Enforcement

SEC Settles Insider Trading Case Involving Former Investment Adviser Employee

Summary: The SEC has filed and simultaneously settled an enforcement action against a former employee of an investment advisory firm for allegedly engaging in insider trading using confidential information obtained through the firm's due diligence process. According to the SEC, the employee accessed material nonpublic information, including clinical trial data related to biotechnology companies, and caused trades to be executed through a relative's brokerage account ahead of public announcements. The alleged misconduct involved four trades across three issuers and generated approximately $65,000 in illicit profits. Without admitting or denying the allegations, the defendant agreed to a settlement that includes a permanent injunction, a two-year industry bar from associating with investment advisers, brokers, or dealers, disgorgement, prejudgment interest, and a civil penalty.

Why it matters: The action highlights the SEC's continued focus on insider trading involving confidential research and due diligence information obtained by investment professionals. The case reinforces regulators' expectation that firms maintain robust controls over material nonpublic information and monitor employee trading activity, including trading conducted through family members or related accounts.

Potential action: Investment advisers and private fund managers should review their insider trading policies, personal trading surveillance programs, restricted list procedures, and controls surrounding access to confidential diligence materials. Firms should also ensure employee certifications and monitoring extend to accounts held by immediate family members and other related persons.

Read More Here(SEC)

FINRA Expels Broker-Dealer and Bars Founders for Excessive Trading and Churning

Summary: FINRA has expelled a broker-dealer from membership and permanently barred its two cofounders after finding they engaged in excessive trading and churning across 20 customer accounts over a six-year period. According to FINRA, the firm recommended a high-volume, high-cost market-timing strategy that generated approximately $2 million in commissions and trading costs while causing customers to suffer roughly $2.7 million in losses. FINRA also found that the firm's supervisory personnel failed to identify or investigate numerous red flags associated with the trading activity and imposed suspensions, fines, and additional supervisory training requirements on those individuals. The respondents accepted the sanctions without admitting or denying FINRA's findings.

Why it matters: The action underscores FINRA's continued focus on excessive trading, Regulation Best Interest compliance, and supervisory failures. The case demonstrates that firms can face severe sanctions where trading strategies prioritize commission generation over customer interests and where supervisory systems fail to detect patterns indicative of churning or unsuitable recommendations.

Potential action: Broker-dealers and investment advisers should review supervisory procedures governing trading activity, monitor cost-to-equity ratios and turnover rates for potential red flags, and ensure exception reports and surveillance systems are effectively identifying excessive trading. Firms should also confirm that supervisory personnel receive adequate training to identify and escalate potential Reg BI and suitability concerns.

Read More Here(FINRA)

Rulemaking

SEC Proposes Rescinding Key Regulation NMS Trading Rules

Summary: The SEC has proposed rescinding Rules 611 and 610(e) of Regulation NMS, which have governed U.S. equity market structure for nearly two decades. Rule 611, commonly known as the Order Protection Rule, generally prohibits executing trades at prices inferior to protected quotations displayed on other trading venues, while Rule 610(e) restricts locked and crossed quotations. The proposal would eliminate these requirements, remove related definitions from Regulation NMS, and make conforming amendments to other rules. The SEC stated that advances in technology and market structure have reduced the need for these provisions and that rescinding them could simplify trading operations, reduce compliance costs, and foster greater competition and innovation. The proposal is subject to a 60-day public comment period.

Why it matters: If adopted, the proposal would represent one of the most significant changes to U.S. equity market structure since Regulation NMS was adopted in 2005. Broker-dealers, exchanges, and trading venues could gain greater flexibility in order routing and execution practices, while relying more heavily on existing best execution obligations rather than prescriptive market structure rules. The changes may also influence the development of emerging trading technologies and tokenized securities markets.

Potential action: Broker-dealers, investment advisers, and market participants should monitor the rulemaking process and evaluate how potential changes could affect order routing practices, execution quality policies, best execution procedures, and market surveillance frameworks. Firms should also consider whether updates to trading technology and compliance controls may be necessary if the proposal is ultimately adopted.

Read More Here (SEC)

CFTC Proposes New Framework for Event Contracts and Prediction Markets

Summary: The CFTC has issued a Notice of Proposed Rulemaking seeking public comment on amendments to Regulation 40.11 governing event contracts involving activities enumerated under the Commodity Exchange Act, including terrorism, assassination, war, gaming, and unlawful conduct. The proposal would establish a formal framework for determining whether event contracts implicate prohibited activities and whether they are contrary to the public interest. It also introduces a 90-day review process and defines key statutory terms, including "gaming" and "involve," as the Commission continues to evaluate the rapidly expanding prediction markets sector.

Why it matters: The proposal represents another significant step in the CFTC's effort to establish a comprehensive regulatory framework for prediction markets and event contracts. Exchanges, market participants, and firms developing new event-based derivatives could face greater regulatory scrutiny and more standardized review procedures before products are permitted to trade.

Potential action: Firms participating in prediction markets or developing event-based derivatives should review the proposed rulemaking and assess whether existing products or planned offerings could be affected by the new framework. Market participants should also consider submitting comments during the public comment period and monitor future CFTC guidance as the regulatory landscape for event contracts continues to evolve.

