How Then Shall We Live: The CFTC’s Business Conduct Standards for Swap Dealers and Major Swap Participants.
Photo by skampy. Some rights reserved.
On January 17th, the CFTC published new final rules prescribing business conduct standards for swap dealers (“SDs”) and major swap participants (“MSPs”). The rules delineate recordkeeping and compliance procedures and govern the dealings SDs and MSPs have with counterparties generally, and include additional requirements when they deal with “Special Entities.” Special Entities include governmental entities, employee benefit plans subject to the Employee Retirement Income Security Act (“ERISA”), governmental plans, and endowments.
The final rules are principles-based and generally follow the framework of the proposed rules. They prohibit certain abusive practices, require disclosures of material information to counterparties, and require SDs and MSPs to undertake certain due diligence relating to their dealings with counterparties. Certain rules do not apply to transactions initiated on a swap execution facility (“SEF”) or designated contract market (“DCM”) when the SD and MSP do not know the identity of the counterparty prior to execution.
Generally, the new rules will not apply to unexpired swaps executed before the effective date of the adopting release. However, the CFTC will consider a material amendment to the terms of a swap to be a new swap, subject to the business conduct standard rules.
Under the new business conduct standards, all SDs and MSPs owe their counterparties the duties to (i) verify counterparty eligibility; (ii) disclose material information; (iii) disclose the daily mark; (iv) provide clearing disclosures; and (v) communicate fairly.
SDs must also provide, at the counterparty’s request, a scenario analysis for swaps that are not made available for trading on an SEF or DCM. An SD must also understand the risks and rewards of a recommended swap and have a reasonable basis to believe that a recommended swap is suitable for the counterparty. And the final rules include a suitability safe harbor. An SD will be deemed to have satisfied its duty to have a reasonable basis to believe that a recommended swap is suitable for the counterparty if it exchanges specified representations with the counterparty or the counterparty’s agent.
The final rules for MSPs do not include the suitability duty, pay-to-play, “know your counterparty,” and scenario analysis provisions.
SDs and MSPs can also reasonably rely on the representations of counterparties to meet due diligence obligations, make disclosures by any reliable means agreed to by the counterparty, make disclosures of material information to counterparties in a standard format, and include representations and disclosures in counterparty relationship documentation.
On Tuesday, the CFTC also released a letter from the Department of Labor stating that compliance with the business conduct standards will not, by itself, cause an SD or MSP to be an ERISA fiduciary.
However, independent representatives advising state and municipal Special Entities on swaps may be subject to registration with the CFTC as a commodity trading advisor and the SEC as a municipal advisor.
Swap dealers and major swap participants must comply with the business conduct rules on the latter of 180 days after the effective date of the rules or the date on which swap dealers or major swap participants are required to apply for registration pursuant to Commission rule 3.10.
The Knowledge Mosaic Vision for 2012
Sneak preview of our new home page. Click the image to enlarge.
Dear Friends and Colleagues,
It is 2012. This post is focused on our goals as a company for the coming year – goals focused on serving you, our customers.
I will say upfront that these goals are audacious. We view 2012 as the year that Knowledge Mosaic Inc. stands forth from the shadows and releases the fullness of our vision for the world to witness.
Stepping forth from adolescence.
It is an exciting vision. To date, Knowledge Mosaic has stepped with adolescent awkwardness to escape from the shadow of its former identity as Securities Mosaic. In 2012, we want to shed altogether the Securities Mosaic identity.
What does this concept of a shedding mean? Think of it as a molting, as a natural process of growth. More practically, the shedding means that no one can continue to view Knowledge Mosaic as a niche transactional product for legal professionals.
Let me be clear. This shedding in no way communicates any diminishing commitment to transactional research. Indeed, our engineering agenda for the next year reflects our excitement about opportunities to apply our most advanced technologies to transactional and securities modules of Knowledge Mosaic. We will continue to serve and deepen our core markets, and more fully integrate services that met their needs with those of our broader audience
A most maturing and enduring vision.
What is new is the carapace that surrounds, structures, reinforces, and extends our original nacreous essence. Please allow me latitude to communicate some personal thoughts on this development. When I started Knowledge Mosaic in 2001, I never meant for it to be simply SEC document-retrieval service. To be honest — if that was the limit of my vision, why bother?
