By Laura Ferrell, Marlon Q. Paz, Nabil Sabki, Stephen P. Wink, Naim Culhaci, and Deric Behar

On March 28, 2022, the US Securities and Exchange Commission (SEC) proposed rules (Proposing Release) that would require securities market participants that engage in dealer-like activities — such as a proprietary trading firm that engages in a routine pattern of buying and selling securities that has the effect of providing liquidity to other market participants — to register with the SEC, become a member of a self-regulatory organization (SRO), and comply with federal securities laws and regulatory obligations.

The amended definition could provide a new means for the SEC to regulate crypto platforms.

By Stephen P. Wink, Marlon Q. Paz, Naim Culhaci, Ian Irlander, and Deric Behar

We previously published a blog post on the set of proposed amendments (Proposal) issued on January 26, 2022, by the Securities and Exchange Commission (SEC) regarding the regulation of alternative trading systems (ATSs) that would, among other things, substantially expand the activities covered by the definition of an “exchange” as interpreted by Rule 3b-16 under the Exchange Act to capture “Communication Protocol Systems”. Whereas we previously offered our general views on the proposed expansion of definitions and resulting potential impact on the securities industry, now we turn specifically to the potential impact of the Proposal on platforms trading digital assets.

Updated on May 9, 2022.

The proposal would require certain systems and platforms currently not subject to any registration requirements to register as broker-dealers and ATSs.

By Stephen P. Wink, Marlon Q. Paz, Naim Culhaci, and Deric Behar

On January 26, 2022, the Securities and Exchange Commission (SEC) issued a set of proposed amendments (Proposal) regarding the regulation of alternative trading systems (ATSs) that would, among other things, substantially expand the definition of an “exchange” as interpreted by Rule 3b-16 under the Securities Exchange Act of 1934 (the Exchange Act) to capture “Communication Protocol Systems.” Specifically, Rule 3b-16’s interpretation of the “exchange” definition would be broadened in several meaningful aspects, including by removing the current requirement that a platform needs to bring together “firm orders” to be deemed an “exchange.”

The Proposal would have a significant impact on current practices surrounding the use of Rule 10b5-1 plans by public companies and insiders.

By Joel H. Trotter, Stephen P. Wink, Naim Culhaci, and Deric Behar

On December 15, 2021, the Securities and Exchange Commission (SEC) issued a set of proposed amendments (the Proposal) regarding the adoption of trading plans that qualify for the affirmative defense against liability for trading on the basis of material non-public information (MNPI) under Rule 10b5-1 under the Securities Exchange Act of 1934 (the Exchange Act). These proposed changes would impose additional requirements on public companies and insiders.

Significantly, the Proposal would require a waiting period or “cooling off period” of 120 days for the director or officer of a company (or 30 days for the company itself) between the adoption of a plan or an amendment to the plan and the effecting of trades under such plan. Moreover, the Proposal would prohibit the use of multiple overlapping plans. The Proposal would also introduce additional disclosure requirements regarding 10b5-1 plans and the charitable gifting of securities by insiders. In explaining its rationale for issuing the Proposal, the SEC stated that it aims “to address apparent loopholes in the [current] rule that allow corporate insiders to unfairly exploit informational asymmetries.”

This post provides a high-level summary of some of the changes that are being proposed.

As a major LIBOR transition milestone approaches, a Staff Statement provides key considerations for market participants regarding their obligations.

By Laura N. Ferrell, Marlon Q. Paz, Zach Lippman, and Deric Behar

On December 7, 2021, the Staff of the Securities and Exchange Commission (SEC) issued a statement (the Statement) on the transition away from the London Interbank Offered Rate (LIBOR). The transition away from LIBOR is reaching an inflection point as the publication of the USD LIBOR benchmark for the 1-week and 2-month USD LIBOR maturities and many non-USD LIBOR maturities cease immediately after December 31, 2021.[1] The SEC, like other regulators around the world, continues to emphasize its expectation that market participants understand the risks associated with LIBOR transition and take appropriate action to move to alternative rates in a manner that protects customers, counterparties, the firm itself, and the capital markets more broadly.

The no-action relief applies to family offices with at least US$50 million in total assets (Institutional Family Offices) and requires broker-dealers seeking to rely on the relief to establish and maintain specific additional policies and procedures.

By Dana G. Fleischman, Stephen P. Wink, Naim Culhaci, and Deric Behar

On December 23, 2020, the Staff of the Division of Trading and Markets (Staff) of the US Securities and Exchange Commission (SEC) issued a no-action letter to the Securities Industry and Financial Markets Association (SIFMA) granting relief to broker-dealers from Regulation Best Interest (Reg BI) and Form CRS in relation to recommendations made to Institutional Family Offices under certain circumstances.

In setting forth its rationale, FINRA observed that private placement retail communications reviewed by AdReg have “revealed significant and pervasive” violations of FINRA Rule 2210.

By Dana G. Fleischman, Stephen P. Wink, Naim Culhaci, and Deric Behar

On October 28, 2020, the Financial Industry Regulatory Authority, Inc. (FINRA) filed with the US Securities and Exchange Commission (SEC) proposed amendments (the Proposal) to FINRA Rules 5122 (Private Placements of Securities Issued by Members) and 5123 (Private Placements of Securities). The proposed amendments would require FINRA members to file all retail communications used by members in connection with private placement offerings that are subject to those Rules’ filing requirements (Covered Private Placements).[1]

The changes will have implications for the growing secondary market for non-listed securities.

By Stephen P. Wink, Naim Culhaci, and Deric Behar

On September 16, 2020, the US Securities and Exchange Commission (SEC) adopted amendments to Rule 15c2-11 (the amended Rule) of the Securities Exchange Act of 1934 (Exchange Act). Rule 15c2-11 sets forth requirements regarding the publication or submission by broker-dealers of quotations for over-the-counter (OTC) equity securities. Subject to limited exceptions, the Rule requires broker-dealers to obtain and review for reliability and accuracy certain basic information, including financial information, for each issuer before publishing or submitting a quotation for OTC securities. With respect to issuers subject to existing public reporting requirements, broker-dealers are required to obtain and review the issuer’s existing public disclosures. For issuers that are not subject to such requirements (“catch-all issuers”), broker-dealers are required to specifically obtain, review, and make available to investors specified types of information. With these amendments, the SEC seeks to modernize the Rule (which was last amended nearly 30 years ago) in line with the increased availability of information in today’s world and to generally provide greater transparency about OTC securities issuers to the investing public.

The guidance addresses how the filing and review of public offerings both before and after the amendments’ September 16 implementation date will be impacted.

By Dana G. Fleischman and Gail S. Neely

On September 14, 2020, the Financial Industry Regulatory Authority, Inc. (FINRA) updated its Public Offerings page, including its Frequently Asked Questions regarding amendments to Rule 5110 (the Corporate Financing Rule). As of September 16, 2020 (the Amendment Implementation Date), FINRA members participating in public offerings of securities must comply with Rule 5110 as amended by rule changes that were approved by the Securities and Exchange Commission on December 23, 2019 (the Amended Rule).