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Last November’s rule generally contains three components: (1) the threshold restricting the number of speculative positions that a person may hold in the spot-month, individual month, and all months combined, (2) a bona fide hedging exemption, and (3) rules to determine which accounts and positions a person must aggregate.

Last Friday’s proposed amendment only addresses the third component, the aggregation of position limits. The proposal maintains November’s ten percent threshold which considers an ownership interest of less than 10 percent as de minimis. So if a person’s ownership interest in another entity is less than 10 percent, the aggregation of position limits is not required.

Under the proposed amendment, if a person’s ownership is equal to or greater than 10 percent, but less than 50 percent, that person may file for disaggregation relief if they can establish that they and the owned entity : (1) do not have knowledge of the trading decisions of the other; (2) trade pursuant to separately developed and independent trading systems; (3) have in place policies and procedures to preclude sharing knowledge of, gaining access to, or receiving data about, trades of the other; (4) do not share employees that control the trading decisions of the other; and (5) maintain a risk management system that does not allow the sharing of trade information or trading strategies between entities.

For purposes of this provision, the CFTC will not consider knowledge of overall end-of-day position information to necessarily constitute knowledge of trading decisions, so long as the position information cannot be used to dictate or infer trading strategies. Therefore, knowledge of end-of-day positions for the purpose of monitoring credit limits for corporate guarantees would not necessarily constitute knowledge of trading information. However, the ability to monitor the development of positions on a real time basis could constitute knowledge of trading decisions.

A bright line test remains for those who have an ownership interest that is equal to or greater than 50 percent. In these instances, aggregation would always be required. CFTC Commissioner Jill Sommers, however, questions this bright line test, asking whether it is necessary if lack of knowledge and control can be established. She specifically requests comments on this issue. See Sommers Remarks.

The CFTC also proposes to expand the exemption for the underwriting of securities to include ownership interests acquired through the market-making activities of an affiliated broker-dealer. This proposal would exempt from aggregation ownership interests acquired as part of a person’s reasonable market-making activity in the normal course of business as a broker-dealer registered with the SEC or comparable registration in a foreign jurisdiction, so long as there is no other ownership interests or indicia of control or concerted action. The CFTC intends for this proposal to apply to ownership interests that are likely transitory and not for investment purposes, and seeks comment as to whether such interests are at a low risk for the coordination of trading or whether this exemption could lead to evasion of applicable position limits.

Comments should be submitted within 30 days after publication in the Federal Register, which is expected any day now.

Cross-Border Application. Citing AIG and JP Morgan, Gensler said that his agency’s rules for swaps will apply to the foreign subsidiaries and offices of U.S. banks. He noted that when AIG’s London-based credit default swaps (“CDS”) brought that company to its knees, it was the U.S. parent and the U.S. taxpayer who felt the pain. Similarly, although the “London Whale’s” CDS trades for JP Morgan occurred in London, it is the federally insured U.S. parent who will apparently absorb the billion dollar losses.

International Standards. Anticipating critics decrying a “go it alone” approach, Gensler noted the efforts of Japan and the European Union to adopt mandatory swap clearing and swap transparency rules. The CFTC’s timeframe for CDS clearing broadly aligns with both Japan and Europe.  According to Gensler, the international community is closely coordinating on margin requirements for uncleared swaps, and is on track to seek public comment in June on a consistent approach.

Central Clearing. CFTC staff is preparing recommendations on clearing requirement determinations. The first determinations will be published for comment this summer and hopefully completed this fall. They will begin with key interest rate products, as well as a number of CDX and iTraxx credit default swap indices. The CFTC will then consider a final rule on the implementation of the clearing requirement and the end-user exception related to non-financial companies.

Position Limits. Last week, the CFTC published a proposed rule that would modify the CFTC’s aggregation provisions for limits on speculative positions. The proposal would permit any person with a 10 to 50 percent ownership or equity interest in an entity to disaggregate the owned entity’s positions, provided there are protections and firewalls in place to ensure trading decisions are made independently of one another.

Photo source: www.shutterstock.com.