What I wanted to create, even back in 2001, was a new kind of framework to directly connect documents and data to learning and knowing. I had almost no capital, no employees, no programming skills, minimal market knowledge, and three hungry little mouths to feed. Two things sustained me. The first was a grim determination to succeed. The second was a fearless indifference to the market.
My background was in academics. I am an intellectual at heart. My dissertation was on the meaning of the execution of King Charles I for the emergence of modern liberal political thought and institutions. So what I brought to Knowledge Mosaic was a passion for ideas and for understanding political institutions and regulations in relation to political and policy outcomes. My ultimate goal was to map the entire federal regulatory landscape and to articulate its impact on business law.
Securities Mosaic – the first step in a long journey toward abundance.
Securities Mosaic was only the first step in this journey, and those of you who have traced our progress will note that we have broadened our research and current awareness footprint year by year. The development of our law firm memos database, with more than 100,000 memos from 200 law firms covering 46 practice areas, probably represented the most significant initial break with our more narrow focus on securities and corporate finance. However, the most important new development occurred with the release of our framework for harvesting and organizing an unlimited number of federal agency documents, and to making them accessible through the concept of “abundant search”. As you will see in subsequent emails, we are only now just getting started. With 30 of the sharpest employees you’d ever hope to work with, some of the leading engineering and legal talent in the Northwest, and progress that sharpens our eye on the prize, 2012 will bring you an entirely new kind of research and current awareness, unlike any you’ve ever seen before.
Where form meets function – the model of the iPhone.
What will this new kind of “awareness” look like? At heart, we view our work artistically, not functionally. While form and function overlap to a great extent, going forward we will emphasize the aesthetics and grace of the user experience. We want to create a package of tools and data that fit together seamlessly and open directly to the customer, so that their interactions become part of a relational experience, with Knowledge Mosaic employees and with other customers (and non-customers).
We know we pack – and will continue to pack – a vast amount of data and tools into a single product. Consider Knowledge Mosaic in this sense to be a little bit like a Swiss Army Knife, or (even better), an iPhone. Out of the gate, we’ll concede that some of the Knowledge Mosaic functionality and data will not be quite as polished or complete as would be true with a stand-alone product. This is also true with the features of the Swiss Army Knife and iPhone. One does not buy them to get a fully functional saw or screwdriver, or a top-of-the-line GPS or phone (even!). Instead, one purchases a package of functionality that is far greater than the sum of its parts, which works gracefully and artfully in a manner that elicits delight and smiles.
Not mincing words. Our goal is to provide universal access to your firm.
What does this concept of a broadly integrative, syncretistic Knowledge Mosaic mean for you? Well, let’s not mince words. We don’t do case law (not much, at least). But where “the market” used to stack us up against Westlaw Business (which is still a legitimate basis for comparison), it also now makes hard-nosed sense to imagine Knowledge Mosaic as an alternative to, or at least as a significant supplement to, big Westlaw, Lexis, and Bloomberg Law. In other words, Knowledge Mosaic can now serve pretty much every attorney in your firm, in your company, in your agency. With prices that are still lower – in some cases by orders of magnitude – than any other comparable (or non-comparable) research and news service.
Inversion.
Before turning aside for the moment, let me mention another vitally important conceptual innovation integral to the development of Knowledge Mosaic in 2012. This is the idea of inversion. In 2012, Knowledge Mosaic will literally turn itself inside out. What does this mean? Probably one of our weaknesses historically has been that we have been somewhat insular. We embraced our customers from a support standpoint, but did little else to actively engage our customers. Even our home page has had the quality of a brick wall — not very inviting! This will change in 2012.
Keep in Touch.
If you have questions or comments about the vision I’ve laid out for you here, we’d love to hear from you. You can write me directly at pschwartz@knowledgemosaic.com; or, for a faster reply, to us all at info@knowledgemosaic.com
- Peter
Hailing the Release of Our New SEC Comment Letters page
Photo by Chris Hitt. Some rights reserved.
Now that the snow, ice, sleet, and hail are beginning to thaw here in Seattle, we’re able to turn the spotlight back on our brand new SEC Comment Letters page, released a week ago today. Read more about it here, or plug in your headphones and check out this 4-minute video on the new page. Or, if you are more a learn-it-by-doing-it person, check out the page itself. (If you’re not a Knowledge Mosaic subscriber, you can click here to get a free, no-obligation 15-day trial, giving you full access to everything on our website.)
