Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

The CFTC, by a 3-2 vote, has approved its final rule on position limits under the Dodd-Frank Act. Although the text of the rule has not been released, the Commission’s statements on the rule indicate that it did not stray very far from its January 26, 2011 proposed rule.

Commodities
The final rule establishes speculative position limits for 28 physical commodity futures contracts, along with all futures, options, and swaps that are “economically equivalent” to such contracts. The 28 “Core Referenced Futures Contracts” include, by commodity category:

– 4 energy contracts:
– NYMEX Henry Hub Natural Gas (NG);
– NYMEX Light Sweet Crude Oil (CL);
– NYMEX New York Harbor Gasoline Blendstock (RB); and
– NYMEX New York Harbor Heating Oil (HO);
– 9 “legacy” agricultural contracts;
– 10 non-“legacy” agricultural contracts; and
– 5 metals contracts.

Spot-Month Limits
Spot-month limits will be set at 25% of estimated deliverable supply, to be applied separately to positions in physical-delivery and cash-settled contracts. Unlike the proposed rule, only the cash-settled NYMEX Henry Hub Natural Gas contract will be subject to an increased spot-month position limit, applicable to cash-settled positions and aggregate positions, of five times the limit for the physical delivery contract. Spot-month position limits will be effective 60 days after the term “swap” is further defined under the Dodd-Frank Act, and the Commission estimates the limits will affect 85 traders in energy contracts, 84 in legacy agricultural contracts, 50 in non-legacy agricultural contracts, and 12 in metal contracts.

Non-Spot Month Limits
Non-spot month limits will be set at 10 percent of open interest (based on futures and cleared and uncleared swaps) in the first 25,000 contracts and 2.5 percent thereafter. Except for the 9 legacy agricultural contracts, for which non-spot month position limits will be effective 60 days after the term “swap” is further defined under the Dodd-Frank Act, non-spot-month position limits will be made effective by Commission order after the Commission has received one year of open interest data. The Commission estimates that the limits will affect 10 traders in energy contracts, 84 in legacy agricultural contracts, 80 in non-legacy agricultural contracts, and 25 in metal contracts.

Visibility Levels and Reporting for Non-spot Month Energy and Metals Contracts
In addition, the final rule requires quarterly position visibility reporting for traders exceeding non-spot month visibility levels in energy and metals referenced contracts. The levels for energy contracts in the January 26, 2011 proposed rule were 22,500 CL contracts, 7,800 RB contracts, 21,000 NG contracts, and 9,900 HO contracts.

Bona Fide Hedge and Other Exemptions
Bona fide hedge transactions are excluded from an entity’s position for purposes of the position limits. The Commission states that the exemption has been broadened in the final rulemaking to include certain anticipated merchandising transactions, royalties, and service contracts to reflect concerns of commercial firms. Nonetheless, Commissioner O’Malia, as part of his lengthy dissent, lamented what he perceived as a lack of flexibility in the bona fide hedge rules, stating that the Commission’s provisions are too narrow to adequately encompass certain long-standing risk management practices such as anticipatory hedging and do not allow hedgers to expeditiously seek exemptions for hedge transactions not enumerated in the rules.

ISS has posted its draft 2012 policies for comments.  The policies indicate a departure from prior ISS positions in evaluating executive compensation.  Perhaps more significantly, if a prior say-on-pay vote indicated significant opposition to pay practices, ISS may recommend withholding votes from compensation committee members, and a “no” vote on any current say-on-pay-proposal, depending on a number of circumstances.

Evaluation of Executive Pay

According to ISS, the advent of near universal say on pay has underscored the importance of a balanced evaluation of executive pay practices.  ISS believes both investors and issuers have indicated in roundtables and other feedback that pay-performance alignment should be viewed in a long-term context rather than the most recent year.  In light of this guidance, ISS is proposing to revise its approach to identifying pay-for-performance alignment in order to better address market needs. ISS intends that the new approach will identify strong as well as weak pay-for-performance alignment over a sustained period, thus giving clients a more robust view of the relationship between executive pay and performance at portfolio companies.

ISS claims backtesting of the new methodology indicates strong correlation between the results and shareholder say-on-pay votes in 2011.  ISS does not anticipate a significant change in the number or percentage of negative recommendations issued due to a change to the proposed methodology. However, the set of companies that are identified as having long-term pay-for-performance misalignment may differ somewhat from those that would be identified under the current methodology (which focuses primarily on companies that have underperformed a broad industry group and where a veteran CEO’s pay increased in the most recent year).

