Following the increase in the number of special purpose acquisition companies (SPACs) and the related business combinations between SPACs and private target businesses (commonly referred to as “de-SPAC” transactions), an increase in regulatory scrutiny, particularly from the Securities and Exchange Commission, is emerging. As discussed below, in the last week the SEC has issued two statements — one related to the accounting treatment of warrants and one related to liability risk — that have attracted considerable attention from SPACs and other stakeholders.
Continue Reading SEC Statements Regarding SPACs Address Warrants and Projections
risk management
CFTC Staff Issues Guidance Regarding Risk Assessment of Customer Accounts for Futures Commission Merchants
By Kevin M. Foley & Gregory A. Uffner on
Posted in CFTC, Derivatives
On March 29, the Division of Clearing and Risk (DCR) of the Commodity Futures Trading Commission issued guidance regarding the implementation of revised Regulation 39.13(g)(8)(ii). Regulation 39.13(g)(8)(ii) provides that a derivatives clearing organization (DCO) must require its clearing members to collect from their customers initial margin at a level that is at least equal to the DCO’s own initial margin requirements with respect to each product and portfolio and commensurate with the risk presented by each customer account. The regulation further requires that a DCO must set both (1) a baseline level of initial margin (“clearing initial margin”), which serves as the minimum amount its clearing members must in turn collect from their customers; and (2) an increased level of initial margin (“customer initial margin”) for categories of customers determined by a clearing member to have a “heightened risk profile.”
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NFA Issues Notice Regarding Effective Date of NFA’s Swap Dealer Capital Requirements
By Kevin M. Foley & Gregory A. Uffner on
Posted in CFTC, Derivatives
On March 31, the National Futures Association (NFA) issued Notice I-21-14 advising member firms that are registered with the Commodity Futures Trading Commission as swap dealers (SDs), that NFA rules adopting minimum capital and financial reporting requirements will become effective October 6.
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FINRA Files Proposed Rule Change to Address Firms With History of Misconduct
By Susan Light, Michael T. Foley & Jack A. West on
Posted in Broker-Dealer
On November 16, the Financial Industry Regulatory Authority (FINRA) filed with the Securities and Exchange Commission a proposed rule change to (1) adopt FINRA Rule 4111 (Restricted Firm Obligations), which would impose additional conditions on member firms with a history of misconduct; and (2) adopt FINRA Rule 9561 (Procedures for Regulating Activities Under Rule 4111) and amend FINRA Rule 9559 (Hearing Procedures for Expedited Proceedings Under the Rule 9550 Series) to create a new expedited proceeding to implement proposed Rule 4111.
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CFTC Staff Issues Advisory on Virtual Currency for Futures Commission Merchants
By Kevin M. Foley & Jack A. West on
On October 21, the Division of Swap Dealer and Intermediary Oversight (DSIO) of the Commodity Futures Trading Commission issued an advisory to futures commission merchants (FCMs) regarding the holding of virtual currency in segregated accounts. The advisory, Letter No. 20-34, provides guidance to FCMs on how to hold and report certain deposited virtual currency from customers in connection with physically delivered futures contracts or swaps and how to maintain appropriate risk management programs concerning the acceptance of virtual currencies as customer funds.
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FINRA Releases an Updated Security Futures Risk Disclosure Statement
Posted in Broker-Dealer
On August 14, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 20-28 that included an updated Security Futures Risk Disclosure Statement (the “2020 Statement”). The uniform Security Futures Risk Disclosure Statement (the “Statement”) was jointly developed by FINRA, the National Futures Association (NFA) and several other self-regulatory organizations. The Statement is composed of nine sections and discusses the characteristics and risks of standardized security futures contracts traded on regulated US exchanges.
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Amendments to Risk Disclosure Statements for Security Futures Contracts Become Effective
By Kevin M. Foley & Timothy D. Kertland on
Posted in CFTC
On August 17, the National Futures Association (NFA) notified its members that amendments to NFA Compliance Rule 2-30(b) regarding risk disclosure statements for security futures contracts became effective on August 14. The amendment to NFA Compliance Rule 2-30(b) updates and replaces the prior risk disclosure statement and creates a 2020 supplement. The updated security futures risk disclosure statement reflects recent amendments to CFTC Regulation 41.25, which governs position limits and position accountability for security futures contracts.
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CFTC Staff Issues Advisory Addressing Current Market Conditions
Posted in CFTC, Derivatives
The Commodity Futures Trading Commission Divisions of Market Oversight (DMO), Swap Dealer and Intermediary Oversight (DSIO), and Clearing and Risk (DCR) (together, the Divisions) issued CFTC Letter 20-17 to remind Designated Contract Markets (DCMs), Futures Commission Merchants (FCMs) and Derivatives Clearing Organizations (DCOs) of their obligations to prepare for extreme market volatility, low liquidity and possibly negative pricing for certain contracts. The Divisions issued the advisory in light of unusually high volatility and negative pricing experienced in the May 2020 West Texas Intermediate (WTI), Light Sweet Crude Oil Futures contract on April 20 (the penultimate day of trading and expiration of the contract), although the guidance also applies to trading in other commodities.
Continue Reading CFTC Staff Issues Advisory Addressing Current Market Conditions