It’s official: on Monday, you’ll notice three exciting new things on the Knowledge Mosaic website:
- A new search page of Private Placement Memoranda, including 144A documents. Over 10,000 offering documents will be available when we release; we’ll have double that amount by the end of the year.
- A new Advanced Search page on No-Action Letters. Nearly 70,000 No-Action Letters going back over 40 years.
- A new navigation bar. Okay, maybe not quite so exciting. But we think you’ll find the new navigation more user-friendly, with content easier to find and the bar itself easier to use.
If you’d like a detailed sneak preview of the new stuff, you can see a 12-minute tutorial video here.
As anticipated, today the SEC adopted amendments to its money market mutual fund rules. Although the adopting release and text of the new rules has yet to be published, the SEC’s press release summarizing the new rules notes that the new rules will:
- Require a floating net asset value (“NAV”) for institutional prime money market funds;
- Provide non-government money market fund boards with the ability to impose fees and redemption gates to address possible investor runs;
- Include enhanced diversification, disclosure and stress testing requirements, as well as updated reporting by money market funds and private funds that operate like money market funds;
- Provide a two-year transition period.
Concurrent with the adoption of the new rules, the SEC proposed exemptions from certain confirmation requirements for transactions effected in shares of floating NAV money market funds. Additionally, the SEC re-proposed amendments to the Commission’s money market fund rules and Form N-MFP to address provisions that reference credit ratings. The re-proposed amendments would implement section 939A of the Dodd-Frank Act, which requires the Commission to review its rules that use credit ratings as an assessment of credit-worthiness, and replace those credit-rating references with other appropriate standards.
The rule amendments will be effective 60 days after their publication in the Federal Register, and the re-proposal will have a 60-day public comment period following its publication in the Federal Register.
To address the tax reporting and compliance issues which may result from the SEC’s floating NAV requirement, the Treasury Department issued proposed new guidance that would allow money market fund investors to use a simplified tax accounting method for determining gains and losses, which will eliminate the need to track individual purchase and sale transactions for tax reporting purposes. It has also released a new revenue procedure that provides relief from the “wash sale” rules for any losses on shares of a floating NAV money market fund. Although the Treasury Department guidance is proposed and not final, shareholders in floating NAV money market funds can rely on these proposed regulations and may begin using the simplified method. Read the Treasury Department Press Release.
About a year ago we added over 62,000 SEC No-Action Letters to our database (including this odd one), increasing our collection by over tenfold — and blowing away many of our competitors in the process. Today we announce the upcoming addition of a dedicated, Advanced Search page on No-Action Letters that is worthy of such a prodigious collection.
The new No-Action Letters page is fully text searchable and has search filters for:
- The requesting company,
- The subject category assigned to the letter by SEC (e.g., Regulation S-X, Investment Advisers Act of 1940),
- The SEC Division that handles the request (Division of Corporation Finance, etc.),
- The SEC’s stated position (you can include only letters in which the SEC is “unable to concur” with the request), and
- Shareholder proposal-related letters (you can include or exclude requests related to Exchange Act Rule 14a-8).
The new page is perfect if you’re looking specifically and exclusively for No-Action Letter guidance. If you’re interested in seeing any and all SEC guidance on a particular issue – that is, in cross-searching across various guidance materials including No-Action Letters, C&DI, telephone interpretations, FAQs, etc. — you’ll continue to be able to do that on Knowledge Mosaic, as you can today.
A little later this month, we’ll be releasing some great new enhancements to Knowledge Mosaic — you can read about them here — but the headliner has to be the long-awaited and much-requested addition of Private Placement Memoranda, including offering documents under Rule 144A. We’re excited to finally being able to offer this elusive and high-value content, which customers have been asking us about for years.
Here are some quick facts about our collection:
- It includes both global and domestic offerings of both debt and equity securities.
- Most offerings are exempt from SEC registration under either Regulation S, Regulation D, and/or Rule 144A.
- When we first release, we’ll have several thousand offering documents going back to 2011.
- By the fall, our collection should be approaching 20,000 documents, with coverage back to 2005.
- The collection will grow as we regularly update our database with new documents.
- Documents will be fully text searchable.
- Users will be able to filter by exemption type, security type, currency type, and party information, including issuer and law firm.
Questions: Contact us at email@example.com or 1.866-650-3600 during regular business hours.
Happy Fourth of July!
Two weeks ago, SEC Chair Mary Jo White announced plans aimed at improving the structure of U.S. equities markets. She discussed her proposals for promoting market stability and fairness, enhancing market transparency and disclosures, and building more effective markets for smaller companies. On Friday, she turned her attention to the fixed income markets.
White notes that in contrast to the equity markets, where many have voiced the concern that technology and competition have gone too far, investors in the fixed income markets have yet to experience the transformative power of technology.
In the fixed income markets, White fears, technology is being used simply to make the existing decentralized method of trading more efficient for market intermediaries without achieving more widespread benefits for investors. Those benefits include the broad availability of pre-trade pricing information, lower search costs, and greater price competition.