Read More Here(CFTC)

What Regulators are Saying

SEC Risk Alert Highlights Economic Conflicts of Interest as Ongoing Examination Priority

Summary: The SEC’s Division of Examinations has issued a new Risk Alert outlining common deficiencies identified during examinations of registered investment advisers relating to economic conflicts of interest. The staff observed issues involving inadequate conflict disclosures, cash sweep arrangements, revenue sharing, affiliated service providers, mutual fund share class recommendations, Form ADV disclosures, advisory fee calculations, and compliance policies that did not accurately reflect firms’ business practices. The SEC reiterated that advisers have a fiduciary obligation to provide full and fair disclosure of conflicts and to ensure their compliance programs are reasonably designed to identify and address these risks.

Why it matters: Economic conflicts of interest remain a core SEC examination priority and continue to generate deficiency findings and client remediation efforts. Advisers should expect exam staff to closely review whether disclosures accurately reflect compensation arrangements, fee practices, affiliate relationships, and other financial incentives that could influence investment recommendations. The Risk Alert also reinforces the SEC’s focus on consistency between Form ADV disclosures, client agreements, and actual operational practices.

Potential action: Investment advisers should review their economic conflict disclosures, Form ADV filings, cash management and revenue-sharing arrangements, advisory fee calculation methodologies, and affiliate relationships to ensure they are fully disclosed and accurately implemented. Firms should also evaluate whether their compliance policies, procedures, and testing programs adequately address conflicts of interest and fee billing practices in light of the SEC’s latest examination observations.

Read More Here(SEC)

Orical Issue In FocusRead More Here(Orical)

CFTC Challenges New Mexico Law Targeting Prediction Markets

Summary: The CFTC has filed a federal lawsuit against the State of New Mexico seeking to block the application of the state's gaming laws to CFTC-regulated prediction markets. The Commission argues that the Commodity Exchange Act grants the CFTC exclusive jurisdiction over designated contract markets and that state-level enforcement actions attempting to prohibit federally regulated event contracts are preempted by federal law. The lawsuit follows similar actions brought by the CFTC against other states that have sought to restrict prediction market platforms operating under CFTC oversight.

Why it matters: The case highlights the CFTC's continued effort to assert exclusive federal authority over prediction markets and event contracts. The outcome could have significant implications for exchanges, market participants, and firms involved in developing or trading event-based derivatives by clarifying the extent to which states may regulate products already subject to CFTC oversight.

Potential action: Firms participating in or considering exposure to prediction markets should continue monitoring developments in the evolving regulatory framework. Market participants should assess whether their compliance policies appropriately address event contracts and remain prepared for further guidance or litigation that could shape the regulatory landscape for these products.

Read More Here(CFTC)

CFTC Seeks Public Input on Regulatory Barriers Facing Fintech Firms

Summary: The CFTC has issued a Request for Information (RFI) seeking public comment on regulations, guidance, no-action letters, and other agency actions that may unnecessarily impede fintech firms from partnering with federally regulated institutions or entering CFTC-regulated markets. The initiative is intended to identify opportunities to modernize existing regulatory frameworks, streamline application processes, and promote innovation and competition in the financial technology sector. The RFI also supports the Commission's implementation of Executive Order 14405, which encourages agencies to review regulations that may inhibit technological innovation. The public comment period will remain open for 21 days following publication in the Federal Register.

Why it matters: The request signals the CFTC's continued focus on reducing regulatory friction for fintech companies while encouraging innovation in derivatives and digital asset markets. The initiative could ultimately lead to updates in existing rules and guidance that affect market access, partnerships with regulated entities, and the development of new financial products and services.

Potential action: Fintech firms, market participants, and regulated financial institutions should review the Request for Information and consider whether existing CFTC regulations or guidance create unnecessary barriers to innovation or collaboration. Interested stakeholders may also wish to submit comments to help shape future regulatory reforms that could impact market participation and product development.

Read More Here (CFTC)

In the News

Private Equity Liquidity Crunch Continues to Pressure Fundraising and Exits

Summary: Private equity firms are facing a prolonged liquidity crunch as slower exits and reduced cash distributions to investors continue to weigh on fundraising activity, according to discussions at the industry's annual conference in Berlin. Industry data indicates that portfolio companies are being held significantly longer than historical averages, while a growing backlog of unsold assets has limited distributions to limited partners. As investors receive less capital back, many are slowing commitments to new funds and consolidating relationships with larger, more established managers. Market participants also cited weaker M&A activity, valuation uncertainty, and stress in private credit markets as factors contributing to the slowdown.

Why it matters: The continued slowdown in exits and fundraising highlights the operational and liquidity challenges facing private fund managers across the industry. Reduced investor distributions may make fundraising more competitive, extend holding periods, and place additional pressure on valuations and portfolio management strategies, while stress in adjacent private credit markets could further impact transaction activity.

Potential action: Private fund managers should evaluate portfolio liquidity, exit planning, and investor communication strategies in light of prolonged holding periods and slower capital recycling. Firms may also wish to review valuation methodologies, financing assumptions, and liquidity management practices as fundraising conditions remain challenging and private market stresses continue to evolve.

Read More Here (Reuters)