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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Regulatory Developments

• Securities and Exchange Commission. Securities Loans. SEC finalized a new Rule 10c-1a (see fact sheet), which will require certain persons to report information about securities loans to a registered national securities association (RNSA) and require RNSAs to make publicly available certain information that they receive regarding those lending transactions. The rule is effective 60 days after publication in the Federal Register and the compliance dates are as follows: (1) an RNSA is required to propose rules within four months of Rule 10c-1a's effective date; (2) the proposed RNSA rules are required to be effective no later than 12 months after the Rule 10c-1a's effective date; (3) covered persons are required to report information required by the rule to an RNSA starting on the first business day 24 months after the Rule 10c-1a's effective date; and (4)RNSAs are required to make specified information publicly available within 90 calendar days of the covered person's reporting date. Separately, Chair Gensler, Comm'r. Crenshaw and Comm'r. Lizárraga issued statements in support of the rulemaking, while Comm'r. Peirce and Comm'r. Uyeda dissented.
• Securities and Exchange Commission. National Market System Consolidated Audit Trail (NMS CAT) & Short Selling. SEC adopted a new Rule 13f-2 and Form SHO (see fact sheet) to provide greater transparency to investors and other market participants by increasing the public availability of short sale related data. Separately, the agency published a notice of text of the amendment to the NMS plan governing the CAT for purposes of short sale-related data collection. The rule and the notice are effective 60 days after publication in the Federal Register. Additionally, Chair Gensler, Comm'r. Crenshaw and Comm'r. Lizárraga gave statements in support on the actions, while Comm'r. Peirce and Comm'r. Uyeda dissented.
• Financial Industry Regulatory Authority. Special Purpose Acquisition Companies (SPACs). FINRA provided an update on its targeted exam to review firms' offering of, and services provided to, SPACs and their affiliates (e.g., sponsors, principal stockholders, board members and related parties).
• Commodity Futures Trading Commission. Commodities & Futures. CFTC approved a proposed rule (see fact sheet) that would amend Regulation 4.7, a provision that provides exemptions from certain compliance requirements for commodity pool operators (CPOs) with respect to commodity pool offerings to qualified eligible persons (QEPs) and for commodity trading advisors (CTAs) with respect to trading programs advising QEPs. The deadline for comments is 60 days after publication in the Federal Register. Separately, Comm'r. Johnson provided a statement in support of the rulemaking, Comm'r. Mersinger dissented and Comm'r. Pham concurred.

Enforcement and Litigation

• Securities and Exchange Commission. Advisers Act. SEC announced an order against a company resolving allegations that the firm violated Sec. 206(4) of the Advisers Act and Rule 206(4)-7 stemming from alleged compliance deficiencies in mutual fund selection practices and related disclosures.
• Financial Industry Regulatory Authority & Massachusetts Secretary of the Commonwealth. Securities. FINRA published an order against a brokerage services firm to resolve allegations that the company violated FINRA Rules 2010, 2360, and 3110 by allegedly failing to exercise reasonable due diligence before approving customers to trade options. Concurrently, Massachusetts announced a $750,000 settlement with the same firm to resolve allegations that the company rubber stamped options trading accounts as it received a wave of new applicants hoping to cash in on the so-called "meme stock" craze of 2021.
• Financial Industry Regulatory Authority. Compliance. FINRA issued an order against a capital markets firm to resolve allegations that the company violated agency FINRA Rules 2010 and 3110 by allegedly failing to establish, maintain, and enforce a supervisory system, including written supervisory procedures, reasonably designed to prevent the misuse of material non-public information.
• Financial Industry Regulatory Authority. Broker Dealer. FINRA published an order against a company to resolve allegations that the firm violated FINRA Rules 2241(c), 2010, 3110 and NASD Rules 2711(h) and 3010 by publishing inaccurate disclosures about the firm's conflicts of interest and failing to establish and maintain a supervisory system designed to achieve compliance with relevant regulations.
• Department of Justice. Cryptocurrency & Futures. DOJ filed the first criminal charges against a commodities trading advisor and pool operator for allegedly engaging in a "cherry-picking" scheme involving cryptocurrency futures contract trading where the advisor fraudulently misappropriated profitable trades to himself, and saddled his investors with losses.

Michael Buckalew is a regulatory analyst with Davis Wright Tremaine LLP.