A few weeks ago, we released a much-anticipated feature on the Knowledge Mosaic website.  You now have the ability to download multiple documents (as individual PDFs) from your Document Cart.   They’re neatly packaged into a zip folder that you can save to your desktop, flash drive, or wherever.

The Document Cart is available for items from our SEC Filings page ( not just whole filings, but also individual exhibits and 10-K or 8-K items) and our Laws, Rules, and Agency Materials page.  Since your Document Cart is unique to you, logging in with your username and password is required to access.  (If you’re part of an organization-wide license, click “Personal Access” at the upper right of your screen to get a login prompt).

As with all personal account features on the Knowledge Mosaic website, unlimited use is completely covered by your license.

The Document Cart is currently capped at 25 items.  However, we anticipate tripling this maximum some time in the next few months.   Keep reading this blog; we have lots of other enhancements coming down the pike.

Photo source: www.shutterstock.com.

Last week, Carlo V. di Florio, the SEC’s Director of the Office of Compliance Inspections and Examinations (“OCIE”), provided summary information concerning newly registered private fund advisers and also gave some hints as to what private fund advisers can expect in the way of examinations and inspections. OCIE has previously indicated that private fund inspections will be an area of focus in 2012. (A general outline of what an inspection is like can be found on pages 24-30 of OCIE’s February 2012 overview.)

Di Florio highlighted the need for private fund advisers to have:

1. written policies and procedures which are annually reviewed and overseen by a chief compliance officer;
2. accurate books and records; 
3. current Form ADVs;
4. an ethics code; and
5. accurate advertising materials.

And he reminded advisers of their fiduciary duties regarding fees and expenses, and conflicts of interest.

OCIE is currently identifying the unique risks presented by private equity funds and hedge funds and is developing the information management systems to organize and evaluate the information it will collect via Form PF and Form ADV. Examples of the basic risk characteristics that it will track include any material changes in business activities such as lines of business or investment strategies, changes in key personnel, outside business activities of the firm or its personnel, any regulatory history of the firm or its personnel, anomalies in key metrics such as fees, performance, disclosures when compared to peers or to previous periods, and possible financial stress or weaknesses.

Risk areas that might be considered during an examination include (1) fund strategy; (2) whether the fund controls companies or holds minority positions; (3) product complexity; and (4) the fund’s lifecycle.

OCIE is particularly concerned by the possible conflicts of interest faced by private funds, especially for funds which co-invest with their clients or which play a role in a portfolio company. Other conflicts identified by OCIE include those involving fee and expense shifting or maximization.

In closing, di Florio emphasized the need for strong policies and procedures and risk controls. And when expecting the SEC, be prepared with documentation and the ability to access that documentation.

The search tool we’ll be looking at is designed to keep you to on top of the deluge of federal rulemaking associated with this historic Act of Congress.  Even with the possibility of an unfavorable Supreme Court decision casting doubt on the future of health care reform, agencies continue to work hard to implement the law (over 400 records have already been released).

Depending on your perspective, that either means that the dream of affordable health care for all Americans is incrementally becoming reality – or, alternatively, that Obamacare is creating the biggest tangle of bureaucratic red tape since the Dodd-Frank Act.

Whichever side of the fence you’re on, we’ve got the data you need.  Please join us Wednesday to learn more and to ask questions.

To learn more about the Tracker:

• Watch a short video.
• Read more.
• Get a free trial of Knowledge Mosaic, and try out the tool for yourself.

You can register for the webinar here. We’ll also spend a few minutes looking at how other search pages on our website can contribute to your research or help you stay on top of public policy and compliance issues surrounding public health and health care.

NOTE:  This presentation is being prepared by Knowledge Mosaic Inc. for informational purposes only.  It does not purport to offer legal advice.

Photo source: www.shutterstock.com.

As we announced yesterday, we at Knowledge Mosaic Inc. are launching our new Affordable Care Act Rulemaking Tracker today, Friday April 27.  It should be accessible from the Knowledge Mosaic website some time in the next few hours.

To whet your appetite in the mean time, we’ve released a seven-minute video that gives an overview of the tool.  It’s on YouTube now — check it out.

