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US Regulatory Research

US Regulatory Updates

US Regulatory Research

SEC & Securities

SEC Names Deputy Chief Counsels of the Division of Investment Management

On 15 April, the Securities and Exchange Commission (“SEC”) named Sara Cortes and David P. Bartels as Deputy Chief Counsels of the Division of Investment Management (“IM”). According to the press release, Cortes will oversee IM’s exemptive applications program, and Bartels will oversee IM’s enforcement liaison program. Cortes has been a member of IM’s rulemaking office since 2013, whereas Bartels most recently served as Senior Policy Advisor to the Director of IM, Dalia Blass.

SEC Holds April 2019 FIMSAC Meeting

On 15 April, the SEC’s Fixed Income Market Structure Advisory Committee (“FIMSAC”) met to discuss existing and preliminary recommendations, the work of FIMSAC subcommittees, and the potential market impact of a transition away from the London Inter-bank Offered Rate (“LIBOR”). FIMSAC received a presentation from FINRA representatives regarding FIMSAC’s existing recommendations to introduce a pilot program for block-size trades in corporate bonds and to establish a new issue reference data service for corporate bonds. FINRA previously issued a regulatory notice soliciting comment on the proposed pilot program on 12 April; comments are due by 11 June 2019. FINRA also submitted a proposed rule change to establish a new issue reference data service for corporate bonds on 2 April. In addition, FIMSAC discussed: (i) preliminary recommendations regarding pennying in the corporate bond and municipal securities markets and certain principal transactions with advisory clients; (ii) updates from the credit ratings subcommittee and corporate bond transparency subcommittee and results of the exchange-traded funds (“ETFs”) and bond funds subcommittee’s study regarding implications of the growth in fixed income ETFs and mutual funds on liquidity and pricing in the corporate and municipal bond markets; and (iii) the Alternative Reference Rates Committee’s March 2018 report on LIBOR and reference rate reform, particularly regarding potential implications for the corporate bond and municipal securities markets.

On 15 April, Commissioner Elad Roisman delivered remarks at FIMSAC’s April 2019 meeting, during which he noted: “I am keenly interested in ways we can improve the transparency in all our markets, but especially for fixed income, where opacity still seems to be the norm, although I recognize that this is shifting.”  Roisman also advised that FIMSAC “must always be mindful of the potential unforeseen risks that even minor adjustments to existing rules and protections may cause.”

SEC’s OCIE Issues Risk Alert Regarding Privacy Notices and Safeguard Policies

On 16 April, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) issued a risk alert regarding the most frequent issues related to Regulation S-P identified in its examinations of investment advisers and broker-dealers. In the risk alert, OCIE staff noted instances where firms failed to provide notices to customers regarding the firms’ privacy policies and practices, as required by Regulation S-P, including: (i) Initial Privacy Notices, which are required to be provided “generally no later than” when a customer relationship is established; (iii) Annual Privacy Notices, which must be furnished during the continuation of the customer relationship; and (iii) Opt-Out Notices, which serve to notify the customer of their ability to opt out “of some disclosures of non-public personal information about the customer to nonaffiliated third parties.”  OCIE also identified violations of the Safeguards Rule of Regulation S-P, which requires firms to adopt written policies and procedures that address administrative, technical, and physical safeguards for the protection of customer records and information.

SEC and FINRA to Hold National Compliance Outreach Program for Broker-Dealers

On 16 April, the SEC announced the opening of registration for the 2019 National Compliance Outreach Program for Broker-Dealers, which will be co-sponsored by FINRA. The program, which will be held in Chicago on 27 June 2019, “will focus on insights from leadership, protecting retail investors, and regulatory hot topics such as digital assets and cybersecurity.”

SEC Streamlines Procedure for Confidential Treatment Extensions

On 16 April, the SEC published a short form application “to facilitate and streamline the process of filing an application to extend the time for which confidential treatment [of information contained in a material contract] has been granted.”  Registrants must continue to file applications to extend the confidential treatment of a material contract under Rule 406 of the Securities Act of 1933 and Rule 24b-2 of the Securities Exchange Act of 1934 prior to expiration of the original order, for the purpose of “protect[ing] the confidential information from public release pursuant to a Freedom of Information Act request.”

CFTC & Derivatives

CFTC Chairman Giancarlo and Commissioner Stump Deliver Remarks Before CFTC’s GMAC

On 15 April, Commissioner Dawn Stump delivered opening remarks before the Commodity Futures Trading Commission’s (“CFTC”) Global Markets Advisory Committee (“GMAC”). Commissioner Stump noted that GMAC’s agenda for the meeting “revolves around the sometimes-overlooked component of the G-20’s agreement in 2009 in Pittsburgh, which stipulated that regulators should ‘assess regularly implementation and whether it is sufficient to improve transparency in the derivatives markets, mitigate systemic risk, and protect against market abuse.’”  She noted that other issues addressed during the panels included, among others: (i) regulatory-driven market fragmentation; (ii) “cross-border issues with respect to trading venues and central counterparties,” including a presentation “on the current framework for U.S. access to non-U.S. swaps central counterparties”; (iii) initial margin for non-centrally cleared derivatives; and (iv) swap data reporting.

On 15 April, CFTC Chairman J. Christopher Giancarlo followed Stump with remarks before the CFTC’s GMAC. Giancarlo encouraged GMAC’s discussion of the G-20’s over-the-counter derivatives market reforms, particularly in the context of concern “whether disparate implementation of the reforms is causing undue fragmentation of what - prior to the reform implementation - were global markets for derivatives trading.”  Giancarlo explained that reform implementation should be “well calibrated to systemic risk mitigation without undue market fragmentation.”  He emphasized his work as co-chair of the International Organisation of Securities Commissions’ (“IOSCO”) “Follow-Up Group” to its Cross-Border Task Force, which has been tasked with: (i) exploring measures to address market fragmentation; (ii) soliciting feedback from members; and (iii) building a central repository of supervisory Memoranda of Understanding in order to strengthen collaboration and cooperation between IOSCO regulators and to improve transparency.

