SEC Fires Another Warning Shot over Insider Trading Policies and Procedures
PDF version For well over a year, SEC enforcement and examination officials have emphasized the staff’s focus on insider trading, particularly by securities industry professionals. This focus has proceeded largely on two fronts. The first involves high-profile cases in which industry employees have been charged with engaging in illegal insider trading. The second takes a more preventative approach to insider trading enforcement, and involves cases against broker-dealers and investment advisers that, even in the absence of actual insider trading, have failed to adopt or enforce insider trading policies and procedures. Although this second line of attack has received less attention in the press, a recent SEC enforcement action against Chanin Capital LLC and its chief compliance officer demonstrates that legal and compliance staff should be paying close attention to the effectiveness of their policies and procedures that are designed to prevent insider trading.
Amendments Increase Attractiveness of Rule 701
The Securities and Exchange Commission has recently adopted two rule amendments that will expand the ability of foreign private issuers that are not U.S. reporting companies to provide stock-based compensation to their U.S. employees. Specifically:
SEC Proposes “Naked” Short Selling Anti-Fraud Rule
On March 17, the U.S. Securities and Exchange Commission (SEC) issued its formal proposal to adopt an anti-fraud rule under the Securities Exchange Act of 1934 (Exchange Act). The rule would address failures to deliver securities that have been associated with “naked” short selling. The SEC stated that the proposed rule is intended to highlight the liability of persons that deceive certain specified persons about their intention or ability to deliver securities in time for settlement, including persons that deceive their broker-dealer about their locate source or ownership of shares, and that fail to deliver securities by settlement date. Comments will be due to the SEC 60 days after the proposal is published in the Federal Register, which should occur by March 25.
SEC Proposes Amendments to Regulation S-P
The Securities and Exchange Commission (SEC) has proposed amendments to Regulation S-P, which sets forth privacy obligations for entities it regulates. To help prevent and address security breaches and better protect investor information, the SEC proposes to amend Regulation S-P in four principal ways. First, the proposed amendments would require more specific standards under the safeguards rule, including standards that would apply to data security-breach incidents. Second, they would amend the scope of the information covered by the safeguards and the disposal rules, and broaden the types of institutions and persons covered by the rules. Third, the proposed amendments would require institutions subject to the safeguards and the disposal rules to maintain written records of their policies and procedures and their compliance with those policies and procedures. Finally, the amendments provide a new exception from Regulation S-P’s notice and opt-out requirements to allow investors to more easily follow a representative who moves from one brokerage or advisory firm to another.
SEC Finally Publishes Proposed Amendments to Part 2 of Form ADV
PDF version On March 3, 2008, the Securities and Exchange Commission (SEC) published proposed amendments to Part 2 of Form ADV, the investment adviser registration form. The proposed amendments would replace the current “check-the-box” format and related disclosure schedules with a plain English, narrative brochure. The brochure would contain enhanced disclosure of potential conflicts of interest and would incorporate the disclosure of legal and disciplinary events involving the firm and its management personnel currently required by Rule 206(4)-4, which the SEC is proposing to withdraw. This week’s proposal incorporates public comments the SEC received on the amendments to Part 2 originally proposed on April 5, 2000.
SEC Proposes Rules to Allow Index-Based and Fully Transparent Actively Managed ETFs
PDF version At an open meeting on Tuesday, March 4, the Securities and Exchange Commission (SEC) voted unanimously to propose two new rules under the Investment Company Act of 1940 (Act) to permit exchange-traded funds (ETFs) to operate without the need to obtain individual exemptive orders from the SEC. The SEC also proposed amendments to disclosure Form N-1A to include additional information for ETF investors who purchase shares in the secondary markets.