Large Trader – Rule 13h-1 (Part 1)

Rule 13h-1 helps the SEC identify and obtain trading information on market participants that conduct a substantial amount of trading activity in the U.S. securities market. The rule imposes filing requirements on persons that meet the definition of “large trader.” A larger trader is any person that directly or indirectly, including through other persons controlled by such person, exercises investment discretion over transactions in NMS securities that equal or exceed:

  • 2 million shares or $20 million during any calendar day; or
  • 20 million shares or $200 million during any calendar month.

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Wrap Fee Suitability

A wrap fee program is an arrangement between financial institutions (typically broker-dealers and investment advisers) that enables customers to pay an all-inclusive fee (usually as a percentage of assets) for investment advisory services bundled with various other services, such as execution, clearing, and custodial services. Wrap fee programs create a number of suitability issues for the financial institutions that sponsor the wrap fee program or participate in the program.  Read More…

Investment Advisers: SEC vs. State Registration

Due to the Dodd-Frank legislation, as of mid-2012, there are rules for registration eligibility that are primarily determined by a firm’s assets under management (“AUM”). For all firms below $100 million AUM, registration is required with the appropriate state jurisdictions.  For all firms above $100 million AUM, registration will be at the SEC level. In order to account for fluctuations in AUM, the SEC has imposed, by rule, a buffer for Investment Advisers with AUM between $90 million and $110 million. An adviser may register with the SEC once it reaches AUM of $100 million. An adviser much register with the SEC if it’s AUM is $110 million or more. Once registered with the SEC, a mid-size adviser can remain registered with the SEC as long as its AUM is at least $90 million.  Read More…

SEC Releases New RIA Form ADV Filing Requirements Effective October 2017

Securities and Exchange Commission (SEC) adopted amendments to Investment Advisers Act rules in August 2016 that will result in significant changes to Form ADV for advisory firms working with SMA’s (Separately Managed Accounts).  The additional data will help the SEC focus on examining firms more often that present the greatest risks. Read More…

Reminder: Testing ORF and ADF Changes for Trade Reporting and T+2 Settlement

In accordance with the industry-led initiative to shorten the settlement cycle from three business days (T+3) to two business days (T+2), FINRA continues to make testing available in the NASDAQ Testing Facility (NTF) for associated changes to equity trade reporting. The amended rule is designed to enhance efficiency, reduce risk, and ensure a coordinated and expeditious transition by market participants to a shortened standard settlement cycle. Please refer to Regulatory Notice 16-09 and SR-FINRA-2016-047 for more information on the changes to trade reporting related to the shortened settlement cycle.   Read More…

SEC Issues Ransomware Risk Alert Highlighting Cybersecurity Best Practices

The SEC’s Office of Compliance Inspections and Examinations (OCIE) recently published a Risk Alert pertaining to “WannaCry,” the ransomware worm that infected hundreds of thousands of computers in over 150 nations earlier in May, 2017. WannaCry infects computers with malicious software that encrypts users’ files and demands payment to regain access to the data. The alert provides cybersecurity best practices, including a new initiative towards “rapid response” methods that firms should use to respond to cybersecurity challenges. It also describes factors that firms may consider to (1) assess their supervisory, compliance and/or other risk management systems related to cybersecurity risks, and (2) make any changes, as may be appropriate, to address or strengthen such systems.  Read More…

Rule 603(a): OTC Trades in NMS stocks

Rule 603(a) of SEC Regulation NMS provides that any national securities exchange, national securities association, broker or dealer that distributes information with respect to quotations for or transactions in an NMS stock to a securities information processor, broker, dealer or other persons shall do so on terms that are not unreasonably discriminatory. In adopting Regulation NMS, the SEC stated that “adopted Rule 603(a) prohibits [a SRO] or broker-dealer from transmitting data to a vendor or user any sooner than it transmits the data to a Network processor.” Read More…

FINRA 2017 Holiday Schedule

The FINRA 2017 Holiday Schedule has been released for trade dates, settlement dates, and margin extensions in 2017. Broker-dealers and municipal securities dealers should consult the schedule when requesting extensions of time for “regular way” transactions effected on dates before and after a holiday when the exchanges are closed. FINRA hopes this schedule will reduce the number of requests for Federal Reserve Board Regulation T and Securities Exchange Act (SEA) Rule 15c3-3 extensions that are denied around holidays due to incorrect due dates specified when the requests Read More…

Regulation D: Rule 504 Exemption

While reviewing documents related to a private placement engagement, you may see references to Regulation D (sometimes referred to as “Reg. D”). Regulation D consists of three SEC rules – Rules 504, 505, and 506 – that issuers often rely on to sell securities in unregistered offerings. Each rule has specific requirements that the issuer must meet. SEC Rule 504, for example, provides an exemption from the registration requirements of the federal securities laws. Read More…

Identity Theft Red Flags Rule

The CFTC and the SEC are jointly issuing final rules and guidelines to require certain regulated entities to establish programs to address risks of identity theft. These rules and guidelines implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which amended the Fair Credit Reporting Act (“FCRA”). First, the rules require financial institutions and creditors to develop and implement a written identity theft prevention program (“Program”) designed to detect, prevent, and mitigate identity theft in connection with certain existing accounts or the opening of new accounts. The rules include guidelines to assist entities in the formulation and maintenance of programs that would satisfy the requirements of the rules. Read More…