And speaking of ice, our Comment Letter page is only the tip of the iceberg. We have an avalanche (sorry) of new stuff coming your way over the next six weeks or so. Most of it will come in a major release currently scheduled for the end of next month. Keep reading this blog for more information on what’s headed your way.
This is a good time to be a Knowledge Mosaic user. Like being a kid with a sled on a snowy day.
Snow Forces Closure of Knowledge Mosaic Offices Today
Due to a significant “snow event” (that’s the term used here in the Pacific Northwest, where snow really is an event), our offices in Seattle will be closed today. What does that mean to you? Nothing, unless you try to reach us by phone. We’re available by email, and our website and news service will be unaffected by the closure.
The storm is supposed to blow through today, so we should be back in on Thursday.
Our New SEC Comment Letters Page Goes Live Monday
Today’s post is a major announcement for Knowledge Mosaic users – but if you read blogmosaic regularly, you knew it was coming. In a post shortly before Thanksgiving, we let you know that we were building a significantly upgraded SEC Comment Letters page, and that it would go live in mid-January.
Well, right on schedule, the new Comment Letters page is about to make its debut. The official launch date is Monday, January 16. (But you should be able to access it this weekend – sshhhhh.)
- Click the image to enlarge.
The new page is lightning fast. It offers a faceted search environment that allows you to filter results and refine your parameters as you drill down. Specifically, it lets you:
- View all related letters in a single letter thread.
- Generate a PDF that aggregates all related letters.
- Filter letters by:
- the SEC filing (form type) that is the subject of the letter;
- industry category, SIC code, or A/D office; and
- place of incorporation, including all US States, Canadian provinces, and foreign countries.
- Employ more powerful, relevance-based text searching.
- Pick companies from a dropdown list of suggested matches.
- Export results into Excel.
Of course, some things haven’t changed. Like everything else on the Knowledge Mosaic research platform, unlimited use of the Comment Letters page is included in your site license. If you’d like more information, email us at info@knowledgemosaic.com, or visit www.knowledgemosaic.com.
CFTC Questions British Import: Betting on Elections
Photo by Steve Rhodes. Some rights reserved.
So, as we’ve written recently, some entrepreneurs are seeking to make their fortune by betting on horses. With an election year now upon us, at least one other company has turned its attention to donkeys and elephants.
Last month, the North American Derivatives Exchange (“NADEX”), an online futures exchange wholly owned by U.K.-based IG Group Holdings plc, submitted to the CFTC a notice advising of its intention to offer five new “Political Election Event Derivatives.”
NADEX describes the contracts as a way of hedging against five possible 2012 election outcomes: (1) a Democratic majority in the U.S. House of Representatives; (2) a Republican majority in the U.S. House of Representatives; (3) a Democratic majority in the U.S. Senate; (4) a Republican majority in the U.S. Senate; and (5) the U.S. Presidency.
To prevent possible manipulation, NADEX prohibits all declared Presidential candidates from trading in the U.S. Presidency contract. Similarly, Senate candidates cannot trade on the outcome of the Senate contracts and Congressional candidates cannot trade on the outcome of the House contracts. Moreover, no member of the Electoral College may trade on the U.S. Presidency contract and “any individual who may have control or influence over the timing or outcome of the event underlying in any Political Event Derivative is precluded by exchange rule from trading that relevant contract.”
Despite these and other precautions, as well as NADEX’s painstaking explanation of why the contracts are permissible under the Commodity Exchange Act, the CFTC has commenced a 90-day review of NADEX’s contracts. The review is based on the possibility that these contracts may involve, among other issues, “gaming or an activity that is unlawful under any State or Federal law.” See CFTC Letter.
Comments on NADEX’s submission should be submitted on or before February 4, 2012. In addition, the CFTC seeks public comment on specific questions related to political event contracts to assist in its evaluation of NADEX’s submission. The CFTC’s 90-day review period ends on April 2, 2012 – a month after Super Tuesday, but the day before Washington, D.C., Maryland, Wisconsin, and Texas are scheduled to hold their primaries.
When Legal Segregation Isn’t Enough: The Protection Of Customer Contracts And Collateral
Photo by Nicholas B. Some rights reserved.
On January 11th the CFTC will consider whether to adopt three new rules, whether to propose for comment its version of the Volcker rule, and whether to delegate to the National Futures Association the authority to register swap dealers and major swap participants.
One of the three final rules being considered addresses the protection of cleared swaps customer contracts and collateral, a concern made real by the collapse of MF Global and the disappearance of up to $1.2 billion in customer funds.
