Earlier this month, FINRA responded to comments submitted regarding proposed amendments to Rule 5110 (see: https://bit.ly/2MlXCU4) and filed an amended proposal with the Securities and Exchange Commission (see: https://bit.ly/31bECMr).  Exhibit 4 shows the changes proposed in this Partial Amendment No. 1 in a blacklined version.

In Partial Amendment No. 1 FINRA is, among other things:

  • Modifying the requirement to file a description of any securities of the issuer acquired and beneficially owned by a participating member during the review period,
  • Excepting actively traded securities from the 180-day lock-up restriction,
  • Clarifying the investment grade debt exemption to exempt securities offered by a bank, corporate issuer, foreign government or foreign government agency that has outstanding unsecured non-convertible debt with a term of issue of at least four years or unsecured non-convertible preferred securities that are investment grade rated or are outstanding securities in the same series that have equal rights and obligations as investment grade rated securities provided that an initial public offering of equity is required to be filed, and
  • Amending its proposed definition of a “bank,” in order to include branches or agencies of a foreign bank to make the “bank” definition consistent with the SEC’s definition.

FINRA has released guidance, in question-and-answer format, with respect to FINRA member firm requirements to make filings under FINRA Rule 5122 and Rule 5123.  The Q&A addresses a number of frequently asked questions, including whether a placement agent may file on its behalf and on behalf of other placement agents, the types of materials that must be filed, and the review process.  See FINRA’s website.

On July 25, 2019, the Securities and Exchange Commission’s Investor Advisory Committee will be meeting. The meeting will be webcast, and the agenda includes: a discussion of the SEC’s approach to regulation in areas with limited competition; a discussion regarding trends in investment research and the impact of MiFID on research; a discussion regarding the proxy process; and a review of the work of the SEC’s Office of the Advocate for Small Business Capital Formation and the SEC’s Office of Minority and Women Inclusion. For additional details and to join, click here.

On July 15, 2019, the staffs of the Securities and Exchange Commission (“SEC”) and the North American Securities Administrators Association issued a joint summary explaining the application of the federal and state securities laws to investments in qualified opportunity zone funds (“QOFs”).  The summary discusses the opportunity zone program and when interests in QOFs would be considered securities under federal and state securities laws.  As expected, interests in a QOF will typically constitute securities within the meaning of federal and state securities laws except in certain limited circumstances (such as when each partner in the QOF has a substantial role in its management).  The summary also provides an overview of the SEC and state requirements relating to QOFs and their securities offerings, available exemptions from securities registration (including Rule 506(b) of Regulation D), broker registration requirements for those selling interests in QOFs, the application of the Investment Company Act of 1940 and considerations for advisers to a QOF.  The summary is available here.

Last month, Representative Maxine Waters, chair of the House Financial Services Committee, introduced a bill entitled Bad Actor Disqualification Act of 2019 (“proposed bill”). The proposed bill is intended to increase transparency and accountability in the Securities and Exchange Commission’s (“SEC”) process of providing bad actor waivers. It sets up a three-step process to request and obtain a waiver. First, a temporary waiver period of 180 days; second, a notice and comment period for the public; third, the SEC’s determination on the waiver petition. The proposed bill prohibits any SEC Staff from advising the person seeking a waiver regarding the likelihood of the waiver being granted and requires the SEC to maintain a database of entities who have applied for and been denied a waiver.

On July 3, 2019, Chairman Clayton of the SEC issued a Statement Regarding Offers of Settlement, which may have been prompted by the proposed bill. In his statement, Clayton pointed out that an appropriate settlement can be preferable to litigation. Clayton noted four factors that drive appropriate settlements: avoiding litigation costs, the willingness of the SEC to litigate, promptly remedying harm to investors and the desire for certainty. Noting that the separation of settlement offers and waiver requests “may not produce the best outcome for investors in all circumstances,” Chairman Clayton announced that going forward settling entities will be able to simultaneously submit an offer of settlement and a waiver application for the SEC’s consideration and approval. This change will benefit both the SEC Staff — being able to address both the underlying enforcement action and any related collateral disqualifications at the same time —  and the entities —  being able to have more certainty about this process. Clayton added that the SEC is under no obligation to accept any settlement offer and may determine not to accept a simultaneous offer of settlement and waiver request on the basis of form alone. The full text of his statement can be found here.

Recently, the Securities and Exchange Commission Office of the Investor Advocate released its report on objectives for fiscal year 2020. The Investor Advocate intends to focus on the SEC’s disclosure effectiveness initiative, including amendments to Regulation S-K, updates to industry-specific disclosure requirements, etc. The Investor Advocate will also focus on monitoring rulemaking developments related to proxy advisory firms. The Investor Advocate will focus on equity market infrastructure initiatives and fixed income market reform. Protecting senior investors and cracking down on broker misconduct remain high priorities for the Office as well. The full report may be accessed here.

