On October 23, Chairman Jay Clayton of the Securities and Exchange Commission and Chairman Heath P. Tarbert of the Commodity Futures Trading Commission issued a joint letter creating a one-year pilot program to formalize the practices between the Chairmen relating to CFTC orders that implicate the “bad actor” disqualification provisions of Regulations A and D under the Securities Act of 1933 (the SEC Disqualification Rules). Under the SEC Disqualification Rules, individuals or firms are disqualified from relying on certain exemptions from registration for securities offerings if certain triggering events occur, such as certain securities law violations or final orders issued by the CFTC in connection with certain enforcement proceedings.
Continue Reading SEC and CFTC Chairman Issue Joint Letter Regarding CFTC Orders Implicating Regulations A and D

On October 22, the staff of the Division of Trading and Markets of the Securities and Exchange Commission (DTM) issued a no-action letter (the No-Action Letter) to the Financial Industry Regulatory Authority (FINRA) providing time-limited relief for broker-dealers operating fully paid lending programs (FPL Programs) in which they borrow fully paid and excess margin securities from their customers without complying with the requirement that the broker-dealer physically deliver collateral supporting the loan to the customer making the loan. Paragraph (b)(3) of SEC Rule 15c3-3 (the customer protection rule) requires that a broker-dealer that borrows fully paid or excess margin securities from a customer enter an agreement with such customer that requires the broker-dealer to:
Continue Reading SEC Staff Issues No-Action Relief Addressing Customer Protection Rule Violations Despite the Objection of Two Commissioners

On October 29, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 20-38, announcing FINRA’s adoption of a new rule to limit any associated person of a member who is registered with FINRA (a “registered person”) from being named a beneficiary, executor or trustee, or having a power of attorney or similar position of trust on behalf of a customer. New FINRA Rule 3241 (Registered Person Being Named a Customer’s Beneficiary or Holding a Position of Trust for a Customer) is designed to protect investors from undue and inappropriate influence over important financial decisions by requiring members to review its registered persons who are beneficiaries or hold positions of trust for customers.
Continue Reading FINRA Adopts Rule to Restrict Registered Person’s Ability to be a Beneficiary or Hold Position of Trust

In response to CFTC Letter No. 20-28, the Joint Audit Committee (JAC) has issued Regulatory Alert #20-02 and Regulatory Alert #20-03. As reported in the September 18 edition of Corporate & Financial Weekly Digest, CFTC Letter No. 20-28 provided supplemental guidance and no-action relief with respect to CFTC Regulation 1.56 (prohibition of guarantees against loss) compliance and further no-action relief with respect to the treatment of separate accounts by futures commission merchants (FCMs), initially set out in CFTC Letter No. 19-17. Specifically, with regard to compliance with the requirements of CFTC Regulation 1.56(b), Letter No. 20-28 gives FCMs until March 31, 2021 to remove or otherwise negate any limited recourse or similar provisions that may be contained in customer agreements. With regard to compliance with CFTC Rule 39.13(g)(8)(iii), the staff extended the time-limited no-action position from June 30, 2021 to December 31, 2021.
Continue Reading Joint Audit Committee Revises Earlier Regulatory Alerts to Conform to CFTC Letter No. 20-28

National Futures Association (NFA) recently redesigned its Annual Questionnaire, which applicants are required to submit with their NFA membership applications and current members are required to file annually. On September 29, at 9:30 a.m. CT/10:30 a.m. ET, NFA will host a webinar to address the transition to the new Annual Questionnaire.

Among other changes, the updated Annual Questionnaire:
Continue Reading NFA Announces Webinar to Debut Updated Annual Questionnaire

On August 26, the Securities and Exchange Commission adopted amendments to the definitions of “accredited investor” in Rule 501(a) and “qualified institutional buyer” in Rule 144A under the Securities Act of 1933 (Securities Act). The amendments expand the definition of accredited investor, a principal test to determine eligibility for participation in private capital markets, even if they do not meet specified income and net worth tests. Amendments to the qualified institutional buyer definition similarly expand the list of eligible entities under that definition. The amendments were adopted generally as proposed with no significant changes. The proposed amendments were previously covered in the December 20, 2019 edition of the Corporate & Financial Weekly Digest.
Continue Reading SEC Amends the Definitions of “Accredited Investor” and “Qualified Institutional Buyer”

On July 22, the Commodity Futures Trading Commission adopted rules (Final Rules) that set minimum financial capital requirements for swap dealers (SDs) and major swap participants (MSPs) that are not subject to prudential regulation (each, a “Covered Swap Entity” or CSE). The capital requirements were originally proposed in 2016, as explained in more detail here.

The core financial require
Continue Reading CFTC Adopts Final Capital Requirements for Swap Dealers

At an open meeting on July 22, the Commodity Futures Trading Commission heard presentations on three proposals for changes to the margin requirements for uncleared swaps. The proposed changes, which originate from recommendations made by the Margin Subcommittee of the CFTC Global Markets Advisory Committee (GMAC), are as follows:
Continue Reading CFTC Proposes Margin Requirements for Uncleared Swaps

On July 14, the Financial Industry Regulatory Authority (FINRA) filed a proposed rule change to amend Rule 2360 (Options) to increase position limits on options on certain exchange-traded funds. FINRA has indicated that increasing the position limits for conventional options subject to the proposed rule change could lead to a more liquid and competitive market for these options, which will benefit customers interested in these products.
Continue Reading FINRA Proposes to Increase Positions Limits on Certain Options