Exam Alert: SEC requires financial institutions to implement identity theft programs

On April 10, 2013, the SEC announced that it and the CFTC were implementing rules to require broker-dealers, mutual funds, investment advisers, and certain other entities to adopt programs to prevent identity theft. Continue reading

On April 10, 2013, the SEC announced that it and the CFTC were implementing rules to require broker-dealers, mutual funds, investment advisers, and certain other entities to adopt programs to prevent identity theft.

 

The programs should be designed to identify relevant red flags, and to detect and respond to such red flags. The programs must also be updated periodically. Staff should receive adequate training. Financial institutions must exercise appropriate and effective oversight of service provider arrangements.

 

The rules will become effective 30 days after publication in the Federal Register. The compliance date for the rules will be six months after their effective date.

 

Source: SEC Release 2013-57: SEC Adopts Rules to Help Protect Investors from Identity Theft

 

This alert applies to Series 24, Series 26, Series 65, Series 66, and Series 99.

Exam Alert: SEC and CFTC define “swap,” “security-based swap,” and “mixed swap”

Effective October 12, 2012, the SEC and CFTC will put into effect rules that specify whether a given product counts as a “swap,” “security-based swap,” “mixed swap,” or none of the above. The new rules also require market participants to keep the same books and records for “security-based swap agreements” as would be required for swaps. Continue reading

Effective October 12, 2012, the SEC and CFTC will put into effect rules that specify whether a given product counts as a “swap,” “security-based swap,” “mixed swap,” or none of the above.  The new rules also require market participants to keep the same books and records for “security-based swap agreements” as would be required for swaps.

 

The CFTC regulates swaps, the SEC regulates security-based swaps, and both agencies regulate mixed swaps.  The CFTC regulates security-based swap agreements, but the SEC has antifraud authority over those products.

 

Products that are not swaps or security-based swaps include:

-insurance that falls under 1) the grandfather provision, 2) the product safe harbor, or 3) the enumerated product safe harbor

-security forwards

-consumer transactions

-commercial transactions

 

Products that are considered swaps include:

-Title VII instruments on interest rates and other monetary rates

-Title VII instruments on rates or yields of U.S. Treasuries and certain other exempt securities

-Title VII instruments on futures (other than futures on foreign government debt securities)

-broad-based index credit default swaps that require cash settlement or auction settlement

 

Products that are considered security-based swaps include:

-Title VII instruments on yields of a non-exempt debt security, loan, or narrow-based security index

-Total Return Swaps on a single security, loan, or narrow-based security index

-Title VII instruments on security futures

 

Products that are considered mixed swaps include:

-Total Return Swaps that include interest-rate optionality or a non-securities component

-broad-based index credit default swaps that require mandatory physical settlement

 

Products that may be swaps or security-based swaps:

-Title VII instruments based on futures contracts on certain foreign government debt securities

-index credit default swaps

-foreign exchange forwards

-foreign exchange swaps

-foreign currency options (other than foreign currency options traded on a national securities exchange)

-non-deliverable forward contracts involving foreign exchange

-currency and cross-currency swaps

-forward rate agreements

-contracts for differences

-certain combinations and permutations of (or options on) swaps and security-based swaps

 

Market participants may request a determination from the SEC and the CFTC of whether a product is a swap, a security-based swap, or a mixed swap.

 

Sources:

SEC Approves Rules and Interpretations on Key Terms for Regulating Derivatives (SEC Release 2012-130)

Further Definition of “Swap,” “Security-Based Swap,” and “Security-Based Swap Agreement”; Mixed Swaps; Security-Based Swap Agreement Recordkeeping (Federal Register publication)

 

This alert applies to the Series 62, Series 79, Series 99, Series 7, Series 66, and Series 65.

Exam Alert: FINRA rules to change to reflect Dodd-Frank changes to whistleblower laws

Dodd-Frank changes to federal law have prohibited predispute arbitration agreements from applying to whistleblower claims made under the Sarbanes-Oxley Act. Effective May 21, 2012, FINRA’s rules on predispute arbitration agreements will be revised to reflect this change. Continue reading

Dodd-Frank changes to federal law have prohibited predispute arbitration agreements from applying to whistleblower claims made under the Sarbanes-Oxley Act.  Effective May 21, 2012, FINRA’s rules on predispute arbitration agreements will be revised to reflect this change. 

FINRA’s amended rules will state that disputes that arise under whistleblower statutes that prohibit predispute arbitration agreements are not required to be arbitrated.  These disputes may only be arbitrated if both parties agree to do so after the dispute arises.

Source: FINRA Regulatory Notice 12-21

This exam alert applies to the Series 62, Series 79, Series 24, Series 7, and Series 82.

Exam Alert: SEC modifies accredited investor standard based on Dodd-Frank

The SEC has changed its net worth standards for accredited investors to conform to provisions of the Dodd-Frank Act. The change stipulates that the value of an investor’s primary residence may not be used when calculating net worth to determine whether the person is an accredited investor on the basis of having a net worth of over $1 million. The change will be effective 60 days after publication in the Federal Register. Continue reading

The SEC has changed its net worth standards for accredited investors to conform to provisions of the Dodd-Frank Act.  The change stipulates that the value of an investor’s primary residence may not be used when calculating net worth to determine whether the person is an accredited investor on the basis of having a net worth of over $1 million.  The change will be effective 60 days after publication in the Federal Register.

An accredited investor is allowed to participate in certain unregistered limited private offerings.  This SEC website shows the standards that determine who qualifies as an accredited investor.

Source: SEC Release 2011-274

This alert applies to the Series 6, Series 7, Series 24, Series 62, Series 79, and Series 82.

Exam Alert: SEC proposes rule to eliminate credit rating as a condition for short-form securities registration

On February 9, 2011, the SEC voted unanimously to propose an amendment to its rules that would remove credit ratings as a condition Continue reading

On February 9, 2011, the SEC voted unanimously to propose an amendment to its rules that would remove credit ratings as a condition for registration of securities using short-form registration or shelf registration.  Instead of a credit rating qualification, the issuer must have issued $1 billion of non-convertible securities in the past three years.  This proposed change is part of the Dodd-Frank Act reforms, which among other things require that federal agencies remove references to credit ratings from their rules. Relevant to the Series 79, the Series 24 and the Series 62.

http://www.sec.gov/news/press/2011/2011-41.htm