The SEC proposed rule amendments to improve investor protection and enhance transparency in the municipal securities market. These proposed amendments are intended to provide timely access to information regarding certain financial obligations incurred by issuers and obligated persons that could impact such entities’ liquidity and overall creditworthiness.

Read more.

The Financial Conduct Authority launched a consultation on proposed changes to the availability of information in the UK equity IPO process. The consultation follows the discussion paper published by the FCA in April 2016. The FCA's view is that diverse and independent information is not available early enough in the IPO process. To address this issue, the FCA is proposing to amend the order in which the approved prospectus and connected research is made available to investors and to ensure that analysts from firms not supporting the IPO are provided with access to the issuer's management. In particular, the FCA is proposing that an approved prospectus or registration be published and unconnected analysts have access to the issuer's management before any connected research is released. In addition, the FCA is proposing to clarify, through supplemental guidance, that it would regard any interaction between analysts and issuers or their representatives to be participation in investment banking pitching efforts until the firm has accepted a mandate to carry out underwriting or placing services for the issuer and the firm's position in the syndicate has been determined.

The consultation closes on June 1, 2017. The FCA expects to publish a policy statement setting out the final changes, if any, before the end of 2017.

View the consultation paper.

View the discussion paper.

The European Commission published a report on accelerating the Capital Markets Union by addressing national barriers to capital flows. The report is addressed to the European Parliament and the Council of the European Union. It focuses on issues that may impede investors' cross-border operations throughout the investment cycle. The report identifies what it sees as the main barriers to investment and sets out a suggested roadmap for Member States to address these barriers, most of which are actionable in 2017. The issues identified in the report include marketing requirements, administrative arrangements, regulatory fees for cross-border marketing, different approaches to crowdfunding, residence requirements, insufficient financial literacy, differences in insolvency regimes and withholding tax relief. Member States are invited to agree on the actions set out in the roadmap although the Commission may also consider whether any legislative proposals are appropriate.

Member States have also been invited to identify other barriers in CMU-relevant areas, such as national reporting requirements imposed in addition to existing EU legislation, barriers to the online distribution of investment funds, obstacles for smaller institutional investors ineligible for a passport under the Markets in Financial Instruments Directive and challenges involved in the distribution of retail financial products.

View the Commission's report.

The Financial Conduct Authority published a research paper summarizing its most recent research into liquidity conditions in the UK corporate bond market. The report concludes that there has been a general decline in liquidity since mid-2014. This stands in contrast to previous research undertaken by the FCA for the period between 2008 and 2014 which found little evidence of a quantifiable deterioration in liquidity. The publication extends the analysis to include the period after 2014 incorporating new data about orders and quotes with a finding that there has been a moderate decline in transaction-based proxies for liquidity. The research also highlights that there has been an increase in the amount of failed or rejected trades, an increase in the amount of time taken to fill an order, decline in dealer quote rates on electronic bond trading platforms as well as a slight widening of some quoted and effective bid-ask spreads. The paper concludes that the combination of the information suggests that trading conditions in the UK have become more difficult over the past 18-24 months, however, the market is still relatively robust. 
 
View the research paper.

The Financial Conduct Authority has published a consultation paper proposing amendments to the Listing Rules of the FCA's Handbook. The FCA is proposing to, among other matters, (i) clarify the premium listing eligibility requirements and introduce new technical notes and additional guidance to give more context to the rules; (ii) introduce a new concessionary route to premium listing for certain property companies that cannot meet the track record requirements so that a property valuation report may be used to assess the company's eligibility for a premium listing; (iii) introduce new technical notes on the concessionary routes; (iv) amendments to the profit test within the class tests which are used to determine which governance requirements a premium listed issuer must comply with for certain large transactions; and (v) in the context of reverse takeovers, reversing the assumption of insufficient information being available to the market where a target issuer cannot provide that information so that the assumption will be that the market can operate smoothly on the basis of information that listed companies make publicly available as part of their disclosure of inside information requirements under MAR.

The FCA's discussion paper on the review of the effectiveness of the UK primary markets should be read in conjunction with the consultation paper. Responses to the FCA's proposed rule changes are requested by May 14, 2017. The FCA intends to publish its final rules in a Policy Statement in the second half of 2017.

View the consultation paper. 

View the discussion paper. 

The Financial Conduct Authority launched its review into the effectiveness of primary markets by publishing a discussion paper on the UK primary markets landscape. The FCA is seeking views on how the UK primary capital markets can meet the needs of investors and operate effectively. It includes an overview of the UK's primary markets, how the listing regime fits in, the FCA's regulatory role and key trends in the UK's primary equity markets. 

Read more.

The SEC announced the establishment of a comprehensive arrangement with the Hong Kong Securities and Futures Commission (SFC). The new supervisory cooperation arrangement will augment the SEC’s and the SFC’s ability to share information about regulated entities that operate in the United States and Hong Kong, including investment advisers, broker-dealers, securities exchanges, market infrastructure providers and credit rating agencies. The new comprehensive arrangement expands upon the one from 1995 that was limited to investment management activities.

Supervisory cooperation arrangements establish mechanisms for ongoing consultation and the exchange of information regarding the oversight of global firms and markets. Such information may include routine supervisory information as well as information regulators need to monitor risk concentrations, identify emerging risks and better understand a globally active regulated entity’s compliance culture. These arrangements also facilitate the ability of the SEC and its counterparts to conduct on-site examinations of registered entities located outside the United States.

View Memorandum of Understanding.