To remedy that concern, and to help assure that investors receive the best prices reasonably available, the SEC is working with the Municipal Securities Rulemaking Board to finalize a best execution rule for the municipal securities market. The Commission is also working with the MSRB and the Financial Industry Regulatory Authority to provide practical guidance on how brokers might effectively achieve best execution.
In addition, the SEC is working with FINRA and the MSRB in their efforts to develop rules by the end of this year regarding disclosure of markups in “riskless principal” transactions for both corporate and municipal bonds.
View the full text of White’s speech here.
Late tonight, the SEC’s Divisions of Trading and Markets, Investment Management, and Corporation Finance provided guidance on the Commission’s final rule implementing the “Volcker Rule.” The guidance, in the form of frequently asked questions and answers, addresses: the requirement to record and report certain quantitative measurements, the conformance period, the definition of covered fund, and organizing and offering a covered fund.
Requirement to record and report certain quantitative measurements. The guidance addresses when banking entities with trading assets and liabilities of at least $50 billion must begin to measure and record the required metrics on a daily basis. Generally, recording of the required metrics will start on July 1, 2014. The daily metrics recorded during July must be reported to the Commission by September 2, 2014. Beginning with information for the month of January 2015, the final rule requires banking entities to report metrics data within 10 days of the end of each calendar month, unless notified otherwise.
The guidance also addresses how trading desks panning multiple affiliated banking entities should be treated for purposes of recording and reporting quantitative measurements.
Conformance period. The Federal Reserve Board has extended the rule’s conformance period to July 21, 2015. As explained by the Board, a banking entity must conform all of its proprietary trading activities and covered fund activities and investments to the prohibitions and requirements of the Volcker Rule by that date. During the conformance period, a banking entity is expected to engage in good-faith efforts, including the evaluation of the extent to which the banking entity is engaged in activities and investments that are covered by the rule, as well as developing and implementing a conformance plan that is appropriately specific about how the banking entity will fully conform all of its covered activities.
Covered fund definition. The guidance addresses the treatment of servicing assets, foreign public funds, and seeding vehicles that will become a foreign public fund.
Organizing and offering a covered fund. The guidance discusses the conditions which must be met if a banking entity acquires and retains an ownership interest in a covered fund that the banking entity organizes and offers. The conditions require, among other things, that the covered fund not share the same name or a variation of the same name with the banking entity (or an affiliate thereof), nor use the word “bank” in its name.
View the guidance here.
Last month SEC Chair Mary Jo White discussed the use of Securities Exchange Act Section 20(b) to impose primary liability on a person who, directly or indirectly, does anything “by means of any other person” that would be unlawful for that person to do on his or her own.
The specter of Section 20(b) liability was raised by the Supreme Court three years ago when Justice Clarence Thomas referred to that provision in a footnote to his majority opinion in Janus Capital Group, Inc. v. First Derivative Traders. In Janus, the Court held that only the “maker” of a statement may be liable in a private lawsuit brought under Section 10(b). In doing so, the Court remarked, at footnote 10, “We do not address whether Congress created liability for entities that act through innocent intermediaries in 15 U.S C.A. §78t(b).” As described by Chair White, Section 20(b) “is analogous in the criminal context to 18 U.S.C. Section 2(b), which provides for criminal liability as a principal for anyone who ‘willfully causes an act to be done which if directly performed by him or another would be’ a criminal violation.”
According to Weil, Gotshal & Manges, in the wake of Janus Joseph K. Brenner, the Chief Counsel to the Division of Enforcement, has twice suggested that the SEC would employ Section 20(b). Mr. Brenner’s most recent comments concerning the provision were made at the SEC’s 2014 SEC Speaks conference, where he stated that the agency will rely on that section in an enforcement action this year. View Weil, Gotshal’s law firm memo here.
Shortly after Mr. Brenner made his comments Chair White expanded on the prospect of a Section 20(b) prosecution. Chair White said, “We are focusing on Section 20(b) charges where – as is frequently the case in microcap and other frauds – individuals have engaged in unlawful activity but attempted to insulate themselves from liability by avoiding direct communication with the defrauded investors.” She emphasized that Section 20(b) “is a form of primary liability, rather than secondary liability, which would require proof of a separate violation by someone other than the defendant. So, we can use Section 20(b) where aiding and abetting or controlling person theories may fall short because there is no underlying violation by someone else, such as, for example, when the other person who publicly makes the misleading statements lacks knowledge that they were misleading.” View the full text of Chair White’s speech here.
A Bingham client alert points out that the few cases involving Section 20(b) do not address the potential scope of liability under that provision. However, Wayne State University Law Professor Peter J. Henning, writing for DealBook, has described how Section 20(b) could be used against activist investors. View the Bingham alert here. View Professor Henning’s blogpost here.
Until a Section 20(b) is actually filed, the speculation will continue.