The new methodology incorporates a quantitative analysis, followed as applicable by further qualitative analysis.

Quantitative Analysis

The quantitative pay-for-performance analysis utilizes three factors; together they provide a useful signal to pay-for-performance alignment over sustained periods (one, three, and five years), including both high and low performing companies that provide proportionate (or disproportionate) pay and pay opportunities to the CEO.  The analysis measures three factors in two categories:

  • Relative Alignment– Two factors are analyzed to determine the pay-performance alignment within a group of companies similar to the company in market cap, revenue (or assets), and industry.
    • The degree of alignment between the company’s TSR rank and the CEO’s total pay rank within the peer group, as measured over one-year and three-year periods (weighted 40/60, to put more emphasis on the longer term);
    • The multiple of the CEO’s total pay relative to the peer group median, which may identify cases where a high performing company may nevertheless be overpaying.
  • Absolute Alignment– this factor measures long-term alignment between pay and company performance.
    • Alignment between the trend in the CEO’s pay and the company’s TSRs over the prior five fiscal years – i.e., the difference between the slope of annual pay changes and the slope of annualized TSR changes during the prior 5-year period.

Peer Alignment and Absolute Alignment may be weighted 50/50 in this portion of the analysis. Companies that demonstrate strong or satisfactory alignment will generally receive a positive recommendation (in the absence of other pay-related issues), while companies demonstrating weak alignment will receive further qualitative review to determine a final vote recommendation.

Qualitative Analysis

The qualitative review considers the following:

  • The ratio of performance- to time-based equity awards;
  • The overall ratio of performance-based compensation;
  • The robustness of disclosure and rigor of performance goals;
  • The company’s peer group benchmarking practices;
  • Actual results of financial/operational metrics, such as growth in revenue, profit, cash flow, etc., both absolute and relative to peers;
  • Special circumstances related to, for example, a new CEO in the prior FY or equity grant practices (e.g., biannual awards); and
  • Any other factors deemed relevant.

Board Response to Management Say-on-Pay Vote

This policy update clarifies that ISS will recommend case-by-case on compensation committee members and the current say-on-pay proposal if the company’s prior say-on-pay proposal received significant opposition from votes cast, taking into account:

  • The level of opposition;
  • The company’s ownership structure;
  • Disclosure of engagement efforts with major institutional investors regarding the compensation issue(s);
  • The company’s response;
  • Specific actions taken to address the issue(s) that appear to have caused the significant level of against votes;
  • Other recent compensation actions taken by the company; and
  • ISS’ current analysis of the company’s executive compensation and whether any prior issues of concern are recurring or one-time.

A higher level of scrutiny will be placed on companies where the say-on-pay proposal received less than 50 percent support from all votes cast. Further, the recurrence of previously identified compensation issues or newly identified compensation concerns, depending on the severity, may result in an against vote on Management Say on Pay and the Compensation Committee members.

Board Response to Management Say-on-Pay Frequency Vote

ISS is proposing the following new policy/vote recommendation with respect to say-on-pay frequency:

  • Vote withhold/against on all incumbent director nominees if the board implements an advisory vote on executive compensation on a less frequent basis than the frequency which received the majority of votes cast at the most recent shareholder meeting at which shareholders voted on the say-on-pay frequency.
  • Vote case-by-case if the board implements an advisory vote on executive compensation on a less frequent basis than the frequency which received a plurality, but not majority, of votes cast at the most recent shareholder meeting at which shareholders voted on the say-on-pay frequency.

Proxy Access Proposals

ISS’ current policy on shareholder proposals asking for open or proxy access is to recommend on a case-by-case basis taking into account the ownership threshold proposed in the resolution and the proponent’s rationale for the proposal at the targeted company in terms of board and director conduct.

