Corporate & Financial Weekly Digest

Corporate & Financial Weekly Digest

FINRA Requests Comment on Rules Governing Employees’ Outside Business Activities

Posted in Broker-Dealer

On May 15, as part of a new review, the Financial Industry Regulatory Authority requested public comment on the effectiveness and efficiency of its rules governing the outside business activities and private securities transactions of employees of FINRA member firms. Continue Reading

CFTC Launches LabCFTC as Major FinTech Initiative

Posted in CFTC

On May 17, the Commodity Futures Trading Commission announced the creation of LabCFTC, a new initiative aimed at promoting responsible FinTech innovation to improve the quality, resiliency, and competitiveness of the markets the CFTC oversees. The core components of LabCFTC are: (1) GuidePoint, which will serve as a dedicated point of contact for FinTech innovators to engage with the CFTC, learn about the CFTC’s regulatory framework, and obtain feedback and information on the implementation of innovative technology ideas for the market; and (2) CFTC 2.0, an initiative to foster and help initiate the adoption of new technology within the CFTC through collaboration with FinTech industry and CFTC market participants. Continue Reading

CFTC’s Division of Clearing and Risk Extends No-Action Relief for Shanghai Clearing House

Posted in CFTC, Derivatives

On May 16, the Commodity Futures Trading Commission’s Division of Clearing and Risk (DCR) issued No-Action Letter 17-26, which extends relief previously granted to the Shanghai Clearing House under CFTC No-Action Letter 16-56. CFTC No-Action Letter 16-56 is effective until (and excluding) May 31. Continue Reading

SEC Issues Risk Alert in Response to WannaCry Ransomware Attack

Posted in Broker-Dealer, Investment Advisers, Investment Companies and Investment Advisers

On May 17, the Securities and Exchange Commission Office of Compliance Inspections and Examinations (OCIE), issued a Risk Alert in response to the widespread ransomware attack known as WannaCry, WCry, or Wanna Decryptor that started on May 12. The attack infected computers and servers of various organizations in more than 100 countries. The Risk Alert encourages broker-dealers and investment management firms (collectively, “Firms”) to review the May 12 alert published by the US Department of Homeland Security’s Computer Emergency Readiness Team and evaluate whether applicable patches for their operating systems are properly and timely installed. Continue Reading

CFPB Requests Information Regarding the Small Business Lending Market

Posted in Banking, Dodd-Frank Developments

On May 10, the Consumer Financial Protection Bureau (CFPB) held a field hearing and issued a notice and request for information related to the small business lending market. Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act amended the Equal Credit Opportunity Act to require “financial institutions” (as defined in Section 1071) to compile, maintain and report information concerning credit applications made by women-owned, minority-owned and small businesses. The purpose of the data collection is to facilitate enforcement of fair lending laws and to enable communities, governmental entities and creditors to identify business and community development needs and opportunities of women-owned, minority-owned and small businesses. Continue Reading

US District Court Holds That Discretionary Tax Withholding is Exempt Under 16b-3

Posted in SEC/Corporate

Several companies have received shareholder letters seeking to recover short-swing profits from insiders under Section 16(b) of the Securities Exchange Act of 1934, alleging that such insiders made non-exempt purchases of stock within six months of having shares withheld either for payment of the exercise price of employee stock options or to satisfy tax liabilities upon the vesting of restricted stock units (resulting in deemed dispositions of those shares). In each case, the shareholder has claimed that the Rule 16b-3(e) exemption (for transactions between an issuer and its officers and directors) is only available for such dispositions when the withholding is automatic, without an election by the insider or the company. On April 26, the United States District Court for the Southern District of Texas granted a motion to dismiss in JD. Jordan v. Robert Flexton, et al., No.4:16-CV03316, holding that dispositions of restricted stock units to cover tax withholding are compensation related transactions designed to be exempt under Section 16b-3(e) of the Securities Exchange Act of 1934. Continue Reading

Hinman Named Director of Division of Corporation Finance

Posted in SEC/Corporate

On May 9, the Securities and Exchange Commission announced that William H. Hinman will be named the new director of the SEC’s Division of Corporation Finance. Mr. Hinman was most recently a partner at Simpson Thacher & Bartlett LLP, where he advised public and private companies in corporate finance matters and boards of directors on public reporting, governance and other corporate matters. Newly sworn-in SEC Chairman Jay Clayton noted that, given Mr. Hinman’s experience, “he understands the SEC’s mission to promote capital formation, while ensuring that investors have the information necessary to make informed decisions.”

The SEC’s press release regarding Mr. Hinman’s appointment is available here.

FINRA Proposed Rule Change to the Consolidated Audit Trail

Posted in Broker-Dealer

In February, pursuant to Regulation NMS, the various national securities exchanges and the Financial Industry Regulatory Authority (each, a Participant) filed with the Securities and Exchange Commission a plan (Plan) to create, implement and maintain a consolidated audit trail (CAT) to capture information related to customers and order events for transactions in NMS securities and over-the-counter equity securities. The CAT will capture order information across all markets and throughout the life of an order (from inception to execution). Continue Reading

CFPB’s Prepaid Cards Rule Escapes Coverage Under the Congressional Review Act

Posted in Banking

Under the Congressional Review Act (CRA), Congress can review and overrule any federal regulations imposed during the final six months of the previous administration with a simple majority vote in each branch of Congress. However, Congress’ power is limited under the CRA because it can only introduce and vote on a CRA resolution within 60 legislative days after the regulation was finalized. Once a rule is repealed, the CRA also prohibits the reissuing of the rule in the same form or the issuing of a new rule which is substantially the same as the repealed rule, unless the reissued or new rule is specifically authorized by a law enacted after the date of the joint resolution disapproving the original rule.

In February, joint resolutions were introduced in both the Senate and the House to repeal the final Consumer Financial Protection Bureau (CFPB) Prepaid Cards Rule under the CRA. The joint resolutions would nullify the rule finalized by the CFPB on November 22, 2016, relating to prepaid accounts under the Electronic Fund Transfer Act and the Truth in Lending Act. The rule establishes various consumer protections with respect to prepaid accounts. Neither the Senate nor the House voted on these resolutions, and the CRA voting deadline for this year passed on May 11.