And there’s more.  As a corollary but significant-in-its-own-right release, we’ve added to our Laws, Rules, and Agency Materials page over 25,000 documents from the U.S. Department of Health and Human Services, including its Centers for Medicare and Medicaid Services.  Click here to search these materials for keyword “Affordable Care Act.”

The Knowledge Mosaic ACA Rulemaking Tracker identifies relevant releases from over two dozen federal rulemaking bodies, on topics including the individual mandate, Medicare, prescription drugs, tax & revenue provisions, and much more.  Advanced features offer you the ability to:

• Gain control of your calendar.   Search for items by date / time frame for compliance date, effective date, release date, and public comment date.
  

  Photo source: www.shutterstock.com

• Find the needle in the 961-page haystack.  Link directly to the Title (and section, if applicable) of the Affordable Care Act that correlates to a particular agency release.
• Connect to the crowd.  Link directly to public comments associated with a given rulemaking item.
• Keep both eyes on what you care about.  Set up an email alert by agency or by topic.

For more information, take a look at our features document on the Tracker. If you don’t currently have a license with Knowledge Mosaic, we encourage you to sign up for a free trial.  In any case, please feel free to contact us at 866-650-3600 or info@knowledgemosaic.com.

Photo by Cha222. Some rights reserved.

On April 11th, the SEC published a study, required by the Dodd-Frank Act, regarding the application of Section 10(b) of the Securities Exchange Act to private actions alleging transnational securities frauds.

Background

In 2010, the Supreme Court held that Section 10(b) only applies to transactions in securities listed on domestic exchanges or “domestic” transactions in other securities. Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010). Concerned that the decision would limit the ability of the SEC and Justice Department to pursue transnational securities frauds, Congress included in the Dodd-Frank Act a provision explicitly stating that Section 10(b) is intended to apply extraterritorially in enforcement matters in which the fraudulent conduct occurred in the U.S. or the fraud had a substantial and foreseeable effect in the U.S. Congress did not, however, extend this “conduct and effects” test to private actions for transnational securities fraud. Instead, it required the SEC to study the matter.

Post-Morrison

Since Morrison, federal courts faced with whether Section 10(b) applies to a transnational private securities fraud suit have generally divided transnational securities frauds into two types: those that involve a security listed on a domestic exchange and those whose circumstances are otherwise “domestic” within the meaning of Morrison.

Addressing the first prong, whether the security is listed on a domestic exchange, the study notes that if a security is cross-listed on both a U.S. and a foreign exchange, Section 10(b) will apply only if the transaction at issue was executed on the U.S. exchange. Transactions involving American Depository Receipts (“ADRs”) also fall within Section 10(b)’s parameters, although one district court has held that a transaction in over-the-counter ADRs is not subject to Section 10(b). Courts have further held that a U.S. investor’s purchase or sale of a foreign security via a foreign exchange also falls outside of Section 10(b)’s reach.

Turning to the second prong, whether the circumstances are otherwise “domestic,” the courts have employed potentially competing approaches. One presupposes that securities transactions may take place across more than one jurisdiction. Under this approach, courts must examine the entire transaction process to determine if any of the critical steps occurred domestically.

 Another approach examines the transaction to determine precisely when in the course of the purchase or sale “the parties incurred ‘irrevocable liability’ to complete the transaction.” Still other courts have suggested that either the issuance of the securities in the U.S. or transfer of title to the shares in the U.S. may be sufficient.

Post-Morrison, courts have further held that Section 10(b) does not apply if the transaction occurred either on a foreign exchange or otherwise outside the United States, even if an intermediary resided in the U.S. and primarily engaged in the fraudulent conduct inside the U.S.

Options

After summarizing the comments it received, the SEC discussed the options open to Congress as it considers whether and how to extend Section 10(b) to private transnational securities frauds.

The Conduct and Effects Test

The agency quickly dismissed extending to private lawsuits the pre-Morrison conduct and effects test made available to enforcement agencies in the Dodd-Frank Act. It doing so, it noted the international law and comity implications such an extension would bring. Commission staff more seriously discussed a conduct and effects test which requires a direct injury from conduct occurring in the U.S. Alternatively, a conduct and effects test which applied only to U.S. investors was suggested.

