Weekly RoundUp December 03, 2014

Financial Services Weekly News

Editor's Note
Editor’s Note

The SEC’s Semiannual Regulatory Agenda. The Federal Office of Information and Regulatory Affairs posted the SEC’s most recent Semiannual Regulatory Agenda which, in compliance with the Regulatory Flexibility Act, identifies anticipated rulemaking activities that are likely to have a significant economic impact on a substantial number of small entities. Among the 54 items for consideration are rule proposals addressing ● target date fund names and marketing materials, ● derivatives use by registered funds, including disclosure requirements, ● liquidity management for registered open-end funds (along with enhanced guidance relating to required liquid assets in open-end funds), ● exchange-traded funds and exchange-traded products, ● transition plans for registered advisers, ● stress testing by large asset managers and large investment companies, ● broker-dealer leverage ratio, and ● restrictions on aggressive short-term trading strategies during times of market stress by active proprietary traders. Also for consideration are final rules addressing ● amendments to Regulation D, Form D and Rule 156 under the Securities Act related to offerings under new paragraph (c) of Rule 506 involving general solicitation, ● removal of credit ratings references in Rule 2a-7 under the Investment Company Act and in Form N-MFP, and ● asset-backed securities registration and disclosure requirements for outstanding asset classes. The Agenda is not binding on the SEC, and given the timing targets that have been missed to date, the Agenda is probably not a very reliable predictor of SEC action, but does nonetheless give an indication of SEC rulemaking priorities.
Editor's Note
Editor's Note
Editor's Note

Regulatory Developments 

CFTC Staff Provides CTA Registration Relief for Family Offices

The CFTC’s Division of Swap Dealer and Intermediary Oversight issued CFTC Staff Letter 14-143 providing no-action relief from commodity trading advisor (CTA) registration similar to that previously provided in CFTC Letter 12-37, which provided no-action relief from commodity pool operator (CPO) registration to CPOs meeting the definition of “family office” under the SEC family office exclusion from adviser registration. Consistent with this prior relief, CFTC Letter 14-143 grants no-action relief from CTA registration for family offices eligible for relief under CFTC Letter 12-37 in connection with their advisory services to “family client[s]” as defined under the SEC family office exclusion from adviser registration. Relief under CFTC Letter 14-143 is not self-executing, but requires submission to the Division of a claim for relief.

Enforcement & Litigation 

SEC Settles with HSBC’s Swiss Private Banking Unit Over Failure to Register Before Providing Cross-Border Investment Advisory and Brokerage Services to U.S. Clients

The SEC announced that it had settled administrative proceedings against HSBC Private Bank (Suisse), SA, HSBC’s Swiss-based private banking arm, over the Commission’s findings that, although aware of applicable broker-dealer and investment adviser registration requirements, HSBC Private Bank failed to register with the SEC before providing cross-border brokerage and investment advisory services during the period from at least 2003 through 2011 to approximately 368 client accounts that held securities and were beneficially owned by permanent U.S. residents. These U.S. client relationships constituted as much as $775 million in assets under management and generated pre-tax income of approximately $5.7 million. In addition to admitting the facts in the settlement order and acknowledging that its conduct violated the federal securities laws, HSBC Private Bank agreed to pay $5.7 million in disgorgement, $4.2 million in prejudgment interest, and a $2.6 million penalty. In the Matter of HSBC Private Bank (Suisse), SA.

Industry Developments

Client Alert: Thanksgiving-Eve Delaware Chancery Court Decision Refuses to Dismiss Fraud-Based Claims Against Private Equity Investors and Outside Directors

Goodwin Procter’s Securities Litigation & White Collar Defense and Private Equity groups distributed a Client Alert this past week concerning a detailed opinion issued by the Delaware Chancery Court that is of significance to all parties involved in M&A transactions, particularly in the private equity space. The Alert discusses the recent decision made in Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, C.A. No. 7906-VCG (Del. Ch. Nov 26, 2014), which is noteworthy in part because of its discussion of the types of specific allegations of fact sufficient to plead that outside directors and selling investors had knowledge of or assisted in the alleged fraud. The Alert describes how the decision may impact deal lawyers and their clients.