Under the proposed policy for 2012, ISS would continue to evaluate these proposals on a case-by-case basis in determining a vote recommendation taking into account additional factors. The proposed policy update is as follows:

Vote case-by-case on shareholder proposals seeking proxy access, taking into account, among other factors:

  • The proponent’s rationale for the proposal at the targeted company;
  • The ownership thresholds proposed in the resolution (e.g., percentage and duration);
  • The maximum number of directors that shareholders may nominate each year; and
  • The method of determining which nominations should appear on the ballot if multiple shareholders submit nominations.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

For a number of years, SEC registrants have migrated toward increasing dependence on digital technologies to conduct their operations. As this dependence has increased, the risks to registrants associated with cybersecurity have also increased, resulting in more frequent and severe cyber incidents. Recently, there has been increased focus by SEC registrants and members of the legal and accounting professions on how these risks and their related impact on the operations of a registrant should be described within the framework of the disclosure obligations imposed by the federal securities laws. As a result, the SEC staff has provided guidance that assists registrants in assessing what, if any, disclosures should be provided about cybersecurity matters in light of each registrant’s specific facts and circumstances.

The SEC staff has prepared this guidance to be consistent with the relevant disclosure considerations that arise in connection with any business risk. The staff says it is mindful of potential concerns that detailed disclosures could compromise cybersecurity efforts — for example, by providing a “roadmap” for those who seek to infiltrate a registrant’s network security — and the SEC staff emphasizes that disclosures of that nature are not required under the federal securities laws.

The federal securities laws, in part, are designed to elicit disclosure of timely, comprehensive, and accurate information about risks and events that a reasonable investor would consider important to an investment decision.  Although no existing disclosure requirement explicitly refers to cybersecurity risks and cyber incidents, the SEC believes a number of disclosure requirements may impose an obligation on registrants to disclose such risks and incidents. In addition, the SEC believes material information regarding cybersecurity risks and cyber incidents is required to be disclosed when necessary in order to make other required disclosures, in light of the circumstances under which they are made, not misleading.

The SEC believes registrants should consider the following areas when considering cybersecurity risks:

  • Risk factors
  • MD&A
  • Business description
  • Legal proceedings
  • Financial statement disclosures

Registrants may seek to mitigate damages from a cyber incident by providing customers with incentives to maintain the business relationship. Registrants should consider ASC 605-50, Customer Payments and Incentives, to ensure appropriate recognition, measurement, and classification of these incentives.

Cyber incidents may result in losses from asserted and unasserted claims, including those related to warranties, breach of contract, product recall and replacement, and indemnification of counterparty losses from their remediation efforts. Registrants should refer to ASC 450-20, Loss Contingencies, to determine when to recognize a liability if those losses are probable and reasonably estimable. In addition, registrants must provide certain disclosures of losses that are at least reasonably possible.

Cyber incidents may also result in diminished future cash flows, thereby requiring consideration of impairment of certain assets including goodwill, customer-related intangible assets, trademarks, patents, capitalized software or other long-lived assets associated with hardware or software, and inventory. Registrants may not immediately know the impact of a cyber incident and may be required to develop estimates to account for the various financial implications. The SEC believes registrants should subsequently reassess the assumptions that underlie the estimates made in preparing the financial statements. According to the SEC, a registrant must explain any risk or uncertainty of a reasonably possible change in its estimates in the near-term that would be material to the financial statements.  Examples of estimates that may be affected by cyber incidents include estimates of warranty liability, allowances for product returns, capitalized software costs, inventory, litigation, and deferred revenue.

The SEC also states that to the extent a cyber incident is discovered after the balance sheet date but before the issuance of financial statements, registrants should consider whether disclosure of a recognized or nonrecognized subsequent event is necessary. According to the SEC, if the incident constitutes a material nonrecognized subsequent event, the financial statements should disclose the nature of the incident and an estimate of its financial effect, or a statement that such an estimate cannot be made.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

Section 313(p) of Title 31 of the United States Code, as codified by the Dodd-Frank Wall Street Reform and Consumer Protection Act, requires the Federal Insurance, or FIO, to conduct a study on how to modernize and improve the system of insurance regulation in the United States. The study must be submitted to Congress not later than 18 months after the date of the Dodd-Frank Act’s enactment. To assist the FIO in conducting the study and formulating its recommendations, the FIO has issued a  request for comment.

