Money market funds (“MMFs”) act as a secure and liquid cash management vehicle for retail and institutional investors. MMFs enable investors to gain access to higher returns than interest-bearing bank accounts while providing principal stability and liquidity. They have proven to be very popular amongst investors, garnering over $2.5 trillion in assets.
Money Market Reform
S.E.C. Tightens Regulations on Asset-Backed Securities
The Securities and Exchange Commission (“S.E.C.”) adopted new rules on August 27 that increase disclosure requirements for issuers of asset-backed securities and establish new safeguards against conflicts-of-interest in the credit rating process. The rules implement reforms mandated by the Dodd-Frank Act, which Congress passed in 2010 to address the systemic issues at the root of the financial crisis. (more…)
SEC’s MCDC Initiative – The Clock is Ticking
Not-for-profit health care providers that have borrowed on a tax-exempt basis within the last five years should be aware of the Securities and Exchange Commission’s (SEC) Municipalities Continuing Disclosure Cooperation (“MCDC”) Initiative. The MCDC Initiative applies to municipal issuers and obligated persons, such as tax-exempt hospital borrowers, that provided materially misleading disclosure in Official Statements issued within the past five years regarding compliance with their continuing disclosure obligations under SEC Rule 15c2-12. The SEC is offering to enter into settlements pursuant to which such borrowers neither admit nor deny wrongdoing, but agree to a cease and desist order against future misleading disclosure and agree to certain undertakings, such as remedying all past disclosure failures, cooperating with subsequent SEC investigations, disclosing the settlement terms for five years in Official Statements, and establishing training programs regarding continuing disclosure obligations. However, the MCDC Initiative expires on September 10, 2014. After that date, the SEC has indicated that penalties for such misleading disclosure are likely to be more severe and may include fines.
SEC Staff Provides Guidance on Summary Section of Mutual Fund Prospectuses
The staff of the SEC’s Division of Investment Management issued IM Guidance Update No. 2014-8 (the “Guidance Update”) to provide guidance based on comments the Division has provided on the information required to be presented in standardized order at the beginning of mutual fund statutory prospectuses (the “Summary Section”) in response to Form N-1A Items 2 through 8. This is also the information required in a summary prospectus provided to investors pursuant to Rule 498 under the Securities Act of 1933.
SEC Adopts Security-Based Swap Cross-Border Definitional Rule
On June 25, the SEC adopted the first in a series of rules governing the cross-border reach of its security-based swap regulatory regime. The rules define the term “U.S. person” and provide the test for counting cross-border security-based swap transactions to determine whether a firm must register as a security-based swap dealer or a major security-based swap participant. The final rules also provide a process by which market participants or non-U.S. regulators can request that the SEC make a determination that a foreign regime’s security-based swap rules are comparable to the SEC’s, thereby permitting market participants in that jurisdiction to meet SEC rules through compliance with local law. Finally, the rules provide clarification of the SEC’s view of the cross-border application of its anti-fraud authority for all securities.
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SEC Postpones Payment Disclosure Rule for Oil and Gas Companies
In 2012, the Securities and Exchange Commission (“SEC”) adopted a rule that would require companies that extract oil, natural gas, and minerals to disclose payments made to the U.S. government along with foreign governments. Such companies would need to “disclose the information annually by filing a new form with the SEC called Form SD.” The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act mandated this rule and hoped that the rule would “encourage transparency and fight corruption in resource rich countries.”
SEC Proposes Security-Based Swap Recordkeeping, Reporting and Notification Requirements and Capital Rules for SEC Registrants
On April 17, 2014, the Securities and Exchange Commission (SEC) proposed new regulations that would implement the recordkeeping, reporting and notification requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The proposed regulations would apply to registered security-based swap dealers (SBSDs) and major security-based swap participants (MSBSPs), as well as to broker-dealers that are not registered as SBSDs or MSBSPs but are engaged in security-based swap activities.
SEC Cracks Down on High-Frequency Trading
Following the FBI’s announcement of a wide-ranging probe into high-frequency trading (HFT), the Securities and Exchange Commission (SEC) has placed its focus on the same area. “We currently have … a number of ongoing investigations regarding various market integrity and structure issuers, including high-frequency traders and automated trading,” said SEC Chair Mary Jo White, when testifying before a House of Representatives Appropriations subcommittee. Best-selling author Michael Lewis’s new book, “Flash Boys: A Wall Street Revolt” further fueled the long-standing debate that a group of tech-savvy insiders rigged the stock market using HFT.
SEC Holds Roundtable on Cybersecurity
The Securities and Exchange Commission recently held a roundtable on the issues and challenges cybersecurity presents for market participants and public companies. The roundtable is a means by which the SEC Commissioners can hear a variety of viewpoints and become better informed. Armed with this knowledge, the Commissioners will consider whether the SEC should take additional steps, in terms of regulation or other guidance, either to public companies generally or to entities regulated by the SEC, such as exchanges, investment advisers, broker-dealers and transfer agents. There is no timetable for further SEC action.
Time to Rethink the Self-Regulatory Framework for Stock Exchanges
The SEC will likely reevaluate the regulatory framework governing securities exchanges in light of new marketplace dynamics and trading practices. Under the current framework, national exchanges such as the NYSE and Nasdaq serve as special self-regulatory organizations (“SRO”) that establish and enforce rules for members, including broker-dealers. But advances in automation and electronic communication technologies have increasingly enabled broker-dealers to set up alternative trading systems (“ATS”) that compete, sometimes directly, with the national exchanges.