The SEC has recently announced proposed rule changes aimed at strengthening the resilience and recovery capabilities of covered clearing agencies. These changes are designed to ensure the continuity of clearing services during times of significant stress and improve the overall risk management framework in the capital markets.
Improving Intraday Margin Monitoring
One of the key aspects of the proposed rule changes is the requirement for covered clearing agencies to establish policies and procedures for a risk-based margin system that actively monitors intraday exposure. This system would have the necessary authority and operational capacity to make intraday margin calls whenever circumstances warrant it. The goal is to respond promptly and effectively to breaches of risk thresholds or instances of elevated volatility in the products cleared or markets served by the agency.
By implementing an intraday margin monitoring system, clearing agencies can better mitigate risk and ensure the smooth functioning of the markets, benefiting investors, issuers, and the overall market infrastructure.
Addressing the Use of Substantive Inputs
The proposal also focuses on the use of substantive inputs in a covered clearing agency’s risk-based margin system. Specifically, it aims to establish policies and procedures that address situations where such inputs are not readily available or reliable. This requirement underscores the importance of having alternative approaches or fallback options to maintain the integrity and effectiveness of the margin system.
By incorporating measures to deal with the unavailability or unreliability of substantive inputs, covered clearing agencies can ensure a robust risk management framework even in challenging circumstances.
Enhancing Recovery and Wind-Down Planning
In addition to the changes mentioned above, the proposed rule includes a new requirement for covered clearing agencies to have a comprehensive recovery and wind-down plan. This plan would consist of nine specific elements, building upon the existing requirement for such a plan. The goal is to ensure that clearing agencies are well-prepared to navigate potential disruptions or crises and can take appropriate actions to recover and wind down their operations in an orderly manner.
The inclusion of these nine elements in the recovery and wind-down plan will provide greater clarity and guidance for covered clearing agencies, enabling them to proactively address risks and challenges and minimize the impact on the broader financial system.
SEC Chair’s Support for the Proposal
SEC Chair Gary Gensler has expressed his support for the proposed rule changes, emphasizing the importance of resilient and well-regulated clearinghouses in reducing risk for the public. He believes that if adopted, these changes will enhance the resiliency of the market plumbing, which is essential for the smooth operation of the capital markets. Ultimately, these enhancements will benefit investors, issuers, and the markets as a whole.
Public Comment Period
As part of the regulatory process, the SEC has opened a public comment period for stakeholders and interested parties to provide feedback on the proposed rule changes. The comment period will be open for either 60 days following the release publication on the SEC website or 30 days following publication in the Federal Register, whichever period is longer. This allows for thorough consideration of the proposed changes and ensures that the final rules reflect a wide range of perspectives and expertise.
SECLaw.com is the online source of securities law new, tips and commentary. Online since 1995 it is the recognized leader in the area, so much so that other attorneys have been reduced to using “seclaw” in their website names in an effort to gain from the site’s popularity.
Less than a week after it filed for a temporary restraining order against a broker who jumped to Morgan Stanley, JPMorgan Chase & Co. and the broker have agreed to a stipulated injunction, according to a court filing earlier this week.
As part of the order, Brett A. Jacobson agreed that he would not solicit the bank’s clients, although he is allowed to process account transfer requests that they initiate or do business with them after they transfer, according to a Thursday court filing.
The order also requires Jacobson to return within three days to JP Morgan all documents pertaining to its clients, including copies, handwritten notes, and digitized versions. Jacobson, an 18-year industry veteran and private client advisor who had worked from a Chase bank branch in New York City, moved on April 28 to Morgan Stanley in Melville, New York.
SECLaw.com is the online source of securities law new, tips and commentary. Online since 1995 it is the recognized leader in the area, so much so that other attorneys have been reduced to using “seclaw” in their website names in an effort to gain from the site’s popularity.
The Securities and Exchange Commission today announced charges against 10 microcap companies for offering and selling securities in unregistered offerings that failed to comply with Regulation A, which provides a limited exemption from registration under…
SECLaw.com is the online source of securities law new, tips and commentary. Online since 1995 it is the recognized leader in the area, so much so that other attorneys have been reduced to using “seclaw” in their website names in an effort to gain from the site’s popularity.
SEC Awards Over $12 Million to Two Whistleblowers for Their Assistance in Successful Enforcement Action
March 31, 2023 – The SEC announced that it had awarded more than $12 million to two whistleblowers who had provided valuable information and assistance in a successful SEC enforcement action. The awards were made out of a Congressionally-established investor protection fund financed entirely through monetary sanctions paid to the SEC by securities law violators.
