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Please see below the first of the Forum’s new monthly legal updates.  The monthly updates are intended to provide a compilation of recent legal news relevant to a capital markets practice in the London and international markets.  The news pieces have been collected and summarized from various sources, and links to the original sources are provided.


FCPA focus

The Foreign Corrupt Practice Act continues to be a high enforcement priority of the Securities and Exchange Commission (“SEC”).

For more information, see Sidley Austin’s article here.

Foreign Account Tax Compliance Act ("FATCA")

On 12 September 2012 the UK government signed an Inter-Governmental Agreement (an “IGA”) with the US government for the purposes of FATCA implementation in the United Kingdom.  This is the first agreement of its kind and is broadly based on the template agreements released by the US Internal Revenue Service (the “IRS”) in July.  An IGA is intended to ease the administrative burden of FATCA compliance for non-US entities by enabling such entities to report to their own revenue authority rather than having to enter into an agreement directly with the IRS.  An IGA, together with consequential amendments to local law, should also address any legal concerns that non-US entities may have in relation to FATCA compliance (e.g., with respect to disclosure of information and confidentiality obligations under local law).

For more information click here.

FINRA proposes rule changes in connection with JOBS Act

FINRA filed with the SEC proposed rule changes intended to conform to certain requirements of the JOBS Act, as further interpreted by the SEC staff. In its proposal, FINRA stated that the proposed changes are consistent with the SEC staff's position, as expressed in FAQs, and would further the policies underlying the applicable JOBS Act provisions.

For more information, see the Holland & Knight article here.

JOBS Act study on the enforcement of
Rule 12g5-1(b)(3)

On October 16th, the SEC released its study on its ability to enforce Rule 12g5-1(b)(3). As amended by the JOBS Act, the rule generally allows issuers with fewer than 2,000 holders of record to forego complying with certain registration and disclosure requirements. The study concludes that the SEC's existing enforcement tools are adequate to enforce the rule.

For more information, see the Winston & Strawn article here.

SEC Staff Legal Bulletin No. 14G relating to
Rule 14A-8

SEC Staff Legal Bulletin No. 14G (“SLB 14G”) provides further guidance on a number of process issues that have caused significant confusion, and thus been the subject of past Staff Legal Bulletins and no-action requests, relating to Rule 14a-8 shareholder proposals.

See Sullivan & Cromwell’s article here.

SEC gives notice of intent to cancel numerous investment adviser registrations

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) amended certain provisions of the Investment Advisers Act.  These amendments included provisions that delegate generally to the states regulatory responsibility over certain mid-sized advisers – i.e., those that have between $25 million and $100 million of assets under management.  These provisions and related rule amendments required a significant number of advisers registered with the SEC to withdraw their registrations with the SEC and to switch to registration with one or more state securities authorities.

See full article here.

US Foreign Corrupt Practices Act (“FCPA”) Jurisdiction in Asia Pacific: To Infinity and Beyond?

Recent cases brought by US law enforcement officials have made it clear that companies who are not incorporated or operating in the United States, not listed on US stock exchanges, and not doing business anywhere in the United States can still be subject to jurisdiction under the US Foreign Corrupt Practices Act (“FCPA”). In what must look like rocket science to some, jurisdiction can turn on nothing more than an email, a US dollar denominated transaction, or assisting a US business partner. Since over half of all US FCPA investigations last year involved conduct or companies based in Asia (Japan, China, Malaysia, Thailand, Indonesia, Vietnam, Myanmar, South Korea and Taiwan), Asian companies are rightly wondering just how far US jurisdiction extends.

See Clifford Chance’s article here.

Guide to FINRA’s new Communications with the
Public Rule

The SEC recently approved the Financial Industry Regulatory Authority’s (“FINRA”) proposed revisions to its rules on Communications with the Public. The new rules, which become effective on February 4, 2013, are a comprehensive reworking of the approval, filing and content requirements, particularly as to retail communications. The new rules are quite detailed and provide some significant change from the existing rules. Fried Frank has prepared the attached guide as a tool to assist broker-dealers in understanding and complying with these rules.

See Fried Frank’s Guide here.

