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Consumer Financial Services

McIntyre & Lemon: > Client Alerts  > Consumer Financial Services

The SEC Significantly Expanded Its Jurisdiction Over Securities Traders By Adopting New Dealer Rules

In the face of overwhelming and near universal industry opposition, the Securities and Exchange Commission (“SEC” or “Commission”), in a split 3-2 vote, adopted new rules designed to capture “de facto market makers” and regulate them as registered “dealers”.1 The adoption of the new dealer rules perhaps should not have been surprising when viewed cumulatively with the Commission’s equity markets concept release,2 a recent amendment to an obscure trading rule, the net effect of which will direct a class of new dealers into membership with the Financial Industry Regulatory Authority (“FINRA”),3 and dealer enforcement actions applying the Commission’s de facto market maker theory that comprises the legal principle at the center of the new rules....

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Traders Now May Be Dealers Under SEC’S New Dealer Rules

In a 3-2 split vote at today’s open meeting, the Securities and Exchange Commission (“SEC” or “Commission”), adopted controversial new rules that establish a liquidity or revenue test as part of a regular dealer business under the Securities Exchange Act of 1934 (“Exchange Act”). That is, the tests prescribed by the new dealer rules are intended to capture so-called “liquidity providers” primarily focused on the Treasury markets but they also sweep in certain traders in the equity markets. ...

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Three Important Dates For The Asset Management Industry

The compliance dates for recently adopted rules extending to “private-fund advisers” (“PFAs”) 1 are now known following their publication in the Federal Register [IA-Release No. 6383, 88 F.R. 63206 (Sept. 14, 2023)]. The rule package under the Investment Advisers Act of 1940 (“Advisers Act”) includes the following requirements: (i) production and delivery of quarterly customer statements; (ii) the annual audit of the financial statements of private investment funds; (iii) production and delivery of fairness or valuation opinions in adviser-led secondary market transactions; (iv) prescriptive conflicts management in the context of five specific restricted activities; (v) prescriptive conflicts management in cases of preferential treatment of selected investors; (vi) review and documentation of an annual compliance review – a requirement that extends to all investment advisers, not only PFAs; and (vii) the maintenance of books and records related to the rules. ...

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SEC Proposes Rules Requiring Daily Reserve Computation

Adopted in 1972, the SEC’s customer protection rule, Rule 15c3-3 under the Securities Exchange Act of 1934 [17 C.F.R. §240.15c3-3], requires fully computing securities firms having custody over customer funds and securities to segregate customer funds and fully paid securities from the firm’s own assets. The rule prescribes several prophylactic measures including requirements that firms perform reserve computations and, if necessary, make required deposits of cash and/or qualified securities in specified reserve bank accounts for customers and other broker dealers (generally introducing broker-dealers maintaining proprietary securities accounts at a clearing firm referred to as “PAB Accounts” ). ...

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