Broker-dealers

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Wednesday, August 15, 2018
1:00 p.m. – 2:00 p.m. EDT

PIPE transactions remain an important capital-raising alternative. Whether a public company is seeking to finance an acquisition, effect a recapitalization or restructuring, or facilitate a liquidity opportunity for an existing stockholder, a PIPE transaction may be the most efficient approach.

During this session, Partner Anna Pinedo will discuss:

  • Recent market trends;
  • PIPE documentation and the principal negotiating issues;
  • The securities exchange shareholder approval rules and proposed changes to such rules;
  • Using warrants and structuring approaches;
  • Acquisition-related PIPE transactions; and
  • Selling stockholder PIPE transactions.

For more information, or to register for this complimentary session, please visit the event website.

The Securities and Exchange Commission Office of Investor Advocate released its report on the objectives of the Office for Fiscal Year 2019. The report cites the following among its principal objectives:

  • Public companies and public company disclosures. The report notes that the Commission should be encouraging companies to undertake initial public offerings; however, the report expresses concerns that the Commission has focused on regulatory burden reduction and that may affect the quality of disclosures available about public companies.
  • Fixed income market structure. The Office will focus on rulemaking relating to the fixed income markets that impact retail investors in municipal bonds and corporate bonds.
  • Proposed Regulation Best Interest. The Office intends to focus on the proposed regulation and has been conducting investor testing. The Office also intends to run controlled experiments related to the optimal length of Form CRS and the utility of video and web-based delivery.
  • Transfer agents. The Office will examine issues relating to transfer agents and transfer agent rules given that transfer agents function as gatekeepers.

On April 18, 2018, the Securities and Exchange Commission (SEC) introduced a package of proposals aimed at enhancing the quality and transparency of investors’ relationships with investment advisers and broker-dealers. The proposed Regulation Best Interest introduces three obligations for broker-dealers designed to require broker-dealers to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities: the disclosure obligation, the care obligation, and the conflict of interest obligation. Given that the Regulation Best Interest proposing release is well over 1,000 pages, we have summarized in a chart key aspects of the proposed rule. Our chart is available here.

On May 23, 2018, the Securities and Exchange Commission (the “Commission”) proposed establishing a research report safe harbor (Rule 139b) for unaffiliated brokers or dealers that publish or distribute research reports that cover investment funds.  The Commission took this action in furtherance of the mandate of the Fair Access to Investment Research Act of 2017 (the “FAIR Act”).  The FAIR Act required the Commission to expand the Rule 139 safe harbor for research reports to cover research reports on investment funds.  Rule 139 permits a broker or dealer that is distributing an issuer’s securities to publish a research report about those securities without the report itself being deemed an offer to sell such securities.  If adopted as proposed, the safe harbor would be made available to research reports on mutual funds, exchange-traded funds, registered closed-end funds, business development companies and similar covered investment funds.  The safe harbor would be unavailable with respect to broker-dealers’ publication or distribution of research reports about closed-end registered investment companies or business development companies during their first year of operation.  The adoption of an expanded safe harbor would reduce obstacles that currently prevent certain investors from accessing research reports on investment funds.  However, the safe harbor would not extend to research reports issued by brokers or dealers affiliated with the investment fund.  The public comment period will remain open for 30 days.  The proposed rule is available here.

Effective May 11, 2018, the U.S. Treasury’s Financial Crimes Enforcement Network (“FinCEN”) implemented a new customer due diligence requirement.  The requirement applies to certain financial institutions, including banks, broker-dealers and mutual funds, at the time each new account is opened.  The rule enhances the information that financial institutions must collect regarding the identity of individuals (i.e., beneficial owners) who own or control their legal entity customers, which includes any corporation, limited liability company or partnership.  Information must be collected for each owner of 25% or more of the equity interests of a legal entity customer.  As a result of the rule’s recent implementation, financial institutions are devoting significant time and resources to modifying their internal systems and to implementing appropriate procedures to ensure compliance with the rule.  Certain entities are excluded from the definition of “legal entity customer.”  For example,  SEC reporting companies are excluded from the rule because they are subject to public disclosure and reporting requirements that provide information similar to what would otherwise be collected under the rule. Companies listed on foreign exchanges are not excluded from the definition of legal entity customer. Such companies may not be subject to the same or similar public disclosure and reporting requirements as companies publicly traded in the United States and, therefore, collecting beneficial ownership information for them is required. Certain institutions are considering revising some standard form agreements, including underwriting agreements and engagement letters, to include ownership certification representations and covenants to ensure compliance.  FinCEN has provided financial institutions with a certification form that may be used to obtain the required beneficial ownership information.  To read FinCEN’s “Frequently Asked Questions” relating to the new rule, please click here, and to read SIFMA’s memorandum relating to the new rule in the context of certain sales of securities, click here (with attachments providing form certifications at the 25% equity ownership threshold and 10% equity ownership threshold).