Turning the screws: Justice Department and regulators ramp up anti-money laundering enforcement

As if businesses do not have enough on their plate: the Justice Department and the Treasury Department have been increasing anti-money laundering (“AML”) enforcement against banks and other “financial institutions.”  It is not a surprise because the Justice Department warned everyone they were going to increase AML enforcement, including non-traditional financial institutions.

Click here for more information.

NYSE and NASDAQ propose listing standards for compensation committees and compensation advisers 

On September 25, 2012, the New York Stock Exchange and the NASDAQ Stock Market proposed rule changes to their respective listing standards affecting public company boards of directors, compensation committees and compensation advisers in response to recently adopted directives of the SEC.

See Foley Hoag’s update here.
and, see the Ballard Spahr update here.

NYSE and NASDAQ issue proposed rules for compensation committees

On June 20, 2012, in furtherance of Dodd-Frank, the SEC adopted new Rule 10C-1 under the Securities Exchange Act of 1934 and amendments to Item 407 of Regulation S-K that, among other things, focused on ensuring the independence of compensation committee members by directing the national securities exchanges to "establish listings standards that … require each member of a listed issuer’s compensation committee to be … ‘independent’ as defined in the listing standards of the exchange." In response to this SEC release, each national securities exchange in late September proposed rule change submissions to comply with new Rule 10C-1.

See Milbank’s article here.  

SEC registration of covered bonds 

This publication is intended to provide a brief summary overview of some of the considerations for a foreign issuer of covered bonds that is contemplating registering covered bonds in the United States with the SEC.

See Morrison & Foerster’s update here.

Standing under Exchange Act Section 16(b) 

On October 1st, the Second Circuit addressed Constitutional standing under Section 16(b) of the Securities Exchange Act of 1934.

See Winston & Strawn’s article here.

Changes to European prospectus regime: will it be easier for US companies to operate employee stock plans in Europe? 

Recent amendments to the European prospectus rules may make the operation of certain employee stock plans in Europe by multinationals listed in the United States cheaper and more straightforward.

See Mayer Brown’s article here.

More SEC guidance on Title I of the JOBS Act 

The Staff of the Division of Corporation Finance of the SEC recently updated its Frequently Asked Questions on Title I of the JOBS Act to address a number of issues regarding the applicability of the provisions in Title I to exchange offer, merger and spin-off transactions, as well as considerations for determining whether a company qualifies as an emerging growth company (an “EGC”) and the financial information that an EGC includes in certain filings.

See the Morrison & Foerster article here.
and Holland & Knight’s article here.

FINRA proposes research rule amendments in connection with JOBS Act 

FINRA recently filed a proposed rule change (the “Proposal”) with the SEC to amend Rule 2711 of the former National Association of Securities Dealers, Inc. in order to implement certain provisions of the JOBS Act, as further interpreted by SEC staff.

See the Sidley Austin article here.

FINRA announces effective date for new rule requiring notice filings

FINRA has announced new Rule 5123 will become effective on December 3, 2012.

See the Moses & Singer update here;
and the Latham & Watkins update here.

Also, see the Pillsbury update here;
and the Herrick Feinstein update here. 

SEC issues additional guidance on emerging growth companies

On September 28, the Division of Corporation Finance of the SEC published an additional set of frequently asked questions (FAQs) regarding Title I of the JOBS Act, which was enacted on April 5.

See the Katten Muchin Rosenman update here.

Federal courts endorse an expanded definition of a "whistleblower" - companies should carefully consider the who and how when claims are made 

Federal courts are following the lead of the SEC in adopting an expansive view of who can be a "whistleblower" under Dodd Frank.

See the Snell & Wilmer update here.

Dodd-Frank implementation update 

Title VII of Dodd Frank was enacted on July 21, 2010 and rules are being implemented on an ongoing basis.

See the Orrick update here.

JOBS Act draft registration statements 

On September 26th, the SEC's Division of Corporation Finance announced that beginning October 1, 2012, emerging growth companies and private issuers may choose to submit their JOBS Act draft registration statements either using the current secure email system or via a new EDGAR system.

See the Winston & Strawn update here.

Financial Industry Developments 

On September 27, Treasury sent a letter to the Financial Stability Oversight Council calling for structural reforms to the regulation of money market funds.

See the Orrick update here.

