Broker Dealer Regulatory Digest

Editor's Note
The following newsletter provides a roundup summarizing enforcement actions, guidance, rulemakings, and other public statements taken by a federal and/or state financial services regulatory agency, specifically focusing on: (1) the source of the development (regulator, legislative body, etc.), (2) the subject matter (consumer lending, money transmission, capital markets, etc.), and (3) the general issue covered.

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Enforcement and Litigation

• Commodity Futures Trading Commission. Violation of Supervision Obligations. On April 2, 2024, CFTC released an order simultaneously filing and settling charges against a financial services firm provisionally registered as a swap dealer for violating its supervision obligations for failing to ensure its spoofing surveillance tool was operating effectively. As a result, thousands of orders were not timely surveilled for spoofing, and the firm did not receive a substantial number of surveillance alerts that otherwise would have been generated during two gap periods. The firm substantially cooperated, corrected the problems, and installed additional safeguards to prevent a recurrence. As a result, the civil penalty was reduced to $500,000.
• Commodity Futures Trading Commission. Spoofing in Gold and Silver Markets. On April 9, 2024, the U.S. District Court for the District of Nevada entered a consent order, resolving CFTC charges that a Las Vegas man repeatedly engaged in manipulative or deceptive acts and practices by spoofing—bidding or offering with the intent to cancel the bid or offer before execution—while placing orders for and trading gold and silver futures contracts on the Commodity Exchange, Inc. These spoof orders allowed the man to fill orders on the opposite side of the market sooner, cheaper, and/or in larger quantities than he otherwise would. The order prohibits the individual from trading in commodity interests and registering with the CFTC in any capacity and permanently enjoins him from further violations of the CEA's prohibitions on spoofing and manipulative and deceptive schemes to defraud.
• Securities and Exchange Commission. Failure to Maintain Electronic Communications. On April 3, 2024, SEC announced charges against registered investment adviser Senvest Management LLC for widespread and longstanding failures to maintain and preserve certain electronic communications. Senvest also failed to maintain or preserve relevant off-channel communications as required under federal securities laws and the firm's policies and procedures.
• Securities and Exchange Commission. Insider Trading. On April 9, 2024, SEC filed an order alleging that a New York man improperly obtained inside information from the laptop of his girlfriend, an executive assistant at a prominent investment bank, while she was working from home during the COVID pandemic. Her job gave her access to material, nonpublic information about numerous impending mergers and acquisitions, and the man misappropriated that information so that he and his friends could trade on it.
• Securities and Exchange Commission. Insider Trading. On April 5, 2024, SEC won its case alleging "shadow trading" by a former employee of a biopharmaceutical company ahead of its acquisition. The victory could lay the groundwork for the agency to file more complaints related to "shadow trading," in which perpetrators use nonpublic information about one company to trade securities of a related company. In SEC v. Panuwat, a jury in the Northern District of California found that the defendant violated federal securities laws when he used knowledge of a pending acquisition to purchase more than $100,000 worth of call options for a company operating in the same space as his.
• Public Company Accounting Oversight Board. Violation of quality control standards. On April 10, 2024, PCAOB announced a $25 million fine for KPMG Netherlands, the largest monetary penalty ever assessed by the Board. Hundreds of employees at the firm shared and received answers to questions on mandatory, firmwide training courses over a five-year period, according to PCAOB. KPMG Netherlands failed to monitor, identify, and investigate potential answer sharing until a whistleblower reported potential misconduct in July 2022. The former head of assurance for KPMG Netherlands, Marc Hogeboom, was fined $150,000 and barred from working for a public accounting firm.

Rulemaking Updates

• Department of the Treasury. Stock Buyback Excise Tax. On April 9, 2024, Treasury and IRS issued two Notices of Proposed Rulemaking on the stock buyback or "repurchase" excise tax included in the Inflation Reduction Act. The proposed regulations provide additional clarity to taxpayers and tax professionals on how to properly calculate and pay the new stock buyback excise tax on corporate stock buybacks, and largely adopt the framework published in Notice 2023-2.

Research and Analysis

• Bank of International Settlements. Stablecoins and Stability. On April 9, 2024, BIS's Financial Stability Institute released "Stablecoins: regulatory responses to their promise of stability," its most recent publication in its FSI Insight series. The paper assesses the evolving regulatory landscape for issuers of single fiat-pegged stablecoins. It compares regulatory frameworks issued by 11 authorities in seven jurisdictions to identify emerging trends and commonalities in their respective frameworks. A one-page executive summary can be found here.
• International Organization for Securities Commissions. Evolution in the Operation of Exchanges. On April 4, 2024, IOSCO published a Consultation Report on "Evolution in the Operation, Governance and Business Models of Exchanges: Regulatory Implications and Good Practices." The Consultation Report analyzes the structural and organizational changes within exchanges, focusing on business models and ownership structures. The report outlines a set of six good practices for regulators to consider in the supervision of exchanges, particularly when they provide multiple services and/or are part of an Exchange Group. IOSCO seeks input from market participants on the report's observations and the proposed practices. Comments will be taken until July 3, 2024.

Other News of Note

• Commodity Futures Trading Commission. The Benefits of Self-Reporting. On April 11, 2024, CFTC Director of Enforcement Ian McGinley gave a speech in New York about "The Benefits of Self-Reporting to the CFTC." In his speech, he highlighted the benefits of self-reporting even when there is no clear obligation or benefit for doing so.
• International Organization for Securities Commissions. Revised 2024 Workplan. On April 12, 2024, IOSCO published an updated workplan for 2024. The revised workplan sets out its priorities under five themes: protecting investors; addressing new risks in sustainability and fintech; strengthening financial resilience; supporting market effectiveness; and promoting regulatory cooperation and effectiveness.

Jonathan Cristol is a regulatory analyst with Davis Wright Tremaine LLP.