In the proposed rule, the CFTC concludes that the complete legal segregation (“CLS”) model provides the best mechanism for protecting customer money when weighed against the costs associated with the other possibilities. (Four other models were also discussed: physical segregation; legal segregation; the futures model; and the optional approach.) Read more…
The SEC’s New Mine Safety Disclosure Rules
Photo by Peter Craine. Some rights reserved.
On December 21st, the SEC published rule amendments implementing Section 1503 of the Dodd-Frank Act. Section 1503(a) of the Act requires issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine to disclose in their periodic reports filed with the Commission information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. Section 1503(b) of the Act mandates the filing of a Form 8-K disclosing the receipt of certain orders and notices from the Mine Safety and Health Administration.
The disclosure requirements set forth in Section 1503 of the Act are currently in effect. In order to facilitate consistent compliance with the Act’s requirements, the amendments codify those requirements into the SEC’s disclosure rules and specify their scope and application. The amendments also require a limited amount of additional disclosure to provide context for certain items required by the Act.
In general, the final amendments do not expand the required disclosure beyond that required by Section 1503. The Commission found that the added burden of those additional requirements likely would have outweighed the potential incremental benefits of the additional disclosure. The amendments, therefore, apply only to mines located in the U.S. and require disclosure for each distinct mine covered by the Mine Act. Issuers are not permitted to group mines by project or geographic region. Read more…
Chomping at the Bit to Go Public
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Last summer, we turned the blogmosaic spotlight on the larger-than-life world of horse racing, observing that a startup called Regius Thoroughbreds, Inc. had filed the initial paperwork to go public. Its successful IPO would have been the first by a company in that industry in 15 years.
Later that summer, as we also noted, another horse racing outfit called International Thoroughbreds, Inc. was put out to pasture, its registration having been revoked by the SEC. In retrospect, we might have seen that as a portent of things to come: not a few weeks later, Regius Thoroughbreds withdrew its own registration. Its IPO never got out of the starting gate.
All of which highlights the strangeness of the slough of IPO registrations filed with the SEC over the past few days. Last Friday, it was Red Bullet Racing Corp. Wednesday, it was Ghostzapper Racing Corp, Awesome Again Racing Corp., Perfect Sting Racing Corp., Ginger Punch Racing Corp., and Macho Uno Racing Corp. All six are by companies seeking to breed and train thoroughbred racehorses.
As it turns out, the same ownership group is behind all of the filings. That helps to explain the odd convergence – though there is much more to this horse tale that needs to be told. Check out the filings here, on our list of IPO registrations for 2011.
A Small Company with a Big Heart
As a small, independently owned company, Knowledge Mosaic Inc. may not have the deepest pockets – but if being small also means our ties to the “real world” are more apparent, more profoundly felt, perhaps that helps expl
ains why giving back generously to our world and to our human community is so deeply ingrained in our company culture.
We demonstrate this commitment in many ways. Each holiday season, for example, Knowledge Mosaic selects a charity to sponsor with the goal of helping people who face struggles in their lives. This annual gift communicates our gratitude for the blessings in our own lives and reflects our faith in the efficacious power of compassion as a force for change in the world. This year, our gift went to Northwest Harvest, an organization that provides nutritious food for hungry people in our region.
We also donate to causes when an acute need arises, supporting, for example, the March 2011 relief efforts on behalf of earthquake- and tsunami-ravaged Japan. Finally, as caring, engaged citizens of our local and global communities, Knowledge Mosaic employees are personally involved in many philanthropic causes; the company is often able to lend support to these individual efforts. Our support earlier this year for Solar for Shikha is a great example.
Our guiding philosophy is to try to help and empower those who are most vulnerable. Naturally, then, we often focus on children. And helping children goes hand in hand with supporting education, which still represents the best opportunity for children to lift themselves from poverty and create new opportunities for themselves. Supporting education, in turn, often means supporting technology initiatives, which can dramatically leverage existing educational opportunities for children. Technology can overleap barriers of geography and create possibilities for global learning communities.
Compassion opens the heart to truth and beauty. It twines us together within our company and helps us to touch, and be touched by, the desperate needs of the vulnerable among us, in our human community.
Best wishes to everyone for a peaceful and prosperous New Year.