The Transactional Test

Turning to the transactional test adopted by Morrison, the SEC considered four alternatives: permitting investors to pursue a Section 10(b) claim for a purchase or sale of any security that is of the same class of securities registered in the U.S., regardless of the actual location of the transaction; authorizing private actions against securities intermediaries that engage in fraud while purchasing or selling securities overseas for U.S. investors; permitting private Section 10(b) actions if an investor can demonstrate that inducement occurred while the investor was in the U.S. to engage in the transaction, irrespective of where the actual transaction occurred; and clarifying that an off-exchange transaction takes place in the U.S. if either party made the offer to sell or purchase, or accepted the offer to sell or purchase, while in the U.S.

The Dissent

Commissioner Luis A. Aguilar issued a strongly worded dissent to the SEC study. He expressed amazed disappointment that the staff of an investor protection agency would fail to recommend that Congress authorize private lawsuits in the transnational securities context. He countered international law and comity concerns by noting that neither prohibits the U.S. from enforcing a legal duty owed in multiple jurisdictions. Aguilar additionally noted that Congress has traditionally recognized the need and importance for private enforcement.

Some sample subjects covered just today: Walmart and potential FCPA violations, Executive Compensation, a major patent agreement between Microsoft and Facebook, and a major settlement payment by Metlife.  Visit us at http://twitter.com/#!/knowledgemosaic, or better yet, become a follower.

Under Title 1 of the Dodd-Frank Act, a company generally can be designated for Board supervision by the Financial Stability Oversight Council only if 85 percent or more of the company’s revenues or assets are related to activities that are financial in nature under the Bank Holding Company Act (“BHCA”). Some commenters to the February 2011 NPR asked whether BHCA conditions on how financial activities are conducted (as opposed to the financial activity itself), should be considered in defining financial activities for purposes of Title I. 

In particular, commenters asked whether BHCA safety and soundness requirements should be part of the consideration. These commenters noted that some firms (namely, investment companies), could be excluded from consideration for additional supervision simply because they do not have to comply with the same conduct requirements as bank holding companies.

The proposed amendment would close that loophole.

And to insure that its intent is clear, the Board included a proposed appendix to the amendment. The appendix lists the activities that would be considered to be financial activities as of April 2, 2012, and which would therefore be counted towards the 85 percent threshold. Those activities are:

• Lending, exchanging, transferring, investing for others, or safeguarding money and securities;
• Insurance activities;
• Financial, investment, and economic advisory services;
• Securitizing;
• Underwriting, dealing, and market making;
• Extending credit and servicing loans;
• Activities related to extending credit (eg: appraisals, collection services, and brokerage);
• Leasing;
• Operating non-bank depositories;
• Trust company functions;
• Financial and investment advisory services;
• Agency transactional services;
• Investment transactions as principal;
• Management consulting and counseling activities;
• Courier services and printing and selling MICR-encoded items;
• Insurance agency and underwriting;
• Community development activities;
• Money orders; savings bonds, and traveler’s checks;
• Data processing;
• Mutual fund advisory services;
• Owning shares of a securities exchange;
• Certification services;
• Providing employment histories;
• Check-cashing and wire-transmission services;
• Postage, vehicle registration, and public transportation services;
• Real estate title abstracting;
• Management consultant services;
• Travel agency;
• Mutual fund activities;
• Merchant banking; and
• Lending, safeguarding, exchanging, and investing for others with respect to financial assets other than money and securities.

Comments on the proposed amendment must be submitted by May 25, 2012. View the proposed amendment here.

Together with appended interpretive guidance, the new rule describes the manner in which the Council intends to apply the statutory standards and considerations, and the processes and procedures that the Council will consider in making determinations under Section 113 of the Dodd-Frank Act.

The Statute. The Dodd-Frank Act defines a “nonbank financial company” as a domestic or foreign company that is “predominantly engaged in financial activities,” other than bank holding companies and certain other types of firms. The Dodd-Frank Act provides that a company is “predominantly engaged” in financial activities if either (1) the annual gross revenues derived by the company from financial activities, as well as from the ownership or control of insured depository institutions, represent 85 percent or more of the consolidated annual gross revenues of the company; or (2) the consolidated assets of the company related to financial activities, as well as related to the ownership or control of insured depository institutions, represent 85 percent or more of the consolidated assets of the company. The Dodd-Frank Act requires the Board of Governors to establish the requirements for determining whether a company is “predominantly engaged in financial activities” for this purpose. 