The Role of Whistleblowers in Protecting Investors and Capital Markets
Whistleblowers play a crucial role in helping the SEC detect and prosecute wrongdoing and in protecting investors and the capital markets. The information and assistance provided by these two whistleblowers in identifying complex wrongdoing demonstrate the importance of the whistleblower program to the SEC’s enforcement efforts.
The first whistleblower was instrumental in prompting the opening of the investigation and provided information on violations that would have been difficult to detect otherwise. This whistleblower also identified key witnesses, helped staff understand complex fact patterns and issues, and made persistent efforts to remedy the issues. As a result, this whistleblower will receive an award of over $9 million.
The second whistleblower submitted critical new information during the course of the investigation and will receive an award of more than $3 million.
Whistleblower Awards and Eligibility Criteria
Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action. Whistleblower awards can range from 10 to 30 percent of the money collected when monetary sanctions exceed $1 million.
The Dodd-Frank Act protects the confidentiality of whistleblowers, and the SEC does not disclose any information that could reveal a whistleblower’s identity. Whistleblowers who use an attorney gain additional privacy protections, since the SEC does not know the identity of the whistleblower until the investigation proceeds.
The SEC’s whistleblower program is a vital tool in protecting investors and the capital markets from fraud and other securities violations. The recent awards to these two whistleblowers demonstrate the SEC’s commitment to incentivizing individuals to come forward with valuable information to help the agency pursue successful enforcement actions.
If you have information about securities violations and are considering blowing the whistle, call the experienced whistleblower attorneys at Sallah Astarita & Cox, LLC to understand your rights and protections under the law.
SECLaw.com is the online source of securities law new, tips and commentary. Online since 1995 it is the recognized leader in the area, so much so that other attorneys have been reduced to using “seclaw” in their website names in an effort to gain from the site’s popularity.
On May 11, 2023, the SEC charged HSBC Securities (USA) Inc. and Scotia Capital (USA) Inc. for their employees’ longstanding and widespread failures to preserve and maintain electronic communications. To settle the charges, HSBC and Scotia admitted that their conduct violated recordkeeping provisions of the federal securities laws and agreed to pay penalties of $15 million and $7.5 million, respectively.
Off-Channel Communications at HSBC Securities and Scotia Capital
The SEC’s investigation of HSBC Securities and Scotia Capital, both registered broker-dealers, found that both firms had a pervasive and long-standing practice of off-channel communications. The firms admitted that their employees communicated about securities business matters on their personal devices, using messaging platforms such as WhatsApp. Neither firm maintained or preserved the vast majority of these communications, in violation of the federal securities laws.
The SEC’s Orders
The failings of HSBC Securities and Scotia Capital involved employees at multiple levels of authority, including supervisors and senior executives. Both firms cooperated with the SEC’s investigation by self-reporting the recordkeeping failures after gathering communications from the personal devices of a sample of their personnel.
The SEC charged both firms with violating certain recordkeeping provisions of the Securities Exchange Act of 1934 and failing to reasonably supervise to prevent and detect those violations. Along with the financial penalties, each firm was censured and ordered to cease and desist from committing violations of the relevant recordkeeping provisions.
Compliance Consultants and Settlements
HSBC Securities and Scotia Capital also agreed to retain compliance consultants to conduct comprehensive reviews of their policies and procedures related to the retention of electronic communications found on personal devices and their respective frameworks for addressing non-compliance by their employees with those policies and procedures.
Separately, the Commodity Futures Trading Commission announced settlements with the firms for related conduct.
SECLaw.com is the online source of securities law new, tips and commentary. Online since 1995 it is the recognized leader in the area, so much so that other attorneys have been reduced to using “seclaw” in their website names in an effort to gain from the site’s popularity.
The Securities and Exchange Commission’s Office of the Advocate for Small Business Capital Formation has opened registration for the SEC’s 42nd Annual Government-Business Forum on Small Business Capital Formation, which will take place April 24-27. The…
SECLaw.com is the online source of securities law new, tips and commentary. Online since 1995 it is the recognized leader in the area, so much so that other attorneys have been reduced to using “seclaw” in their website names in an effort to gain from the site’s popularity.
SECLaw.com is the online source of securities law new, tips and commentary. Online since 1995 it is the recognized leader in the area, so much so that other attorneys have been reduced to using “seclaw” in their website names in an effort to gain from the site’s popularity.
SECLaw.com is the online source of securities law new, tips and commentary. Online since 1995 it is the recognized leader in the area, so much so that other attorneys have been reduced to using “seclaw” in their website names in an effort to gain from the site’s popularity.
SECLaw.com is the online source of securities law new, tips and commentary. Online since 1995 it is the recognized leader in the area, so much so that other attorneys have been reduced to using “seclaw” in their website names in an effort to gain from the site’s popularity.