Yesterday, the SEC adopted amendments to the accredited investor standards under the Securities Act of 1933, as required by Section 413(a) of the Dodd-Frank Act. Section 413(a) requires the definition of “accredited investor” in the Securities Act’s rules to exclude the value of a person’s primary residence when determining whether the person has a net worth in excess of $1 million and is therefore eligible to invest in Regulation D exempt securities offerings.
Photo by Bryan Gosline. Some rights reserved.
As amended, the accredited investor rule will exclude any positive net equity an investor may have in his or her primary residence. Similarly, indebtedness secured by the person’s primary residence, up to the estimated fair market value of the primary residence, will not be treated as a liability, unless the borrowing occurs in the 60 days preceding the purchase of securities in the exempt offering and is not in connection with the acquisition of the primary residence. In such cases, the debt secured by the primary residence must be treated as a liability in the net worth calculation. In addition, any indebtedness secured by a person’s primary residence in excess of the property’s estimated fair market value is treated as a liability under the new definition.
The final rule amendments also include a grandfathering provision that permits the application of the former accredited investor net worth test in certain limited circumstances. The former accredited investor net worth test will apply so long as: (i) the person held the right to purchase the exempt securities on July 20, 2010, the day before the enactment of the Dodd-Frank Act; (ii) the person qualified as an accredited investor on the basis of net worth at the time the right was acquired; and (iii) the person held securities of the same issuer, other than the right, on July 20, 2010.
The amended net worth standard will take effect 60 days after publication in the Federal Register, which is expected during the week of December 26. Beginning in 2014, and every four years thereafter, the Dodd-Frank Act requires the Commission to review the “accredited investor” definition in its entirety and to engage in further rulemaking to the extent it deems appropriate.
Knowledge Mosaic Inc. to Remain Open This Friday and Next Monday
With the Christmas Eve and Christmas holidays falling on a weekend this year, the Knowledge Mosaic Inc. offices will remain open as usual this Friday, December 23, and next Monday, December 26.
However, we will not be sending out Knowledge Mosaic news emails on Monday the 26th, which is a legal holiday in the U.S.
We wish our friends, customers, and colleagues a happy holiday season and best wishes for the new year.
The Double-Edged Sword of Analysis
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On December 2nd, the International Swaps and Derivatives Association (“ISDA”) and the Securities Industry and Financial Markets Association (“SIFMA”) sued the CFTC, challenging the agency’s new position limits in 28 core physical commodity contracts and their economically equivalent futures, options, and swaps.
The Associations’ complaint claims that the Dodd-Frank Act did not compel the CFTC to promulgate position limits. The agency’s decision to do so, without adequately determining whether the limits were necessary and without analyzing the limits’ effect, was arbitrary and capricious, in violation of the Commodity Exchange Act and the Administrative Procedures Act.
Whether the Dodd-Frank Act mandated the imposition of position limits presents issues of statutory interpretation worthy of a law review article. The lawsuit also sparked an interesting response.
Former Labor Secretary Robert Reich blogged about it and news outlets including the Baltimore Sun and the Christian Science Monitor republished the blog. Mr. Reich struck a chord when he noted that Americans may conduct their own cost-benefit analysis of Wall Street and decide that its costs outweigh its benefits. Read more…
MF Global’s Tone at the Top: Throw the Underlings under the Bus
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As has been widely reported, no one at MF Global seems to know where an estimated $1.2 billion in customer money went. Not CEO Jon Corzine; not President and COO Bradley Abelow; and not CFO Henri Steenkamp.
All are “distressed,” “puzzled,” and “deeply sorry.” But still, $1.2 billion is missing.
All have heroically foregone pleading the Fifth in order to appear before Congress to testify that they never intended to suggest anything illegal. If someone else misconstrued what they said, well, it was an unfortunate misunderstanding. But certainly not intentional.
So if a CEO, COO and CFO can all plead ignorance, who does have knowledge? Who is responsible?
CFO Steenkamp helpfully pointed out that MF Global is a global company (the word is in its name, afterall). And he was the CFO of the holding company – a global holding company. The missing money was located in Chicago at a subsidiary over which he had no direct contact, supervision, or apparently, responsibility. He notes, “Direct involvement with operational matters such as bank accounts or fund transfers has never been part of my duties.”
Such claims should give the SEC pause as it considers the procedures for registering security-based swap dealers and security-based swap participants (“SBS Entities”). The registration process it proposed two months ago foresees a self-certification regime in which a “senior officer” would certify that the SBS Entity has the operational, financial, and compliance capabilities to act as an SBS Entity.