Commenters are invited to submit views on:

  • Systemic risk regulation with respect to insurance;
  • Capital standards and the relationship between capital allocation and liabilities, including standards relating to liquidity and duration risk;
  • Consumer protection for insurance products and practices, including gaps in State regulation and access by traditionally underserved communities and consumers, minorities, and low and moderate-income persons to affordable insurance products;
  • The degree of national uniformity of State insurance regulation, including the identification of, and methods for assessing, excessive, duplicative or outdated insurance regulation or regulatory licensing process;
  • The regulation of insurance companies and affiliates on a consolidated basis;
  • International coordination of insurance regulation;
  • The costs and benefits of potential Federal regulation of insurance across various lines of insurance (except health insurance);
  • The feasibility of regulating only certain lines of insurance at the Federal level, while leaving other lines of insurance to be regulated at the State level;
  • The ability of any potential Federal regulation or Federal regulators to eliminate or minimize regulatory arbitrage;
  • The impact that developments in the regulation of insurance in foreign jurisdictions might have on the potential Federal regulation of insurance;
  • The ability of any potential Federal regulation or Federal regulator to provide robust consumer protection for policyholders; and
  • The potential consequences of subjecting insurance companies to a Federal resolution authority.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

The federal regulators (the FDIC, the FRB, the OCC and the SEC, with the CFTC to follow separately) have published for comment a proposed Volcker rule as required by the Dodd-Frank Act. Among other things, the relevant provision of the Dodd-Frank Act generally prohibits banking entities from owning, sponsoring, or having certain relationships with, a hedge fund or private equity fund (which the rule refers to as “covered funds”), subject to certain exemptions.  The proposal as written, however, permits a bank to hold a carried interest in a covered fund.

Many banking entities that serve as investment adviser or commodity trading advisor to a covered fund are compensated for services they provide to the fund through receipt of so-called “carried interest.” In recognition of the manner in which such compensation is traditionally provided, the proposed rule also clarifies that an ownership interest with respect to a covered fund does not include an interest held by a banking entity in a covered fund for which the banking entity (or an affiliate, subsidiary or employee thereof) serves as investment manager, investment adviser or commodity trading advisor, so long as:

  • the sole purpose and effect of the interest is to allow the banking entity  to share in the profits of the covered fund as performance compensation for services provided to the covered fund by the banking entity, provided that the banking entity may be obligated under the terms of such interest to return profits previously received;
  • all such profit, once allocated, is distributed to the banking entity  promptly after being earned or, if not so distributed, the reinvested profit of the banking entity does not share in the subsequent profits and losses of the covered fund;
  • the banking entity does not provide funds to the covered fund in connection with acquiring or retaining this carried interest; and
  • the interest is not transferable by the banking entity except to an affiliate or subsidiary.

The proposed rule therefore permits a banking entity to receive an interest as performance compensation for services provided by it or one of its affiliates, subsidiaries, or employees to a covered fund, but only if the enumerated conditions are met.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

The CFPB has released its Supervision and Examination Manual.  The Manual is a guide to how the CFPB will supervise and examine consumer financial service providers under its jurisdiction for compliance with Federal consumer financial law.

The Manual is divided into three parts. The first part describes the supervision and examination process. The second part contains examination procedures, including both general instructions and procedures for determining compliance with specific regulations. The third part presents templates for documenting information about supervised entities and the examination process, including examination reports.

To fulfill its statutory mandate to consistently enforce Federal consumer financial law, the procedures in the manual are designed to be used by examiners to examine supervised entities that offer similar types of consumer financial products or services, or conduct similar activities. While all supervised entities must operate in compliance with applicable laws, the CFPB will tailor its expectations of how that is accomplished to fit particular entity profiles.

In the first edition, the CFPB has incorporated examination procedures developed under the auspices of the Federal Financial Institutions Examination Council (FFIEC) for many of the laws now generally enforced by the CFPB, including the Truth in Lending Act, Real Estate Settlement Procedures Act, and the Fair Credit Reporting Act. The CFPB will also use the Uniform Consumer Compliance Rating System established by the Federal Financial Institutions Examination Council.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

The SEC has proposed rules that lay out the process by which security-based swap dealers and security-based swap participants must register with the SEC.  The rules stem from Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Under the law, the SEC has authority over “security-based swaps,” which are broadly defined as swaps based on (1) a single security or (2) a loan or (3) a narrow-based group or index of securities or (4) events relating to a single issuer or issuers of securities in a narrow-based security index. The CFTC, on the other hand, has primary regulatory authority over all other swaps.

