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

• Commodity Futures Trading Commission. New Proposed Rules. On February 20, 2024, CFTC proposed three new rules. The first would implement requirements for futures commission merchants (FCMs) related to margin adequacy and the treatment of separate accounts of a single customer. The second rule would permit a foreign board of trade (FBOT) registered with CFTC to provide direct access to its electronic trading and order matching system to an identified member or other participant located in the United States and registered with the CFTC as an introducing broker for submission of customer orders to the FBOT's trading system for execution. The third rule is for designated contract markets (DCMs) and swap execution facilities (SEFs) and would establish governance requirements regarding market regulation functions, as well as related conflicts of interest standards. The comment period for all three closes on April 22, 2024.
• Commodity Futures Trading Commission. Derivatives Clearing Organization Registrations and Exemptions. On February 20, 2024, CFTC issued an order of exemption from registration as a derivatives clearing organization (DCO) to Taiwan Futures Exchange Corporation (TAIFEX), under Section 5b(h) of the Commodity Exchange Act. The Commission approved an amended order of registration for ICE NGX Canada, Inc. (NGX), adding environmental contracts to the scope of contracts it is eligible to clear as a DCO under the Commodity Exchange Act.
• Commodity Futures Trading Commission. No-Action Letter. On February 22, 2024, CFTC staff issued a no-action letter in relation to the requirement in Regulation 23.431 that swap dealers and major swap participants (swap entities) disclose to certain counterparties the Pre-Trade Mid-Market Mark of a swap. The no-action position in the letter is applicable to all registered swap entities.
• House Financial Services Committee. On February 29, 2024, HFSC advanced H.J. Res. 109 which would overturn SEC's SAB 121, which provides "non-binding SEC staff guidance intended to help clarify how a company should account for its customers' cryptocurrencies."

Enforcement and Litigation

• Securities and Exchange Commission. Social Media Influencer. On February 16, 2024, SEC announced that registered investment adviser Van Eck Associates Corporation agreed to pay a $1.75 million civil penalty to settle charges that it failed to disclose a social media influencer's role in the launch of its new ETF. SEC alleges that the provider of the ETF informed Van Eck that it planned to retain a social media influencer to promote the index, but Van Eck failed to disclose the influencer's involvement to the ETF's board.
• Securities and Exchange Commission. Insider Trading. On February 22, 2024, SEC charged a Texas man with insider trading ahead of a February 2023 announcement that oil and gas company BP p.l.c. agreed to acquire TravelCenters of America Inc., a full-service truck stop and travel center company. The enforcement action has drawn national media attention as the defendant is accused of using material nonpublic information regarding the merger that he overheard his wife, a BP mergers and acquisitions manager, discussing on the phone.
• Securities and Exchange Commission. Auditor Independence Standards. On February 29, 2024, SEC charged Lordstown Motors Corporation with misleading investors about the sales prospects of Lordstown's flagship electric pickup truck. The order found that Lordstown violated certain antifraud, proxy, and reporting provisions of federal securities laws. SEC also settled a related administrative proceeding against Lordstown's former auditor, Clark Schaefer Hackett & Co. (CSH). CSH was charged with violations of the SEC's auditor independence rules and the Public Company Accounting Oversight Board's standards by auditing financial statements that it had produced itself.

Rulemaking Updates

• Commodity Futures Trading Commission. Proposed Rule on Operational Resilience Framework. CFTC announced on February 20, 2024, the extension of the public comment period for a proposed rule requiring an operational resilience framework for futures commission merchants, swap dealers, and major swap participants from March 2, 2024, until April 1, 2024.
• Commodity Futures Trading Commission. New Recordkeeping and Reporting Requirements. On February 26, 2024, CFTC announced that it extended the deadline for the public comment period on a proposed rule that modifies CFTC's swap data reporting rules in Parts 43 and 45 related to the reporting of swaps in the other commodity asset class and the data element appendices to Parts 43 and 45 of CFTC's regulations. The deadline is extended until April 11, 2024.
• Financial Industry Regulatory Authority. Amendments to Securities Settlement Rules. On February 26, 2024, FINRA adopted amendments to conform its rules to SEC's amended rules that shorten the standard settlement cycle for most broker dealer transactions from two business days after the trade date (T+2) to one business day after the trade date (T+1). The amendments revise provisions in 17 existing FINRA rules and go into effect on May 28, 2024.
• Financial Industry Regulatory Authority. Amendments to Improve the Accessibility of Order Routing Disclosures for NMS Securities. On February 26, 2024, FINRA adopted Rule 6151 to make Rule 606(a) Reports more accessible for regulators, investors, and others seeking to analyze and compare data. Rule 6151 requires every member obligated to publish a Rule 606(a) Report to provide the report to FINRA, in the manner prescribed by FINRA, within the same time and in the same format that such report is required to be made publicly available pursuant to Rule 606(a). FINRA will centralize access to all Rule 606(a) Reports on its website. These amendments take effect on June 30, 2024.

Research and Analysis

• Bank for International Settlements. Global Stablecoin Arrangements. On February 29, 2024, BIS released its "Recommendations for the Regulation, Supervision and Oversight of Global Stablecoin Arrangements." These recommendations pertain to authorities' readiness to regulate and supervise global stablecoin arrangements; comprehensive oversight of GSC activities and functions; and governance structures, among other topics.

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