Thursday, October 24, 2019
1:00 p.m. – 1:30 p.m. Registration
1:30 p.m. – 5:15 p.m. Program
5:15 p.m. Cocktail Reception

Virgin Hotels San Francisco
250 4th Street
San Francisco, CA 94103

Following rave reviews for our inaugural AI & Financial Services symposium earlier this year in Washington DC, we are excited to announce a follow-up program in San Francisco. Our West Coast symposium will focus on the legal, contractual and regulatory considerations when using AI to deliver both new and traditional types of financial services.

A detailed agenda for our West Coast symposium will be coming soon. The agenda for the previous program in Washington DC is available here.

Registration is now open and will be closed when our capacity limits are reached. Unfortunately, we do not expect being able to accommodate walk-ins. We hope you can join us in San Francisco on October 24, 2019.

To register, please visit our event site.

Thursday, July 18, 2019
11:00 a.m. – 11:30 a.m. EDT
Global Financial Markets Teleconference

The insurtech revolution is turning out to be far less about disruption than about collaboration—with the insurtech startups bringing improved analytics and user experiences and the traditional market participants bringing consumer trust, solvency and, critically, the ability to comply with industry regulations. But there are regulatory and contractual issues that should be considered when embarking on these collaborations.

Please join Mayer Brown partners Brad Peterson and Stephanie Duchene as they discuss various types of insurtech collaborations, from simple technology licensing to complex platform deals, and the accompanying regulatory and contractual issues to consider in each.

To register, please visit our event page.

On Friday, July 12, 2019, the Securities and Exchange Commission’s Divisions of Corporation Finance, Investment Management and Trading and Markets, and the SEC’s Office of the Chief Accountant issued a statement regarding the LIBOR phase out, focusing attention on the “urgency” of implementing alternative reference rates.  The statement references the work of the Alternative Reference Rates Committee (ARCC) in identifying the Secured Overnight Funding Rate (SOFR) as the preferred alternative rate for USD LIBOR.

The Staff encourages market participants to identify contracts extending past the 2021 LIBOR phase out date in order to assess their LIBOR-related exposures.  To that end, the release poses the following questions for registrants:

  • Do you have or are you or your customers exposed to any contracts extending past 2021 that reference LIBOR?  For companies considering disclosure obligations and risk management policies, are these contracts, individually or in the aggregate, material?
  • For each contract identified, what effect will the discontinuation of LIBOR have on the operation of the contract?
  • For contracts with no fallback language in the event LIBOR is unavailable, or with fallback language that does not contemplate the expected permanent discontinuation of LIBOR, do you need to take actions to mitigate risk, such as proactive renegotiations with counterparties to address the contractual uncertainty?
  • What alternative reference rate (for example, SOFR) might replace LIBOR in existing contracts?  Are there fundamental differences between LIBOR and the alternative reference rate – such as the extent of or absence of counterparty credit risk – that could impact the profitability or costs associated with the identified contracts?  Does the alternative reference rate need to be adjusted (by the addition of a spread, for example) to maintain the anticipated economic terms of existing contracts?
  • For derivative contracts referencing LIBOR that are utilized to hedge floating-rate investments or obligations, what effect will the discontinuation of LIBOR have on the effectiveness of the company’s hedging strategy?
  • Does use of an alternative reference rate introduce new risks that need to be addressed?  For example, if you have relied on LIBOR in pricing assets as a natural hedge against increases in costs of capital or funding, will the new rate behave similarly?  If not, what actions should be taken to mitigate this new risk?

For new contracts, the statement references the ARCC and the ISDA fallbacks.

Each Division and the Office of the Chief Accountant also provided specific guidance.  The guidance from the Division of Corporation Finance is consistent with prior statements, urging registrants to consider their disclosures relating to risks, results of operations, new products, etc.  The guidance from the Office of Chief Accountant notes that the transition from one benchmark rate to another can have a significant impact on a company’s accounting and could give rise to issues affecting inputs used in valuation models, hedge accounting, and income tax questions.  See the full statement here.

The Securities and Exchange Commission recently released the final report from the 2018 Government-Business Forum on Small Business Capital Formation.  The report highlights the recommendations of attendees in ranked order for actions to be taken by the SEC.  The Report includes, as the first priority recommendation, amendments to the definition of “accredited investor” in order to maintain the net worth and net income thresholds, but expand the categories to include individuals with certain licenses or professional designations.  The second priority includes additional reporting, disclosure and registration simplification and modernization measures, such as increasing the cap for smaller issuers under the Form S-3 “baby shelf” rules and allowing incorporation by reference in registration statements on Form S-4 for smaller issuers.  Priority 3A is harmonizing the framework for exempt offerings.  Priority 3B suggests adopting an exemption from broker-dealer registration from finders and codifying a rule for M&A brokers consistent with the Staff no-action letter.  Priority 5 requests additional guidance on general solicitation as it relates to offerings made in close proximity to one another.  Priority 6 recommends regulation of proxy advisory firms.  Priority 7 recommends revamping Regulation Crowdfunding.  Priority 8A includes recommendations relating to amendments to Regulation A and guidance for broker-dealers and other regulated entities in connection with Regulation a offerings.   Regulation 8B recommends revisiting the rules and requirements for secondary trading of OTC securities.  Priority 10 relates to addressing the acquired fund fees and expenses, or AFFE, disclosures for business development companies.  You can access the full Report here.