The Board’s Proposal. On Monday, the Federal Reserve Board published for comment a proposed amendment to its Notice of Proposed Rulemaking issued February 11, 2011 (“NPR”), to establish requirements for determining whether a company is “predominantly engaged in financial activities.” Commenters to the February 2011 NPR asked whether conditions imposed on the conduct of financial activities by the Bank Holding Company Act and the Board’s regulations should be considered in defining financial activities.  The Board therefore proposes to amend the NPR to clarify the activities that are financial for purposes of the Dodd-Frank Act. Comments should be submitted on or before May 25, 2012.

FSOC Guidance. The interpretive guidance appended to the FSOC’s new rule addresses, among other things, (1) key terms and concepts related to the Council’s determination authority, including “material financial distress” and “threat to financial stability”; (2) the uniform quantitative thresholds that the Council intends to use to identify nonbank financial companies for further evaluation; (3) the six-category framework that the Council intends to use to consider whether a nonbank financial company meets either of the statutory standards for a determination, including examples of quantitative metrics for assessing each category; and (4) the process that the Council intends to follow when considering whether to subject a nonbank financial company to supervision by the Board of Governors and prudential standards.

The rule and interpretive guidance provide a detailed description of (1) the profile of those nonbank financial companies that the Council likely will evaluate for potential determination, and (2) the factors that the Council intends to use when analyzing companies at various stages of the determination process, including examples of the metrics that the Council intends to use when evaluating a nonbank financial company under the six-category analytic framework. The Council’s ultimate assessment of whether a nonbank financial company meets a statutory standard for determination will be based on an evaluation of each of the statutory considerations, taking into account facts and circumstances relevant to each nonbank financial company.

The Three-Stage Process. As described in the interpretive guidance, the FSOC’s determination process will occur in three stages. The first stage of the process (“Stage 1”) will narrow the universe of nonbank financial companies by applying uniform quantitative thresholds that are broadly applicable across the financial sector. The thresholds are size, interconnectedness, leverage, and liquidity risk and maturity mismatch. A nonbank financial company would be subject to additional review if it meets both the size threshold and any one of the other quantitative thresholds.

In the second stage of the process (“Stage 2”), the Council will analyze the nonbank financial companies identified in Stage 1 using the six-category analytic framework.

Based on the Stage 2 analysis, the Council will identify the nonbank financial companies which the Council believes merit further review in the third stage (“Stage 3”). The Council will send a notice of consideration to each nonbank financial company that will be reviewed in Stage 3, and will give those nonbank financial companies an opportunity to submit materials within a time period specified by the Council (which will be not less than 30 days). Stage 3 will build on the Stage 2 analysis using quantitative and qualitative information collected directly from the nonbank financial company, generally by the Office of Financial Research, in addition to the information considered during Stages 1 and 2. The Council will determine whether to subject a nonbank financial company to Board of Governors supervision and prudential standards based on the results of the analyses conducted during this three-stage review process.

The FSOC does not intend to provide industry-based exemptions from potential determinations.

The new rule and interpretive guidance are effective 30 days after publication in the Federal Register, which is expected during the week of April 9.

Photo by red betty black; some rights reserved.

In January, we wrote about a new import the North American Derivatives Exchange (“NADEX”), an on-line futures exchange wholly owned by U.K.-based IG Group Holdings plc, wanted to bring to the U.S.: “Political Election Event Derivatives.”

Yesterday, the CFTC officially said “no.”

NADEX described 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.

But the CFTC found that NADEX’s proposal was analogous to betting on elections, which many states prohibit. It further found that “the unpredictability of the specific economic consequences of an election means that the Political Event Contracts cannot reasonably be expected to be used for hedging purposes” and “there is no situation in which the Political Event Contracts’ prices could form the basis for the pricing of a commercial transaction involving a physical commodity, financial asset or service, which demonstrates that the Political Event Contracts have no price basing utility.”