In creating the new regulatory regime, Title VII envisions that some individuals or entities will act as dealers of security-based swaps, while others will be major participants in a transaction. As such, the Dodd-Frank Act mandates that anyone acting as either a “security-based swaps dealer” or “major security-based swaps participant” must first be registered with the SEC. Consequently, the Dodd-Frank Act authorizes the SEC to issue rules setting out the registration process for these security-based swap entities.

Separately, the SEC has previously proposed rules together with the CFTC and in consultation with the Board of Governors of the Federal Reserve System further defining the terms “security-based swap dealer” and “major security-based swap participant.” The SEC and the CFTC are considering comments to that proposal.

Under the proposed rules, security-based swap dealers and major security-based swap participants (collectively, security-based swap entities) would register with the SEC by electronically filing a new form, Form SBSE. The new form is based on the broker-dealer registration form, Form BD.

Security-based swap entities that are registered or registering with the CFTC would be able to register with the SEC by filing a shorter form with the SEC (Form SBSE-A) together with a copy of the form they file with the CFTC. Similarly, those security-based swaps entities that are registered with the Commission as broker-dealers also would be able to file a shorter form (Form SBSE-BD).

In addition, the proposed rule would require the security-based swap entities to:

  • Promptly update their forms if the forms become inaccurate.
  • Have a knowledgeable, senior officer provide a certification as to the firm’s financial, operational and compliance capabilities to the Commission within a specified timeframe.
  • Obtain and retain certain information from each of its associated persons that are involved in effecting security-based swaps, and have its Chief Compliance Officer certify that no such associated person is “statutorily disqualified.”

The proposed rule also would also require each security-based swap entity that resides outside the U.S. to:

  • Identify a U.S. agent who can accept legal documents on behalf of the company.
  • Certify and submit an opinion of counsel that the non-U.S. entity is able to provide the SEC with access to its books and records and submit to on-site inspections and examination by the SEC.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

Section 113 of the Dodd-Frank Act authorizes the Financial Stability Oversight Council, or FSOC, to require a nonbank financial company to be supervised by the Board of Governors of the Federal Reserve System and be subject to prudential standards if FSOC determines that material financial distress at the nonbank financial company, or the nature, scope, size, scale, concentration, interconnectedness, or mix of the activities of the nonbank financial company, could pose a threat to the financial stability of the United States.  FSOC has issued a proposed rule and guidance describing the manner in which FSOC intends to apply the statutory standards and considerations, and the processes and procedures that the Council intends to follow, in making determinations under Section 113 of the Dodd-Frank Act.

FSOC has developed a three-stage process FSOC expects to apply for determinations in non-emergency situations. Each stage of the determination process would involve an analysis based on an increasing amount of information to determine whether a nonbank financial company meets a determination standard. The proposed guidance provides a detailed discussion of the proposed three-stage review process.

The first stage of the process is designed to narrow the universe of nonbank financial companies to a smaller set of nonbank financial companies using quantitative thresholds that are broadly applicable across the financial sector. Stage 1 is not intended to indicate a determination by FSOC that the nonbank financial companies identified during Stage 1 meet one of the determination standards. Rather, Stage 1 is intended to identify those nonbank financial companies that should be subject to further evaluation in subsequent stages of review.

In the second stage of the process, FSOC will conduct a comprehensive analysis of the potential for the identified nonbank financial companies to pose a threat to U.S. financial stability. In general, this analysis will be based on a broad range of quantitative and qualitative information available to FSOC through existing public and regulatory sources, including industry- and firm-specific metrics beyond those analyzed in Stage 1, and information obtained from the company voluntarily.

Based on the analysis conducted during Stage 2, FSOC intends to contact those nonbank financial companies that it believes merit further review in the third stage. Stage 3 will build on the Stage 2 analysis using quantitative and qualitative information collected directly from the nonbank financial company by the Office of Financial Research or the appropriate regulatory agency in addition to the otherwise available information considered during Stages 1 and 2. FSOC will determine whether to subject a nonbank financial company to Board of Governors supervision and prudential standards based on the results of the analyses conducted during each stage of review.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

The Federal Deposit Insurance Corporation requested public comment on a proposed regulation implementing the so-called “Volcker Rule” requirements of section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The proposal will be issued jointly with the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission.  It is anticipated that the Commodity Futures Trading Commission will issue a comparable proposal in the near future.

