01.28.2011
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Updates
SEC Proposes Rule regarding Timely Acknowledgment and Verification of Security-Based Swap Transactions
On Friday, January 14, 2011, the SEC proposed a rule requiring security-based swaps dealers and major security-based swap participants "to provide to their counterparties a trade acknowledgment detailing information specific to the transaction." Trade acknowledgements must be provided within 15 minutes, 30 minutes, or 24 hours of execution of the transaction, depending on whether the transaction is executed or processed electronically. The new rule is proposed under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rule is aimed at increasing transparency in the security-based swaps market.
SEC Approves Rules regarding Asset-Backed Securities
On Thursday, January 20, 2011, the SEC adopted two sets of new rules aimed at improving disclosures regarding asset-backed securities. One set of rules requires issuers of asset-backed securities to disclose the history of any requests received or repurchases made, while the other set of rules requires issuers to conduct reviews of the underlying assets of the securities.
The Supreme Court Issues Ruling on Credit Card Rate Increases
On Monday, January 24, the Supreme Court issued an opinion in Chase Bank USA, N.A. v McCoy, which provides for protection to credit card companies against lawsuits derived from credit card rate increases. The issue in Chase Bank relates to 2009 amendments to Regulation Z (which implements the Truth in Lending Act), which require credit card companies to provide advance notice to cardholders for any rate increases resulting from default or delinquency. These rules were not in place, however, in 2006 when the plaintiff, James McCoy, filed his lawsuit. McCoy claimed that Chase Bank illegally increased his rates after he defaulted on payment. The Supreme Court ruled that Chase Bank's cardholder agreement, which specified that a rate increase was possible in the event of default, satisfied legal requirements in effect at the time.
Read the Supreme Court's Opinion
SEC Proposes Private Fund Systemic Risk Reporting Rule
On Tuesday, January 25, 2011, the SEC proposed a rule requiring advisors to hedge funds and other private funds to report certain information to the Financial Stability Oversight Council. The Financial Stability Oversight Council monitors systemic risk to the U.S. financial system. The proposed rule implements Sections 404 and 406 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Under the rule, large private fund advisors (those with $1 billion or more in assets under management or advisement) would be subject to heightened reporting requirements, while other private fund advisors, or "smaller private fund advisors," would not.
SEC Staff Study Recommends a Uniform Fiduciary Standard of Conduct for Broker-Dealers and Investment Advisers
On January 22, 2011, the Securities and Exchange Commission released a staff study (the “Study”) regarding the obligations of broker-dealers and investment advisers. The Study was mandated under Section 913 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The staff consulted with and obtained input from investors, financial professionals, industry groups, academics and other regulators in its preparation of the Study.
The Study noted that many retail investors are confused by the differing standards of care applicable to broker-dealers and investment advisers. In order to address this investor confusion, the Study recommends, among other things, that the Commission adopt and implement a uniform fiduciary standard of conduct for broker-dealers and investment advisers when providing personalized investment advice about securities to retail customers. Further, the Study recommends that in certain areas where investment adviser and broker-dealer laws and regulations differ, the Commission should consider whether the laws and regulations that apply to these areas should be harmonized for the benefit of retail investors. The Study identified the following functions served by broker-dealers and investment advisers as possible targets for regulatory harmonization: advertising and other customer communications, use of finders and solicitors, supervision, licensing and registration, continuing education requirements of associated persons and books and records requirements.
Any effort by the Commission to act on the recommendations of the Study would be through a formal rulemaking process whereby the Commission would first issue a proposing release that would be subject to public notice and comment. Undoubtedly, this potential rulemaking initiative will be an area of interest for the financial services industry, particularly those firms with large retail brokerage operations, that would be required to absorb the costs associated with compliance with any new or higher fiduciary standard of conduct.
Read the SEC press releaseSEC Proposes New Net Worth Standard for Accredited Investors
On Tuesday, January 25, 2011, the SEC proposed amendments to its rules regarding the definition of "accredited investor" to be in-line with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The new standards would exclude the value of an individual's primary residence when calculating net worth during an assessment of accredited investor status. The proposed amendments also clarify the treatment of indebtedness secured by the residence.
© 2011 Perkins Coie LLP