Third party marketers must file PPMs with FINRA 

Effective December 3, 2012, hedge funds and other private funds that rely on Section 3(c)(1) of the Investment Company Act and which sell their interests through third party marketers, must ensure that their private placement memoranda are filed with FINRA.

See the Pillsbury update here.

Enforcement action highlights the need for disclosure regarding conflicts of interest 

A recent SEC enforcement action against a registered investment adviser demonstrates the need for registrants to disclose to its clients in writing any and all conflicts of interest.

See the Foley & Lardner update here.

Lack of SEC guidance with revised Rule 506 could make the rule unusable 

As reported previously, on August 29, 2012, the SEC issued proposed revisions to Rule 506 under Regulation D of the Securities Act of 1933 (Rule) to accommodate the provisions under Title II of the JOBS Act.

See the Foley & Lardner update here.


Stumbling block or stepping stone? Companies face the choice: trip over the SEC’s new reporting requirements or use them to launch strong and effective compliance measures

On August 22, 2012, the SEC adopted final rules requiring oil, natural gas, and mining companies to report to the SEC certain payments to foreign governments. The new rules are aimed at increasing transparency in the global resource extraction industry but may create confusing and onerous FCPA compliance burdens for many U.S. and foreign companies. For some, the requirements may present an obstacle, but for companies that get ahead of the new rules and tailor their FCPA policy and protocols appropriately, the requirements may be the pivot point they need to step toward a lean and effective compliance regimen.

Click here for full article.

JOBS Act: Filing of Draft Registration Statements

In June the SEC announced that it was building an EDGAR-based system through which certain EGCs and foreign private issuers could submit draft registration statements for non-public and confidential review. Today the SEC announced that the new EDGAR system was made available on Monday, October 1, 2012. On that date, issuers may choose to submit their draft registration statements either using the current secure email system or via the new EDGAR system. In a future announcement, the SEC will make the filing via the new EDGAR system mandatory.

The SEC posted a brief set of instructions on using the new EDGAR system on the SEC web site.

See this article posted on the Federal Securities Law Blog: Click Here

NYSE and Nasdaq Issue Proposed Rules on Independence of Compensation Committee and Their Advisers

Recently, both the NYSE and Nasdaq have issued proposed rules on the independence of compensation committees and their advisers, as required by Dodd-Frank Act Section 952 and the SEC’s final rule from June 2012. As expected, the proposed rules make no major changes to the SEC’s final rule.

See Winston & Strawn’s article: Click here
and Leonard, Street and Deinard's article: Click here

SEC proposes amendments to permit general solicitation and general advertising in private placements under Rule 506 of Regulation D and Rule 144A

The JOBS Act enacted on April 5, 2012, directed the SEC to eliminate the prohibition against general solicitation and general advertising in securities offerings conducted pursuant to Rule 506 of Regulation D or Rule 144A promulgated under the Securities Act of 1933 (the “Securities Act”). On August 29, 2012, the SEC proposed amendments to its rules to implement that mandate. As intended by the JOBS Act, these proposed amendments would make it easier for issuers to raise capital for potential offerings and sales of securities made under Rule 506 and Rule 144A.

See Dechert’s article here;
and CMS Cameron McKenna’s article here;
and The Startup Law Blog article here;
and Greenberg Traurig’s article here.

FINRA announces effective date for Rule 5123—private placements of securities

On September 5, 2012, FINRA issued a regulatory notice informing members that new FINRA Rule 5123—Private Placements of Securities, which was approved by the SEC on June 7, 2012, will take effect on December 3, 2012, and will apply prospectively to private placements that begin selling efforts on or after that date. In light of the impending implementation date, the attached White & Case Client Alert reviews the requirements of the rule, which will impact both FINRA member firms and certain companies raising capital in private placements.

See White & Case’s article here.

SEC issues guidance on JOBS Act research provisions

The staff of the SEC’s Division of Trading and Markets (the “Staff”) recently issued frequently asked questions (the “FAQs”) providing guidance about provisions in Title I of the JOBS Act related to research analyst conduct and publication of research reports with respect to the securities of an emerging growth company.

Many of the FAQs are either generally consistent with positions espoused by the staff of the SEC at conferences since the JOBS Act’s enactment or reflect interpretations that were expected. Thus, the FAQs may not have a great impact on current market practice, especially for those firms party to the Global Research Settlement. However, banks and analysts should review the FAQs to ensure their practices and procedures conform to the Staff guidance and monitor the FAQs as they may be updated periodically.

