission have extended relief previously provided in a series of previous no-action letters relating to transaction-level requirements for non-US swap dealers (non-US SDs). Specifically, the Divisions have granted relief to non-US SDs from certain specified “transaction-level requirements” when using personnel or agents located in the United States to arrange, negotiate or execute swaps with non-US persons that are not guaranteed affiliates or conduit affiliates of a US person. Continue Reading

NFA Adopts Interpretive Notice on Swap Valuation Disputes

Posted in CFTC, Derivatives

National Futures Association (NFA) has adopted an interpretive notice that standardizes the process for filing swap valuation disputes with NFA. As set forth in the interpretive notice, swap dealers (SDs) generally are required to file with NFA notices of unresolved swap valuation disputes involving initial margin, variation margin and/or transaction or portfolio valuations if the amount in dispute exceeds $20 million. The interpretive notice also requires SDs to amend previously filed notices if the amount in dispute has increased or decreased by at least $20 million. SDs also must terminate previously filed notices when the matters are resolved or the amount in dispute falls below $20 million. Continue Reading