Resources/ Updates - March 2016

The SDDco Client Update

The SDDco Client Update is an action oriented email prepared in-house, tailored to client needs, and sent as an adjunct to our online newsletter.  Verified newsletter subscribers receive our Client Update once each month.

The SDDco Client Update is intended to provide general information only. It is not intended as, and should not be taken as, financial, tax, accounting, legal, consulting or any other type of advice specific to you or your firm. Users of the SDDco Client Update should not act or refrain from acting on the basis of information provided on the website. Always check with your accountant and/or attorney.


FAST Act Impact on Investment Adviser Registration

In March 2016, staff of the SEC’s Division of Investment Management (“Division Staff”) released an IM Guidance Update on how the Fixing America’s Surface Transportation Act (“FAST Act”) affects the investment advisers of small business investment companies (“SBICs”). The FAST Act amended two provisions of the Investment Advisers Act of 1940 (“Advisers Act”) regarding the registration

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Digital Investment Advice Tools ~ What Broker-Dealers Using DIATs Should Do

FINRA issued a March 2016 Report on Digital Investment Advice (“Report”) regarding its review of digital investment advice tools used by brokers and advisers. While the Report presents no new rules, it shares effective supervision practices in areas related to digital advice tools, such as algorithm review, portfolio formation, and investor profiling. The Report also

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New Broker-Dealer Equity Rules ~ FINRA Updates FAQs

To help broker-dealers comply with new and consolidated rules now governing equity research analysts and their reporting, on March 4, 2016, FINRA updated its frequently asked questions (FAQs) on research in five areas: Registration Requirements Separation Requirements Disclosure Requirements Exemption for Institutional Debt Research Applicability of Rule 5280 Backfill on Research Rules In 2015, the

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OCIE Leadership ~ Whole Lot of Shaking Going On

The SEC announced on March 8, 2016, the new Office of Risk and Strategy within its Office of Compliance Inspections and Examinations (OCIE)—the  unit in charge of investment adviser exams.  The new office will streamline OCIE’s risk assessment, market surveillance, and data analysis teams to better allocate adviser examination resources.  It will also provide operational

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FINRA to Ease Broker-Dealer Membership Requirements

FINRA is updating its membership rules for broker-dealer.  This will apply to new member applicants as well as existing member firms undergoing a change in business operations. The goal is to ease the FINRA membership requirements while maintaining investor protections. FINRA (the Financial Industry Regulatory Authority) has recently completed the first of a two part review

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NFA Compliance ~ for Risk-Based Initial Margin Models of SDs and MSPs

In January 2016, CFTC’s Margin Rules  (Margin Rules) were published concerning the margin requirements for uncleared swaps of both swap dealers (SDs) and major swap participants (MSPs). The Margin Rules permit applicable SDs and MSPs to use either a standardized grid-based calculation for initial margin or an approved internal risk-based initial margin model. Margin Rules

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Funds Should Tell Investors When Market Changes Impact Risk

Disclosing accurate information about fund risks is important to investors, especially when new risks arise from changing market conditions. The SEC’s Division of Investment Management (“IM Staff”) released a March 2016 guidance update (“Update”) reminding mutual funds, exchange traded funds, and other registered investment companies (“funds”) that risk is dynamic, heightened or lessened at different

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MSRB Publishes Inaugural Compliance Advisory

The Municipal Securities Rulemaking Board (MSRB) published its first compliance advisory: The MSRB 2016 Compliance Advisory for Brokers, Dealers and Municipal Securities Dealers The “Compliance Advisory” identifies key compliance risks and covers core components of established MSRB fair practice regulations. Among its topics, it includes the new best execution rule for the municipal securities market,

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DOL Fiduciary Rule Elicits Strong Reactions ~ OMB Approval Expected

On January 28, 2016, the Department of Labor (DOL) sent its updated, proposed fiduciary rule to the Obama Administration’s Office of Management and Budget (OMB) for review (up to 90 days). Though the final copy of the rule will not be made public until the OMB’s process is complete, some members of Congress are preemptively

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On Enhanced Price Disclosure to Retail Investors in Fixed-Income Securities

FINRA’s Board of Governors approved in late February 2016, a proposal to help retail customers understand and compare transaction costs in fixed-income securities. Subject to SEC approval, the proposal would mandate that member broker-dealers disclose the “mark-up” or “mark-down” for most transactions in corporate and agency debt securities on retail customer confirmations. The proposal would

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FINRA’s Targeted Exam on Broker-Dealer Values

How a broker-dealer establishes its culture to manage conflicts of interest does matter. Firms that perform ethically elevate the industry. Firms that fail harm investors, the markets, and themselves.  It is estimated that the fines and litigation costs related to cultural failures since 2010 is over $300 billion. FINRA is in the process of performing

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Get Down with the Facts on Municipal Securities Data ~ 2015 Fact Book Released

It’s a real downer.  According to the new MSRB 2015 Fact Book, the overall municipal bond trading volume declined to $2.42 trillion in 2015, down 13 percent from 2014. The Municipal Securities Rulemaking Board (MSRB) book also indicates that municipal securities trading volume dropped steadily since its 2007 high of $6.7 trillion. The bulk of

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NFA Cybersecurity in Self-Exam Questionnaire & FAQ

To help members comply with the National Futures Association (“NFA”) requirement to adopt and enforce an information systems security program (“ISSP”) appropriate to its circumstances effective as of March 1, 2016,  the NFA: Added a new Cybersecurity section to the Self-Examination Questionnaire Issued Answers to Frequently Asked Questions received on the Cybersecurity Interpretive Notice and ISSP implementation Updated

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Safeguard or Refund ~ FINRA Guidance on Contingency Securities Offerings

FINRA’s Regulatory Notice 16-08 reminds broker-dealers of their responsibility to comply with Rules 10b-9 and 15c2-4 of the Securities Exchange Act of 1934. Broker-dealers (“BDs”) participating in best efforts public and private securities offerings with a contingency (to meet an underlying condition or qualification by a specified date prior to possession of proceeds) must safeguard

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