Katten's Financial Markets and Funds Quick Take is a monthly newsletter that highlights key developments that may impact financial markets and funds.
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The “effective dissemination” of reporting on the quality of order execution
By Wayne Aaron
On March 6, the Securities and Exchange Commission (SEC) adopted by unanimous vote amendments to Rule 605 under Regulation NMS, the rule that required companies previously defined only as “market centers” to provide detailed statistics on the quality of execution of “covered” to publish orders” in NMS holdings. Read how amended Rule 605 expands reporting requirements.
Back to the drawing board: The CFTC is again proposing rules to codify Letter 19-17
By Stephen Morris
The Commodity Futures Trading Commission (CFTC) is making a second attempt to codify letters 19-17 in a new Regulation 1.44. Letter 19-17 addresses the processing of margin withdrawals by customers of Futures Commission Merchants (FCMs) that are clearing members of registered derivatives clearing organizations pursuant to CFTC Rule 39.13(g)(8)(iii). This “DCO Margin Adequacy Rule” provides that a registered derivatives clearing organization (DCO) must require its FCM clearing members to ensure that its customers do not withdraw funds from their accounts other than the net liquidation value plus the margin deposits remaining in the customer's account after withdrawal would be sufficient to meet the margin requirement applicable to the account. Read more about Letters 19-17.
Ensuring Everything is in Order: CFTC Proposes Simplified Rules for SEF and DCM Governance, Independence and Conflict of Interest Mitigation
By Carl Kennedy, Nicholas Gervasi
To ensure that Designated Contract Markets (DCMs) and Swap Execution Facilities (SEFs) adequately consider an independent perspective, the CFTC has proposed new rules and amendments to existing regulations to establish governance and fitness requirements for market regulatory functions and conflict of interest standards. The proposal, adopted on February 20, aims to establish uniform minimum fitness requirements for both SEFs and DCMs, as their respective officers, board members, committee members, disciplinary bodies and dispute resolution bodies have identical responsibilities in managing and monitoring operations, including market regulation , share functions. Read more about the CFTC's proposal.
FinCEN AML Alert: SEC investment advisors back in focus
By Adam Bolter, Nicholas Gervasi
On February 13, the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) proposed expanding the requirements of the anti-money laundering (AML) and counterterrorism financing (CFT) programs to include SEC-registered investment advisers (RIAs) and those exempt from the SEC Investor Coverage Reporting Advisors (ERAs). In particular, ERAs have not previously been considered as subject to specific AML compliance obligations of this nature and are typically subject to far fewer of the requirements that apply to SEC RIAs. Read more about FinCEN's AML rule proposal.
Susan Light is a guest on the Oyster Stew Podcast and discusses the new SEC rules for market participant registration
Susan Light, partner and co-chair of Broker-Dealer Regulation, appeared on the Oyster Stew podcast to discuss the SEC's amendments to the Securities Exchange Act of 1934, Rules 15b9-1, 3a5-4 and 3a44-2, where the SEC has increased the types of financial companies that must be registered. The podcast takes an in-depth look at these changes, including what it means for firms to comply with them, the registration application process, the challenges non-brokerage dealer firms may face in adapting to FINRA membership, and how how FINRA has historically handled rule changes related to new memberships. Listen to this episode of the Oyster Stew Podcast.
EU/UK
The UK Law Commission publishes draft digital assets legislation and calls for evidence on digital assets in private international law
By Neil Robson, Carolyn Jackson, Nathaniel Lalone, Christopher Collins, Ciara McBrien, Sara Portillo
On February 22, the UK Law Commission (Commission) published a consultation (Consultation) on its draft Digital Assets Bill (Bill), which contains two key clauses confirming that digital assets can be recognized as personal property under English law. Separately, the Commission has also issued a call for evidence to examine the appropriate courts and laws under which parties should litigate international digital asset disputes. Read more about the draft Digital Assets Bill.
Nathaniel Lalone discusses the potential public disclosure of investigations by the FCA
Nathaniel Lalone, partner at Financial Markets and Funds, spoke to Law360 about the Financial Conduct Authority's (FCA) proposal to publicly identify companies it is investigating if it is “in the public interest” to do so. The move is intended to reassure the public that they are “on the case” while deterring bad actors. Nate noted that this move would not be consistent with the SEC's Wells process, which maintains confidentiality until late in the process to encourage information sharing during an investigation. Read more about Nate's comments on Law360.
ICYMI
Here's a look back at Katten's recent client consultations.
- “The Lesson of Prometheus – A Specialty Broker Trader Can Wreak Havoc in TradFi by Unilaterally Declaring ETH as a Security,” March 11, 2024
- “A New 'Carrot' in the Government's Pocket: DOJ Announces Pilot Program to Reward Whistleblowers,” March 11, 2024
- “SEC Finalizes Highly Anticipated Climate Disclosure Rules,” March 8, 2024
- “Corporate Transparency Act Held Unconstitutional (For Certain Plaintiffs),” March 4, 2024
- “Need for Action: Impact of the Corporate Transparency Act on Investment Managers,” February 29, 2024
- “SEC Significantly Expands “Dealer” Definition,” February 23, 2024
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