Of course, it’s not within the CFTC’s purview to consider the entertainment value of election-betting. But maybe that’s why what happens in Vegas stays in Vegas.

View NADEX’s notice of proposal here.

View the CFTC’s order prohibiting the proposal here.

It also includes the “Entry into a Material Definitive Agreement” item, in which companies formally disclose the completion of a major deal such as a merger.  So you can now set up a Watchlist to be notified when such deals happen.  Here is a basic template for this kind of alert:

Search parameters:    Scope: 8-K Items (Basic)   Entity: All Filers   Text: merger near/3 agreement   Items: 1.01   Form Type: 8-K

Depending on your purposes, there are a number of adjustments you might consider making to this template query.

To narrow it (i.e., to make it more precise and to reduce the number of results), you can:

1)  Use this more specific text string:

 (entered into or pursuant to the terms of) pre/4 (merger near/3 agreement)

2)  Include other search filters, such as filer attributes: industry, location, exchange, etc.

To cast a wider net (i.e., to increase the number of results but possibly to introduce irrelevant ones), you can:

1)   Use this broader text string:

merg*

which catches any mention of “merger” or variants like merging, merged, etc. (the asterisk is a wildcard operator).

2)  Include Item 2.01 (Completion of Acquisition) alongside Item 1.01.

If you’d like assistance on setting up alerts through Knowledge Mosaic, please contact us.

Customer Clearing Documentation. The new rules prohibit swap dealers (“SDs”) and major swap participants (“MSPs”) from interfering or attempting to influence the decisions of affiliated FCMs with regard to the provision of clearing services and activities, and prohibit FCMs from permitting SDs and MSPs to do so.

The regulations prohibit tri-party agreements between customers and SDs, MSPs, FCMs that are clearing members, and DCOs. The new rules further prevent agreements that would (1) disclose to an FCM, SD, or MSP the identity of a customer’s original executing counterparty; (2) limit the number of counterparties with whom a customer may enter into a trade; (3) restrict the size of the position a customer may take with any individual counterparty, apart from an overall credit limit for all positions held by the customer at the FCM; (4) impair a customer’s access to execution of a trade on terms that have a reasonable relationship to the best terms available; or (5) prevent compliance with specified time frames for acceptance of trades into clearing. Nothing in the rules, however, would restrain an SD or MSP from establishing bilateral limits with each of its counterparties. Moreover, the rules do not impair an SD’s or MSP’s ability to conduct due diligence of its counterparties. 

Time Frame for Acceptance into Clearing. The new rules require a clearing member, or the DCO acting on its behalf, to accept or reject each trade submitted for clearing as quickly as would be technologically practicable if fully automated systems were used. The standard requires action in a matter of milliseconds or seconds, or at most, minutes. The rules do accommodate trade processing with manual steps provided that the process could operate within the same time frame as automated systems.

SDs and MSPs must also have the ability to route swaps that are not executed on a SEF or DCM to a DCO in a manner that is acceptable to the DCO for the purposes of clearing. The rules, however, do not prescribe the manner by which SDs or MSPs route their swaps to DCOs. A DCO may allow SDs and MSPs to submit their swaps to clearing via third-party platforms and other service providers. Additionally, for trades not subject to a clearing mandate, the parties are not bound by any submission deadlines until they voluntarily agree to have the trade cleared.

Swap execution facilities and designated contract markets are required to coordinate with DCOs in the development of rules and procedures to facilitate clearing.

The rules for clearing bunched orders for swaps parallel those for futures. Allocations must be made as soon as practicable after execution but in any event no later than the following times: (1) for cleared transactions, sufficiently before the end of the day to ensure that clearing records identify the customer accounts, and (2) for uncleared trades, no later than the end of the day the swap was executed.