SECLaw.com is the online source of securities law new, tips and commentary. Online since 1995 it is the recognized leader in the area, so much so that other attorneys have been reduced to using “seclaw” in their website names in an effort to gain from the site’s popularity.
SECLaw.com is the online source of securities law new, tips and commentary. Online since 1995 it is the recognized leader in the area, so much so that other attorneys have been reduced to using “seclaw” in their website names in an effort to gain from the site’s popularity.
SECLaw.com is the online source of securities law new, tips and commentary. Online since 1995 it is the recognized leader in the area, so much so that other attorneys have been reduced to using “seclaw” in their website names in an effort to gain from the site’s popularity.
SECLaw.com is the online source of securities law new, tips and commentary. Online since 1995 it is the recognized leader in the area, so much so that other attorneys have been reduced to using “seclaw” in their website names in an effort to gain from the site’s popularity.
SECLaw.com is the online source of securities law new, tips and commentary. Online since 1995 it is the recognized leader in the area, so much so that other attorneys have been reduced to using “seclaw” in their website names in an effort to gain from the site’s popularity.
The Securities and Exchange Commission today charged three executives of Mobile, Alabama-based shipbuilder, Austal USA LLC, for orchestrating a fraudulent revenue recognition scheme that allowed its parent company to meet or exceed analyst expectations…
SECLaw.com is the online source of securities law new, tips and commentary. Online since 1995 it is the recognized leader in the area, so much so that other attorneys have been reduced to using “seclaw” in their website names in an effort to gain from the site’s popularity.
The Securities and Exchange Commission today opened public registration for its Municipal Securities Disclosure Conference, which will be held on May 10, 2023, at the SEC’s headquarters. The conference, held in a hybrid format with both in-person and…
SECLaw.com is the online source of securities law new, tips and commentary. Online since 1995 it is the recognized leader in the area, so much so that other attorneys have been reduced to using “seclaw” in their website names in an effort to gain from the site’s popularity.
Merrill Lynch, Pierce, Fenner & Smith Incorporated has settled with the Securities and Exchange Commission (SEC) for charging more than $4 million in undisclosed foreign exchange fees to its advisory clients for transfers to or from their accounts. The company has agreed to pay disgorgement, prejudgment interest, and a civil penalty of more than $9.5 million and distribute the funds to the affected clients.
Merrill Lynch’s failure to disclose additional fees to clients
Between May 2016 and July 2020, Merrill Lynch offered investment advisory services to its clients, where the clients paid a fee in exchange for a range of services, including foreign currency exchanges. Although Merrill Lynch disclosed that it charged a markup or markdown on foreign currency exchanges, it did not disclose an additional fee called a production credit, which was equal to or greater than the disclosed markup or markdown in more than 80 percent of the transactions. Merrill Lynch paid a percentage of these production credits to its financial advisors and called this charge a commission in internal documents.
Merrill Lynch’s violation of the Investment Advisers Act of 1940
The SEC found that Merrill Lynch violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and related rules. Merrill Lynch has consented to the SEC’s order and agreed to a cease-and-desist order, a censure, and to pay disgorgement of around $4.1 million, prejudgment interest of $760,000, and a civil penalty of $4.8 million. Merrill Lynch has also agreed to distribute funds to harmed advisory clients.
The SEC’s Director of the New York Regional Office, Antonia M. Apps, said that investment advisers must ensure that they do not selectively disclose some fees but not others relating to a particular service. Merrill Lynch’s clients were left in the dark about the often larger fee charged on foreign currency exchanges, and they were charged millions of dollars in undisclosed fees.
SEC’s settlement with Merrill Lynch
Merrill Lynch’s failure to adopt and implement policies and procedures that were reasonably designed to prevent its disclosures from being misleading about the fees it charged on foreign currency exchanges is a violation of the Investment Advisers Act of 1940. Merrill Lynch has agreed to the SEC’s findings without admitting or denying them.
SECLaw.com is the online source of securities law new, tips and commentary. Online since 1995 it is the recognized leader in the area, so much so that other attorneys have been reduced to using “seclaw” in their website names in an effort to gain from the site’s popularity.
The Securities and Exchange Commission today charged Charlie Javice, the founder of the now shuttered student loan assistance company previously known as Frank, with fraud in connection with the $175 million sale of the company to JPMorgan Chase Bank, N.…
SECLaw.com is the online source of securities law new, tips and commentary. Online since 1995 it is the recognized leader in the area, so much so that other attorneys have been reduced to using “seclaw” in their website names in an effort to gain from the site’s popularity.