CFTC Chairman Giancarlo and Commissioners Quintenz and Berkovitz Deliver Remarks Before CFTC’s EEMAC

On 17 April, Chairman Giancarlo delivered remarks before the CFTC’s Energy and Environmental Markets Advisory Committee (“EEMAC”). Giancarlo’s remarks focused on two issues: (i) application of the supplementary leverage ratio to swaps clearing, which he noted “reflects a flawed understanding of central counterparty (“CCP”) clearing” and is “is biased against derivatives”; and (ii) the importance of derivatives to US energy markets, which he claimed has helped the “[U.S. energy] industry and its financial backers to withstand the cartel squeeze by Russia and the Organization of the Petroleum Exporting Countries (“OPEC”).”

On 17 April, Commissioner Quintenz delivered remarks before EEMAC, during which he addressed issues similar to Chairman Giancarlo’s. Quintenz noted that, in the past ten years, the U.S. has gone from being a net importer to a net exporter of liquid natural gas, which he does not believe “could have occurred without the robust derivatives markets we have in the United States.”  Quintenz also expressed disapproval with the proposed standardized approach for counterparty credit risk (“SA-CCR”) as an additional methodology for calculating risk-weighted assets under the capital rule. He noted that such revisions to the supplementary leverage ratio could result in “an enormously punitive treatment of oil and gas derivatives transactions that, according to some commenters, would increase a bank’s exposure calculations under SA-CCR with an end-user counterparty by up to 460%.”

On 17 April, Commissioner Berkovitz delivered remarks before the EEMAC, during which he reviewed EEMAC’s agenda for the meeting. The agenda included panels entitled: (i) “Derivatives Markets’ Responses to Physical Markets’ Developments”; (ii) “Exchange-Traded Energy Derivatives Markets”; and (iii) “Availability of Clearing and Other Services in the Energy Derivatives Markets.”  Berkovitz noted that EEMAC would also hear from Rob Creamer, President and CEO of Geneva Trading USA, regarding how the current calculation of the supplementary leverage ratio “may be affecting the ability of proprietary trading firms to obtain clearing services and compete in the derivatives markets.”

CFTC Cancels 23 April Open Commission Meeting

On 19 April, the CFTC announced that it had canceled an open Commission meeting scheduled for 23 April, noting that “[t]he matters under consideration are being resolved through the Commission’s seriatim process.”  The CFTC previously announced that the open meeting would be convened to discuss: (i) proposed amendments to regulations on certain swap data repository and swap data reporting requirements; (ii) proposed amendments to derivatives clearing organization general provisions and core principles; (iii) comparability determinations for swap dealers and major swap participants in the event of a no-deal Brexit; (iv) certification of the NIFTY 50 Index Futures Contract Listed on NSE IFSC Limited to be offered and sold to persons located in the U.S.; and (v) a final rule amending CFTC regulations to conform to Fixing America's Surface Transportation Act (“FAST Act”) provisions on privacy of consumer financial information. As noted below, the CFTC approved the latter on 19 April.

CFTC Approves Final Rule to Provide Exception to Annual Privacy Notice Requirement

On 19 April, the CFTC approved a final rule adopting – as required by the FAST Act’s December 2015 statutory amendment to the Gramm-Leach-Bliley Act – amendments to its regulations providing an exception to certain financial institutions from the requirement to provide annual privacy notices to customers. The revisions to CFTC Regulation 160.5 will apply to certain futures commission merchants, retail foreign exchange dealers, commodity trading advisors, commodity pool operators, introducing brokers, major swap participants, and swap dealers.

Bank Regulators

Agencies Request Comment on Proposal Regarding Capital Requirement for Certain U.S. Banking Organizations

On 18 April, the Federal Reserve (“Fed”), Federal Deposit Insurance Corporation (“FDIC”), and Office of the Comptroller of the Currency requested comments on “a proposal to modify a capital requirement for U.S. banking organizations predominately engaged in custodial activities.” The modification relates to permitting “certain [large or internationally active banking]   firms – those predominately engaged in custody, safekeeping, and asset servicing activities – to exclude qualifying deposits at central banks from their supplementary leverage ratio.”  According to the press release for the request for comment, only The Bank of New York Mellon Corporation, Northern Trust Corporation, and State Street Corporation are considered by the agencies to currently qualify for the exclusion.      


o   April 22: Comments are due on the FDIC’s proposed rule “that would amend its deposit insurance assessment regulations to apply the community bank leverage ratio (“CBLR”) to the deposit insurance assessment system.”

o   April 23: The Fed will hold an open meeting regarding a “Proposal to Revise the Board’s Control Rules.”

o   April 24: The FDIC and Duke University will hold a joint conference entitled “Fintech and the Future of Banking.”

o   April 29: Comments are due on the SEC’s proposed rule regarding solicitations of interest prior to a registered public offering.

o   April 30: The U.S. Senate Committee on Banking Housing and Urban Affairs (“Senate Banking Committee”) will hold a hearing entitled “Guidance, Supervisory Expectations and the Rule of Law: How do the Banking Agencies Regulate and Supervise Institutions?”

o   May 7: The Senate Banking Committee will hold a hearing entitled “Privacy Rights and Data Collection in a Digital Economy.”

o   May 15: The Senate Banking Committee will hold a hearing entitled “Oversight of Financial Regulators.”

Ianthe Zabel
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