Clearing Member Risk Management. The risk management rules require SDs, MSPs, and FCMs that are clearing members to: (1) establish credit and market risk-based limits based on position size, order size, margin requirements, or similar factors; (2) use automated means to screen orders for compliance with the risk-based limits; (3) monitor for adherence to the risk-based limits intra-day and overnight; (4) conduct stress tests of all positions in the proprietary account and all positions in any customer account that could pose material risk to the FCM at least once per week; (5) evaluate its ability to meet initial margin requirements at least once per week; (6) evaluate its ability to meet variation margin requirements in cash at least once per week; (7) evaluate its ability to liquidate positions it clears in an orderly manner, and estimate the cost of the liquidation at least once per month; and (8) test all lines of credit at least once per year.

The rules become effective October 1, 2012.

Last year the SEC, as required by the Dodd-Frank Act, released a study and recommendations on improving investor access to investment adviser and broker-dealer registration information. The SEC’s study recommended that search returns for the Commission’s Investment Adviser Public Disclosure (“IAPD”) database and FINRA’s BrokerCheck database be unified; that BrokerCheck be searchable by location (for example, by zip code); and that educational information be added to BrokerCheck. The SEC staff also recommended that FINRA consider expanding BrokerCheck to include additional information, such as the reasons for a broker’s termination and a broker’s test scores.

In soliciting comments on the possible expansion of BrokerCheck, FINRA further asked:

“Should FINRA provide BrokerCheck information to for-profit companies for commercial use? What are some of the benefits/concerns of such action? If FINRA were to provide BrokerCheck information to such companies, what conditions or limitations on use should FINRA consider imposing?”

It should come as no surprise that we at Knowledge Mosaic found this last question the most interesting.   We ourselves are currently in a state of transition with these materials: our Investment Adviser search page has been down for some time in the wake of significant changes to the form that the SEC introduced late last year.  (We hope to have a new, albeit scaled down, version of the page up some time in April.)  But the possibility of BrokerCheck information being available offers others other opportunities.

So here’s your chance to comment to us. If FINRA made BrokerCheck information available to us:

• Would you want Knowledge Mosaic to make it available to you?
• What sort of information would you find most useful?
• Would you like the information to be integrated with the SEC’s IAPD database?

Comments to FINRA should be submitted on or before April 6, 2012.   Comments to Knowledge Mosaic are always welcome and can be sent to: feedback@knowledgemosaic.com.

We hope to hear from you.

On Tuesday, the FDIC published for comment proposed rules implementing Section 210(c)(16) of the Dodd-Frank Act.  The section permits the FDIC, as receiver for a financial company whose failure would pose a significant risk to the financial stability of the U.S. (a “covered financial company”), to enforce contracts of subsidiaries or affiliates of the covered financial company despite contract clauses that purport to terminate, accelerate, or provide for other remedies based on the insolvency, financial condition, or receivership of the covered financial company. The proposed rule makes clear that the effect of this enforcement authority is that no party may exercise any remedy under a contract simply as a result of the appointment of the receiver and the exercise of its orderly liquidation authorities as long as the receiver complies with certain statutory requirements.

In other words, ipso facto clauses are unenforceable against systemically important financial institutions (“SIFI”). 

Affected contracts. The proposed rule would apply to any covered financial company’s subsidiary or affiliate whose contractual obligations to a third party are “linked to” the covered financial company or are “supported by” the covered financial company. A contract is “linked to” a covered financial company if it contains a provision that provides a contractual right to “cause the termination, liquidation or acceleration of such contract based solely on the insolvency, financial condition, or receivership of the covered financial company.”

A contractual obligation “guaranteed or otherwise supported by” the covered financial company includes guarantees that may or may not be collateralized, netting arrangements and other examples of financial support of the obligations of the subsidiary or affiliate under the contract.

The effect on contracts. The proposed rule would establish that if the subsidiaries’ obligations under the linked contract are supported by the covered financial company through, for example, guarantees or the granting of collateral that supports the obligations, the FDIC as receiver must either (i) transfer such support (along with all related assets and liabilities) to a qualified transferee not later than 5:00 p.m. (Eastern Time) on the business day following the appointment of the receiver, or (ii) provide “adequate protection” to contract counterparties following notice given to the counterparties in accordance with the guidelines set forth in the proposed rule by the one-business-day deadline.

