Key FYIs
SEC’s Large Trader Reporting System Proposal Would Affect Large-Volume, High-Frequency Traders and Their Broker-Dealers
On April 14, the Securities and Exchange Commission (SEC) issued a release (Release) proposing that certain large-volume, high-frequency traders (classified as “large traders”) be required to self-identify to the SEC, and that broker-dealers that effect transactions for “large trader” customers maintain and produce records of these customers’ trades to the SEC.[1] Proposed Rule 13h-1 under the Securities Exchange Act of 1934 (Rule) is intended to bolster the SEC’s regulatory and enforcement capabilities by increasing its ability to obtain information about the activities of large-volume, high-frequency traders. If adopted, the Rule will require such “Large Traders” of exchange-listed stocks and options to self-report to the SEC and will impose recordkeeping, reporting, and monitoring requirements upon registered broker-dealers’ transactions with “large trader” customers for production to the SEC upon request. Comments on the Rule are due by June 22, 2010. >>> continued
Supreme Court Affirms Gartenberg Standard in Unanimous Decision in Jones v. Harris Associates L.P.
On March 30, the U.S. Supreme Court, in a unanimous decision in Jones v. Harris Associates L.P., affirmed the standard as articulated by the Second Circuit Court of Appeals in 1982 in Gartenberg v. Merrill Lynch[1] as the standard upon which mutual fund boards should rely when considering the fees that a mutual fund pays to its investment adviser. Under that standard, an investment adviser will not face liability under Section 36(b) of the Investment Company Act of 1940 (1940 Act) unless it charges a fee that is so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm’s-length bargaining. In affirming the Gartenberg standard, which boards have used for many years in assessing the fees mutual funds pay to investment advisers, the Court vacated the judgment of the Seventh Circuit Court of Appeals[2] and remanded the case for further proceedings consistent with the Court’s opinion. >>> continued
The Emergency Economic Stabilization Act of 2008: Impact of the Historic New Law
The Emergency Economic Stabilization Act of 2008 (the “Act”) was signed into law by President Bush on October 3, 2008. Passage of the Act was the result of intense debate in both the U.S. Senate and the U.S. House of Representatives and among the American people. Debate was to be expected given the magnitude of the requested funds—$850 billion (including up to $700 billion for the purchase of troubled assets and up to $150 billion for the extension or expansion of a variety of tax breaks)—and the importance of the issues the Act addresses to an economy that has been experiencing severe stress from the fallout of the “subprime crisis” which has morphed into a more general credit crisis. >>> continued
Impact of the Emergency Economic Stabilization Act of 2008 on Investment Management Firms
The Emergency Economic Stabilization Act of 2008 (Act) will directly impact investment management firms of all kinds, with the greatest impact on those firms managing accounts holding “troubled assets” eligible for purchase by the U.S. Treasury and the few firms chosen to manage the Treasury’s portfolios of troubled assets. Although the Act runs 451 pages, details on key aspects of the government’s troubled asset recovery program that affect the investment management industry remain to be spelled out by the Treasury. Despite this, investment management firms should start considering how various aspects of the Act may affect their business activities. We discuss these subjects below. >>> continued
Congress Passes Financial Services Regulatory Relief Act, Timetable for Enactment of Final Rules Under Gramm-Leach-Bliley Act
On September 30, 2006, Congress passed the Financial Services Regulatory Relief Act of 2006 (the Act). The President is expected to sign the legislation into law. The Act largely affects the activities of banking institutions and, in several respects, affects banks that engage in certain types of securities business,
SEC Staff Issues Guidance on Registration of Hedge Fund Advisers
On August 10, 2006, the SEC’s Division of Investment Management (Staff) issued a letter on the effects of the decision of the U.S. Court of Appeals for the D.C. Circuit in Goldstein v. SEC. In vacating the SEC’s rule requiring registration of certain hedge fund advisers, Rule 203(b)(3)-2 under the Investment Advisers Act of 1940 (Advisers Act), the Goldstein decision referred to the entire SEC Release that accompanied the adoption of the rule. As a result, the D.C. Circuit appears to have vacated the entire rulemaking, which included rule amendments in addition to the registration requirement itself.