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

• Financial Industry Regulatory Authority. Upcoming Trade Reporting Enhancements for Fractional Share Transactions. On March 22, 2024, FINRA announced future updates to its equity trade reporting guidance in connection with upcoming enhancements to FINRA equity trade reporting facilities. Under the updated guidance, members engaged in fractional share trading will be required to report fractional share quantities up to six digits after the decimal. FINRA did not announce a specific effective date of the updated guidance but said it will be no earlier than Q1 2025.

Enforcement and Litigation

• Commodity Futures Trading Commission. Illegal Digital Asset Derivatives Exchange. On March 26, 2024, CFTC announced it filed a civil enforcement action in the U.S. District Court for the Southern District of New York charging the operators of a centralized digital asset exchange named KuCoin with multiple violations of the Commodity Exchange Act (CEA) and CFTC regulations. Many of these violations pertain to non-registration with the CFTC as a futures commission merchant, swap execution facility, or designated contract market. In a separate criminal matter, the U.S. Attorney’s Office for the Southern District of New York filed an indictment against KuCoin’s operators for a variety of related charges.
• Department of Justice. Foreign Corrupt Practices Act. On March 28, 2024, Trafigura Beheer B.V. (Trafigura), a Switzerland-based international commodities trading company, pled guilty to conspiracy to violate the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA) and will pay over $126 million to resolve DOJ’s investigation into Trafigura that was part of a long-running investigation into international commodities trading companies that paid bribes to win business with state-owned and state-controlled oil companies in Latin America and Africa. On March 29, 2024, DOJ announced that its investigation resulted in six corporate resolutions, 20 convictions of individuals, and total fines, forfeitures, and other penalties of more than $1.7 billion, including Trafigura’s.

Rulemaking Updates

• Securities and Exchange Commission. Share Repurchase Disclosure Modernization. On March 19, 2024, the SEC adopted a variety of amendments to modernize and improve disclosure about repurchases of an issuer’s equity securities registered under the Securities Exchange Act of 1934. These amendments reflect a federal court’s December 2023 vacatur of May 2023 rule amendments and do not impose any new substantive regulatory requirements, but merely reflect the vacatur of the Repurchase Rule.
• Securities and Exchange Commission. Internet Adviser Exemption. On March 27, 2024, SEC adopted amendments to the rule permitting certain internet investment advisers to register with SEC (the “internet adviser exemption”). Among other changes, the new amendments will require an investment adviser relying on the internet adviser exemption to have at all times an operational interactive website through which the adviser provides digital investment advisory services on an ongoing basis to more than one client. SEC has provided a fact sheet with more detailed information.
• Securities and Exchange Commission. T+1 Settlement Cycle. On March 27, 2024, SEC issued an investment bulletin reminding investors and financial institutions that the compliance date for the February 15, 2023, rule amendments shortening the standard settlement cycle for most broker dealer transactions from T+2 to T+1 goes into effect on May 28, 2024. The bulletin explains how the change will affect certain transactions and provides links to additional resources pertaining to the change.

Other News of Note

• Financial Industry Regulatory Authority. Post-Trade Transparency in U.S. Treasury Securities Market. On March 28, 2024, FINRA announced that it had begun disseminating individual transactions in active U.S. Treasury securities at the end of the day and has made the information available on a same-day basis for FINRA members and other subscribers to the new product. It is also freely available on FINRA’s website for non-professionals’ personal, non-commercial use on a next-day basis. FINRA has also begun offering historical data on a six-month delay. The data does not include any identifying information about the transaction participants. These changes are the result of Regulatory Notice 24-06, issued on March 8, 2024.
• Public Company Accounting Oversight Board. Constitutionality of PCAOB. On March 27, 2024, an anonymous accounting firm filed a complaint against PCAOB in the U.S. District Court for the Southern District of Texas seeking a declaratory judgment that a recent Accounting Board Demand (ABD) is “unconstitutional, unenforceable, void, and quashed.” The suit has wide implications as the complaint argues that PCAOB is “the product of an unlawful delegation of legislative power” and “structurally unconstitutional.”

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