Exam Alert: SEC adopts definitions for security-based swap rules
Under the Dodd-Frank Act, the SEC and CFTC (Commodity Futures Trading Commission) regulate the OTC swaps market. On April 18, 2012, the SEC adopted rules that provide definitions for terms used in the law, specifying who will be subject to regulation.
The rules provide two categories of persons subject to SEC registration: "security-based swap dealers" and "major security-based swap participants." In essence, a security-based dealer is a person that regularly trades security-based swaps for their own account. A de minimis exemption exists for dealers who traded up to $3 billion worth of credit default swaps over the past year and up to $150 million worth of other security-based swaps. Note that there is a different de minimis threshold of $25 million for security-based swaps involving "special entities," including certain government agencies.
A major security-based swap participant is a person who maintains a "substantial position" in any of the major security-based swap categories, or whose outstanding security-based swaps create "substantial counterparty exposure." Note that hedging positions are not counted towards the "substantial position" threshold if the person is not a "highly leveraged financial entity," meaning a financial entity with a ratio of liabilities to equity in excess of 12-to-1. Two tests are provided for determining "substantial position," and two thresholds are provided for "substantial counterparty exposure." The specifics of these tests and thresholds may be found in the SEC release, along with background information, a plan to phase-in the de minimis rule, a safe harbor to avoid being considered a major participant, and other details.
The rule will become effective 60 days after publication in the Federal Register, though the deadline for registration will be given in SEC's final rules for registration of dealers and major participants.
Source: SEC Release 2012-67
This exam alert applies to the Series 62, Series 79, Series 99, Series 65, and Series 66.
Exam Alert: SEC alters investment adviser registration and reporting requirements
The SEC has adopted changes to the registration and reporting requirements that private fund advisers face. Unless the private fund adviser meets an exemption, they must register with the SEC. Exemptions from registration are provided for venture capital fund advisers and private fund advisers with less than $150 million in assets under management in the U.S., though these advisers must still report certain business information. Foreign private advisers are exempt from the registration and reporting requirements.
Source: SEC Release 2011-133
Exam Alert: Mid-sized advisers must register with the states
The SEC has modified the standards for federal investment adviser registration. They have raised the bar for federal registration from $25 million in assets under management to $100 million. Advisers with between $25 million and $100 million in assets under management fall into the new category of "mid-sized advisers," which must register with the states unless they qualify for federal registration based on other criteria. Mid-sized advisers have until June 28, 2012 to register at the state level.
Source: SEC Release 2011-133
Exam Alert: Private advisers must register with the SEC
Effective July 21, 2011, investment advisers to most private funds (hedge funds and private equity funds) must register with the SEC. Previously, these advisers had been exempt due to the "private adviser”" exemption. The Dodd-Frank Act replaces this exemption with narrower exemptions for certain advisers, including advisers that exclusively advise venture capital funds and private fund advisers with less than $150 million in assets under management in the United States.
http://www.sec.gov/spotlight/dodd-frank/hedgefundadvisers.shtml