When I previously wrote about that proposal, I described the “senior officer” here as essentially “a body at whom fingers can be pointed, like a regulatory sin eater.” Had MF Global survived and registered as a SBS Entity, that senior officer would have been roadkill.
Private Fund Risk Reporting
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On November 16th, the CFTC and SEC published new rules under the Commodity Exchange Act and the Investment Advisers Act of 1940 implementing provisions of Title IV of the Dodd-Frank Act. The SEC’s provisions require registered investment advisers advising one or more private funds and having at least $150 million in private fund assets under management to file Form PF with the SEC. The CFTC’s rule contains similar provisions for commodity pool operators and commodity trading advisors. Only the SEC’s provisions are addressed here.
The information supplied on Form PF – to be filed via EDGAR but nevertheless, like new Form 13H, to remain confidential – is meant to assist the Financial Stability Oversight Council in its assessment of systemic risk in the U.S. financial system. To do so, the SEC divided private fund advisers into two groups, large advisers and smaller advisers. The amount of information reported and the frequency of reporting depends on the group to which the adviser belongs. Read more…
McBrilliant
Photo by jemufo. Some rights reserved.
On December 1st, a new San Francisco city law took effect which prohibits restaurants from giving away toys with meals that fail to meet certain nutritional guidelines. The law is obviously aimed at fast food giants such as McDonalds and Burger King.
How did the giants respond? They started charging $0.10 for the toys. And McDonalds took it one step further. They announced they would donate all proceeds towards the building of a new Ronald McDonald House. American Public Media’s Marketplace called the response McSmarter.
But it’s really McBrilliant. Just think of what the McDonalds cashier can say not only to parents and kids, but to all customers: “Would you like to add a toy for $0.10? All proceeds go to build a new Ronald McDonald House. You know, the place where we house and feed families with seriously ill children for free.”
Not just great PR, but a tax deduction, too.
And a lesson on unintended consequences. Marketplace noted that San Francisco didn’t do a cost-benefit analysis of the law. While such an analysis might have cost tens-of-thousands of dollars, something which no cash-strapped city can afford, it’s a reminder to all regulators to think outside the box.
Or as Taco Bell might say, outside the bun.
Comment Round-Up: The SEC’s Concept Release on the Use of Derivatives by Mutual Funds
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On August 31, 2011, the SEC issued a concept release requesting comment on issues relevant to the use of derivatives by mutual funds, including the potential implications for fund leverage, diversification, exposure to certain securities-related issuers, portfolio concentration, valuation, and related matters. The comment period closed on November 7, 2011 (although the Securities Industry and Financial Markets Association submitted its comments last week).
The fund industry used the comment period to blast the Investment Management Division’s de facto moratorium on the use of derivatives by new exchange-traded funds (“ETFs”). Dechert LLP, on behalf of a number of investment advisers, noted that although the Commission appears to contemplate the continued use of derivatives by ETFs, provided they do not make a “significant” investment in derivatives, Investment Management Division staff will not process an actively managed ETF exemptive application unless the applicant represents that it will not invest in options, futures or swaps.
Dechert, and its clients, complain the moratorium has created an uneven competitive playing field among ETF market participants. Those who received exemptive relief prior to the moratorium can continue to launch new ETFs without the derivatives restriction, while later entrants cannot. Read more…
When Thursday rolls around, will EDGAR still be EDGAR?
A little more than three years ago, the SEC announced that EDGAR was to going be put out to pasture. The venerable system was to be replaced, gradually, by IDEA (“Interactive Data Electronic Applications”) — a moniker aspiring to be slick and catchy, but destined to be flat and forgettable. You don’t hear much talk about “IDEA” anymore, even as the incorporation of interactive data into filings via XBRL marches forward. Yes, EDGAR seems here to stay, at least for the foreseeable future.
Or at least until this Thursday.
You see, this Thursday, December 1, is the compliance deadline for new SEC rule 13(h), approved in late October (see the adopting release here). The new rule mandates a brand new SEC form, 13H, to be submitted by certain “large traders” who must now identify themselves and describe their affairs in elaborate detail.
Like many new SEC rules, 13(h) has been the source of controversy as well as interest. But little has been made of the fact that the arrival of Form 13H appears to establish a new precedent for the SEC’s EDGAR system – a precedent arguably at odds with one of the fundamental premises of the system. Read more…
Letters, We Got Letters: New SEC Comment Letters Page On the Way
SEC Comment Letters are a special kind of document. Technically, they’re disclosure – filed by or on behalf of companies via the EDGAR system – but they’re primarily valuable as guidance materials. Along with their cousins the No Action Letters, they help filers (and the lawyers who represent them) determine what to do and what not to do as they prepare submissions for the Securities and Exchange Commission.