See the Andrews Kurth article: Click here

TRACE disclosure proposal withdrawn

On September 14th, the SEC advised that FINRA has withdrawn a proposal that would have required members to provide customers in TRACE-eligible debt securities with additional, transaction-specific disclosures and to notify customers of the availability of a disclosure document.

See the Federal Register here.

SEC announces forum on Small Business Capital Formation

The SEC announced that its annual SEC Government-Business Forum on Small Business Capital Formation will be held on November 15, 2012 at its Washington, D.C. headquarters. This year's forum will begin with panel discussions on the implementation of the JOBS Act and on small business capital formation issues not addressed by the JOBS Act. During the afternoon, participants will work in groups to formulate specific policy recommendations.

See Winston & Strawn’s article: Click here

SEC issues risk alert regarding “pay-to-play” rules

On August 31, 2012, the SEC Office of Compliance Inspections and Examinations (“OCIE”) issued a National Examination Risk Alert (the “Risk Alert”) that made clear that OCIE has some significant concerns about firms’ compliance with Municipal Securities Rulemaking Board (“MSRB”) Rule G-37, the so-called “Pay-to-Play” rule. MSRB Rule G-37 prohibits firms and certain associated individuals from contributing to the political campaigns of public officials of municipal issuers when the firm is engaged in municipal securities business with the issuer or seeking such an engagement.

See Latham & Watkin’s article here.

Is bigger better? Or do good things come in small packages?

Over time, the suite of disclosure documents for securities offerings has grown longer and longer. Prospectuses, prospectus supplements and product supplements for structured notes are no exception.
A variety of factors combine to explain the phenomenon. In no particular order: 
  • Modern PC technology makes cutting and pasting a breeze.
  • Market participants have attempted to keep their documents in line with the most recent guidance (and warnings) from the SEC and FINRA.
  • Many market participants are engaged in a bit of a “risk factor arms race.” Many people can feel a bit uneasy if they see a competitor adding a new risk factor that they haven’t yet added. 
And last but not least: 
  • Many market participants are striving to improve their documents. That process often concludes with the addition of new disclosures or explanations. 
There are currently pressures in the market that cut in different directions—in some ways, encouraging issuers to use longer disclosure documents; in other ways, to use shorter, more focused disclosure documents.

See Morrison & Foerster’s article here.

A caution about the lack of information in pre-IPO markets

The pre-IPO market in which shares of emerging companies are often available has been a key focus in recent months. Congress, for example, passed the JOBS Act earlier this year which, of course, has little to do directly with jobs and a lot to do with easing the private placement rules, authorizing crowd funding and facilitating IPOs for emerging enterprises. While facilitating the sale of these securities may clearly have merit, the action brought by the Commission against a broker-dealer and investment advisory firm and its co-founders should serve as a reminder of what can happen even to sophisticated investors when little information is available. In the Matter of Advanced Equities, Inc., Adm. Proc. File No. 3-15031 (Sept. 18, 2012).

See this article on the “SEC Actions” website here.

Proposed SEC regulations under the JOBS Act increases options for private structured notes program

In August 2012, the SEC released its long-awaited proposed rules under the JOBS Act. The proposed rules would, subject to several limitations, enable issuers and underwriters to effect a general solicitation in connection with offerings under Regulation D and Rule 144A, provided that the relevant securities are sold only to accredited investors or qualified institutional buyers (“QIBs”), as applicable. 

See Morrison & Foerster’s article: Click here

SEC releases credit standardization study

On September 7th, in accordance with the Dodd-Frank Act, the SEC submitted to Congress a study with respect to: (1) standardizing credit rating terminology, so that all credit rating agencies issue credit ratings using identical terms; (2) standardizing the market stress conditions under which ratings are evaluated; (3) requiring a quantitative correspondence between credit ratings and a range of default probabilities and loss expectations under standardized conditions of economic stress; and (4) standardizing credit rating terminology across asset classes, so that named ratings correspond to a standard range of default probabilities and expected losses independent of asset class and issuing entity.

See Winston & Strawn’s article: Click here
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