The relevant provision of the Dodd-Frank Act generally prohibits two activities of banking entities. First, it prohibits insured depository institutions, bank holding companies, and their subsidiaries or affiliates (banking entities) from engaging in short-term proprietary trading of any security, derivative, and certain other financial instruments for a banking entity’s own account, subject to certain exemptions. Second, it prohibits owning, sponsoring, or having certain relationships with, a hedge fund or private equity fund, subject to certain exemptions.

The proposed rule would require banking entities to establish an internal compliance program that is designed to ensure and monitor compliance with the statute’s prohibitions and restrictions, and implementing regulations. The internal compliance program would be subject to oversight by the banking entity’s board of directors and appropriate federal supervisory agency. The proposal also requires banking entities with significant trading operations to report to the appropriate federal supervisory agency certain quantitative measurements designed to assist the federal supervisory agencies and banking entities in identifying prohibited proprietary trading in the context of exempt activities.

Subpart D of the proposed rule requires a banking entity engaged in covered trading activities or covered fund activities to develop and implement a program reasonably designed to ensure and monitor compliance with the prohibitions and restrictions on covered trading activities and covered fund activities and investments set forth in section 13 of the Bank Holding Company Act of 1956, or BHC Act, and the proposed rule.  The proposed rule specifies six elements that each compliance program established under subpart D must, at a minimum, include:

  • Internal written policies and procedures reasonably designed to document, describe, and monitor the covered trading activities and covered fund activities and investments of the banking entity to ensure that such activities comply with section 13 of the BHC Act and the proposed rule;
  • A system of internal controls reasonably designed to monitor and identify potential areas of noncompliance with section 13 of the BHC Act and the proposed rule in the banking entity’s covered trading and covered fund activities and to prevent the occurrence of activities that are prohibited by section 13 of the BHC Act and the proposed rule;
  • A management framework that clearly delineates responsibility and accountability for compliance with section 13 of the BHC Act and the proposed rule;
  • Independent testing for the effectiveness of the compliance program, conducted by qualified banking entity personnel or a qualified outside party;
  • Training for trading personnel and managers, as well as other appropriate personnel, to effectively implement and enforce the compliance program; and
  • Making and keeping records sufficient to demonstrate compliance with section 13 of the BHC Act and the proposed rule, which a banking entity must promptly provide to the relevant regulatory authority upon request and retain for a period of no less than 5 years.

For a banking entity with significant covered trading activities or covered fund activities and investments, the compliance program must also meet a number of minimum standards that are specified in Appendix C of the proposed rule.  The application of detailed minimum standards for these types of banking entities is intended to reflect the heightened compliance risks of large covered trading activities and covered fund activities and investments and to provide clear, specific guidance to such banking entities regarding the compliance measures that would be required for purposes of the proposed rule. For banking entities with smaller, less complex covered trading activities and covered fund activities and investments, these detailed minimum standards are not applicable, though the regulatory authorities expect that such smaller entities will consider these minimum standards as guidance in designing an appropriate compliance program.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

The SEC adopted new rule 204-4, which requires exempt reporting advisers to file portions of Form ADV with the SEC.  As with registered advisers, exempt reporting advisers (including exempt advisers to venture capital funds, private equity funds and hedge funds) must file portions of Form ADV through the Investment Adviser Registration Depository system (“IARD”) and pay the Financial Industry Regulatory Authority (“FINRA”), which operates the system, a filing fee that the SEC approves. FINRA has submitted to Commission staff a letter recommending that the filing fee for exempt reporting advisers be set at $150 for each initial and annual report.  The SEC has approved this fee. 

The SEC and the Commodity Futures Trading Commission, or CFTC, also released a joint proposal that would require hedge fund advisers and other private fund advisers to report certain information regarding the private funds they advise. The proposal would require advisers to file Form PF electronically but left the selection of the filing system and operator for later consideration.  Having considered the options for such a filing system, the SEC has determined that, if Form PF is adopted, FINRA will develop and maintain the filing system as an extension of the existing IARD. Under the proposal, registered investment advisers managing one or more private funds would periodically file all or part of the proposed Form PF.  The SEC has also approved recommended fees of $150 for the proposed quarterly filings and $150 for the proposed annual filings of Form PF.

 

Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.