Photo by Mike Ambs. Some rights reserved.
Such a special document deserves a special search page. And to be sure, for many years Knowledge Mosaic has offered a dedicated page on SEC Comment Letters, one that includes not only those letters filed as discrete form types CORRESP (letters written by the Commission to the company) and UPLOAD (responses by the company), but also those Comment Letters embedded within other filings.
In a couple of months, however, Knowledge Mosaic will launch a new version of the search page that really will be something special. The new page will offer all the functionality of the old (i.e., current) page, but with much, much more. For starters, it will be lightning fast, with search results returned in mere seconds or less. And like our current Laws, Rules, and Agency Materials page, it will feature a faceted search environment to allow users to refine their search as they burrow in. Fields that currently can be used only as top-level filters will now stand ready for deployment after the initial search is run, for fine-tuning of results.
Newly added search fields include the filing (form type) that is the subject of the correspondence; the A/D office assigned to the filer; and broad industry categories as an optional alternative to SIC codes. We’re also introducing the ability to see all related letters in a correspondence thread. You can even create a PDF that aggregates related documents into one.
You’ll also be able to select your company or filer from a list of suggested matches, as you can do now on the SEC Filings page. You’ll be able to view any additional filers associated with the Comment Letter. And you’ll be able to grab documents from the results view and add them to your Document Cart, email them, or export them into an Excel spreadsheet.
The new Knowledge Mosaic SEC Comment Letters page will make its debut some time in mid-January.
Photo by sc63. Some right reserved.
In Patrick O’Brian’s “Master and Commander” novels, set during the Napoleonic Wars, British naval superstitions are frequently featured. One such superstition is “naming calls,” which says, if you think something might happen, you’d better not mention it.
MF Global would have done well to have heeded that warning.
A little less than a year before MF Global collapsed — 362 days, to be precise — the CFTC proposed amendments to Rule 1.25 under the Commodity Exchange Act. Rule 1.25 provides that a futures commission merchant (“FCM”) or derivatives clearing organization holding customer segregated funds may invest those funds in certain “permitted investments,” subject to specified requirements designed to minimize exposure to credit, liquidity, and market risks.
The proposed amendments would remove from the investments permitted by Rule 1.25 securities issued by government sponsored entities (“GSEs”) that are not backed by the full faith and credit of the United States, corporate debt obligations not guaranteed by the FDIC, foreign sovereign debt, and in-house transactions. The proposed amendments also would limit investments in any one class of assets (other than U.S. government securities) and extend “issuer-based” concentration limits to money market funds and repurchase agreement counterparties.
When the CFTC proposed these amendments, Fannie Mae and Freddie Mac required a massive bailout, the Reserve Primary Fund had “broken the buck,” and offerings of auction rate securities had failed. The vast majority of comments submitted to the CFTC, therefore, focused on proposed limitations on investments in money market funds and GSE-issued securities.
Like many of its fellow commenters, the now-defunct MF Global opposed restrictions on investments in money market mutual funds and GSE-issued securities. But it also made some eerily prescient comments in response to the proposed elimination of foreign sovereign debt as an investment option.
Just 334 days before MF Global collapsed because of questions surrounding its investment in foreign sovereign debt, made in accordance with Rule 1.25, and the discovery that approximately $600 million in what-should-have-been customer segregated funds had disappeared, it said:
[W]e believe the specific amendments being proposed … are unnecessary, considering that the current permissible investments under Rule 1.25 have not, to our knowledge, resulted in any FCM’s inability to provide customers their segregated funds upon request or to continue as a solvent entity…. We believe strongly that the CFTC’s proposed amendments endeavor to ‘fix something that is not broken. ‘ … [W]e are not aware of any FCM that has been unable to liquidate and provide to their customers upon request any segregated funds invested under Rule 1.25…. Further, since this expansion, no FCM to our knowledge has failed or otherwise been unable to meet any other of its financial obligations as a result of investments made under Rule 1.25. In short, we believe the current investment criteria set forth under Rule 1.25 have worked….
The CFTC may vote on whether to adopt the proposed amendments as early as December 5, 2011.
