SEC and CFTC Updates - June 2013 Publication

 

Identity Theft

The SEC and CFTC recently adopted rules requiring broker-dealers, investment advisers, commodity trading advisors, commodity pool operators and certain other entities to adopt programs to detect red flags and prevent identity theft as required by the Dodd-Frank Act. These rules require these entities to adopt an identity theft program which should include policies and procedures designed to a) identify relevant types of identity theft red flags, b) detect the occurrence of those red flags, c) respond appropriately to the detected red flags, and d) periodically update their identity theft programs. The rules also provide guidelines and examples of red flags to assist firms in administering these programs.

 

These rules became effective on May 20, 2013 and the compliance date for these identity theft rules will be November 20, 2013.

 

The Adopting Release of the SEC pertaining to these rules can be found via the following link: http://www.sec.gov/rules/final/2013/34-69359.pdf

 

Insider Trading

The SEC has indicated that insider trading continues to be a high priority area for its enforcement program. In 2012, the agency brought 58 insider trading actions against 131 individuals and entities. Over the last three years, the SEC has filed more insider trading actions against nearly 400 individuals and entities with illicit profits or losses avoided totaling approximately $600 million. Many of these actions involved financial professionals, hedge fund managers, corporate insiders, and attorneys who unlawfully traded on material non-public information.

 

For more information including examples of the SEC's recent insider trading actions, please see the following link: http://www.sec.gov/spotlight/insidertrading/cases.shtml

 

Money Market Fund Reforms

The SEC recently released a proposed rule that proposes two alternatives for amending rules that govern money market funds under the Investment Company Act. The two alternatives, which could be adopted alone or in combination, are designed to address money market funds’ susceptibility to heavy redemptions, improve their ability to manage and mitigate potential contagion from such redemptions, and increase the transparency of their risks, while preserving, as much as possible, the benefits of money market funds. One alternative would require a floating net asset value (NAV) for prime institutional money market funds. The other alternative would allow the use of liquidity fees and redemption gates in times of stress. The proposal also includes additional diversification and disclosure measures that would apply under either alternative.

 

The SEC began evaluating the need for money market fund reform after the Reserve Primary Fund “broke the buck” at the height of the financial crisis in September 2008.

 

Comments to the proposed rule should be received within 90 days after the proposed rule is published in the Federal Register, meaning that the deadline for comments is likely to be in mid-September 2013. It is unknown when any final rule would become effective, but it is highly likely that this would not occur until 2014 at the earliest.

 

The text of the proposed rule can be found via the following link: http://www.sec.gov/rules/proposed/2013/33-9408.pdf

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