The proposal’s breadth. The proposed rule applies broadly to all contracts, and not solely to qualified financial contracts. For example, a real estate lease or a credit agreement, neither of which would typically be classified as a qualified financial contract, would be subject to enforcement under the proposed rule notwithstanding a specified financial condition clause that might, for instance, give a lessor the right to terminate a lease based upon a change in financial condition of the parent of the lessee. A swap agreement of a subsidiary or affiliate would be subject to the proposed rule in the same manner as if the agreement contained a specified financial condition clause.

What the proposal means. On the one hand, the FDIC’s proposal simply aligns the SIFI resolution provisions with the Bankruptcy Code while providing SIFI counterparties with collateral protection. The proposal does not, however, resolve such thorny issue as “flip clauses” which reprioritize payments.

Comments should be submitted within 60 days after the proposal’s publication in the Federal Register, which is expected during the week of March 26. View the proposal here.  (If you’re a Knowledge Mosaic user, set up a Dodd-Frank Tracker alert for all FDIC releases.)

To search Federal Register materials by agency, go to our Laws, Rules, and Agency Materials page and start by clicking the blue text link for “Federal Register.”  Then type in the agency you’re interested in — say, “Federal Trade Commission” (use the quotation marks).  Since that’s a free text search that will return any record that mentions the FTC, you still need to refine your results to show only records tagged under “Federal Trade Commission.”  To do so, use the “Refine Results” sidebar and go to the “Agency” facet.  Uncheck “All Agencies,” then check the box next to “Federal Trade Commission” in the alphabetical list.  (To load that search now, click here.)

From there, you may want to further refine your query by adding additional text in the text search box – say, “antitrust” – or by filtering on a particular action type (e.g., “Final Rule” or “Notice”) or a general action category (e.g., “Rulemaking”).

One thing to bear in mind is that the “Agency” facet does not apply to the many federal bodies that are subsets of larger departments or agencies (often “sub-agencies” such as bureaus, offices, and the like).  You can still search on those, but you have to know what larger agency they fall under.  For example, say you want to search on Federal Register publications of releases by the Federal Energy Regulatory Commission.  That agency falls under the Department of Energy, so a search for it would look like the following.

Limiting your search to the Federal Register, enter the phrase “Federal Energy Regulatory Commission” (including quotation marks) and run the search.  Once results have returned, refine the search by the Agency facet labeled “Energy Department.”  At that point, you have the basic template for a search of FERC releases in the Federal Register.  (To load that search now, click here.)  Again, you can further refine from there if you wish.

Finally, you can save any of these searches as alerts by clicking the “Save as Alert” link in the gold horizontal bar at the top of your results.

Which basically translates into: The new Knowledge Mosaic alerting system offers something for just about everyone.

If you’re a Knowledge Mosaic subscriber, unlimited alerts are free.  If you’re not, here’s a link to free trial access so you can see for yourself.

Just to paint a picture for you, below are 11 canned alerts you could set up right now on Knowledge Mosaic.   Just click the link below, then click “Save as Alert.”  (You can also tinker with the search parameters before saving.)

Photo by johnm2205. Some rights reserved.

1).   SEC No-Action Letters on Rule 14a-8

2.)  “Adverse action” and the Fair Credit Reporting Act

3.)  Fracking (hydraulic fracturing)

4.)  Recent Congressional Bills on the topic of prescription drugs

5.)  FDA Warning Letters to companies citing problems with “rodents” or insects”

6.)  Requests for Confidential Treatment submitted to the SEC

7)  Publication of FERC final rules in the Federal Register

8)  FCPA (Foreign Corrupt Practices Act) enforcement actions

9)  Any offficial guidance on ERISA

10)  Cybersecurity and privacy

11)  Bank “Stress tests” and the Dodd-Frank Act

If you’re interested in using the Lobbying Disclosure page, we encourage you to watch the whole video (which clocks in at a little over seven minutes).  Even if you’re not, check out the first minute or two.  We think you’ll find it entertaining and perhaps even amusing, in a way that is endearing rather than annoying.  (Lest you forget, Westlaw or Lexis we are not.)

The new video is linkable from the Lobbying  page itself, and is also now on the Knowledge Mosaic YouTube channel.  (Yes, we have a YouTube channel.)   Check it out, and feel free to post your comments.