The European Commission announced the membership composition of the High-Level Expert Group on sustainable finance. The purpose of the Expert Group is to provide recommendations for a comprehensive EU strategy on sustainable finance as part of the Capital Markets Union. The Commission will draw on such recommendations when determining how to integrate considerations of sustainability into the EU’s rules for the financial sector. The Group’s advice will outline how the EU should design appropriate and proportionate financial policies, incentives and signals for financial institutions, corporate capital-raisers and markets to direct capital towards sustainable finance and to take operational steps to protect the stability of the financial system from risks related to the environment. The Group will start meeting as of January 2017. An interim report is expected around the middle of the year and a final report in December 2017.
 
View the announcement.

The European Banking Authority published recommendations for harmonizing the EU framework for covered bonds. For banks investing in covered bonds that meet certain criteria, the Capital Requirements Regulation sets preferential risk weights to be applied. The recommendations are set out in a report which builds on the EBA's 2014 Report on EU covered bond frameworks and capital treatment. The aim of the recommendations is to ensure that only financial instruments which comply with certain harmonized structural, credit risk and prudential standards are capable of being covered bonds, and as such have access to the special regulatory and capital treatment provided. Harmonizing the EU framework on covered bonds is part of the Capital Markets Union initiative launched by the European Commission in September 2015

Read more.

The Council of the European Union announced the conclusion of a provisional agreement with representatives of the European Parliament on new rules on prospectuses for the issuing and offering of securities. The draft Prospectus Regulation is part of the EU's Capital Markets Union plan. The proposed Prospectus Regulation will replace the current EU Prospectus Directive, revising the regime for companies to raise money on public markets or by public offer to potential investors. The aim is to simplify the rules and administrative obligations for companies wishing to issue shares or debt on the market and reducing the costs of preparing a prospectus, thus fostering cross-border investments in the single market, while at the same time still enabling investors to make informed investment decisions.

View the Council's press release.

You may like to view our client note on the European Commission's proposal for a Prospectus Regulation.

The European Securities and Markets Authority published its final Technical Advice to the European Commission on certain aspects of the EU Benchmark Regulation. The Benchmark Regulation sets out the authorization and registration requirements for benchmark administrators, including third-country entities, and the requirements for governance and control of administrators. It provides for different categories of benchmarks depending on the risks involved, imposes additional requirements on benchmarks considered to be "critical" and gives powers to national regulators to mandate, under certain conditions, contributions to or the administration of critical benchmarks. The European Commission requested the Technical Advice from ESMA in February 2016. The Technical Advice covers: (i) the definition of benchmarks; (ii) measurement of the reference value of benchmarks; (iii) criteria for the identification of critical benchmarks; (iv) endorsement of a benchmark or family of benchmarks provided in a third country; and (v) transitional provisions.

The majority of the Benchmark Regulation will apply from January 1, 2018. Certain provisions, giving powers to ESMA to prepare draft technical standards and to the Commission to adopt delegated legislation, applied from June 30, 2016. ESMA intends to publish its final draft technical standards due under the Benchmark Regulation by April 1, 2017.

View the Technical Advice.

The International Organization of Securities Commissions published a report on the implementation of global securities reforms. The report sets out the progress made by jurisdictions in implementing changes in securities regulation relating to hedge funds, structured products and securitization, oversight of credit rating agencies, measures to safeguard the efficiency and integrity of markets and supervision and regulation of commodity derivative markets.

View the implementation report.

The SEC adopted final rules that modernize how companies can raise money to fund their businesses through intrastate and small offerings while maintaining investor protections.

The final rules amend Securities Act Rule 147 to modernize the safe harbor under Section 3(a)(11) of the Securities Act, so issuers may continue to use state law exemptions that are conditioned upon compliance with both Section 3(a)(11) and Rule 147. The final rules also establish a new intrastate offering exemption, Securities Act Rule 147A, that further accommodates offers accessible to out-of-state residents and companies that are incorporated or organized out-of-state.

Read more.

The US Federal Reserve Board announced that it plans to begin collecting data on Treasury security secondary market transactions from banks. The Federal Reserve Board intends to negotiate with the Financial Industry Regulatory Authority to potentially act as the collection agent for this data on behalf of the Federal Reserve Board. These plans are intended to complement a recent FINRA rule change, approved by the SEC, requiring broker-dealers to report secondary market transactions in Treasury securities. The release cited the Inter Agency Working Group’s report on the market events of October 15, 2014, as recommending enhanced data collection activities. The Federal Reserve Board intends to seek public comment on the proposal.

View Federal Reserve Board release.

The SEC proposed rule and form amendments that would require certain registrants to include a hyperlink to exhibits in their filings, thereby making it easier to locate documents attached to company filings. The proposed amendments would require registrants that file registration statements and periodic and current reports that are subject to the exhibit requirements under Item 601 of Regulation S-K, or that file on Forms F-10 or 20-F, to include a hyperlink to each exhibit listed in the exhibit index of the filings. The public comment period will remain open for 45 days following publication in the Federal Register.

View the proposed rule.

The SEC adopted amendments to a rule that requires security-based swap data repositories to make data available to regulators and other authorities, allowing them to share information and more effectively oversee the security-based swap market.

The Dodd-Frank Act establishes provisions for regulators to access security-based swap data from data repositories. Building on a proposal from September 2015, the final rule amendments implement these provisions and, among other things: (i) require either a memorandum of understanding or other arrangement between the SEC and the recipient of the data to address the confidentiality of the security-based swap data provided to the recipient; (ii) identify the five prudential regulators named in the statute, as well as the Federal Reserve banks and the Office of Financial Research, as being eligible to access data; and (iii) address factors that the SEC may consider in determining whether to permit other entities to access data.

View The final rule.

The SEC published a final rule adopting amendments to Form ADV and several rules under the Investment Advisers Act of 1940 aimed at enhancing disclosure of information by investment advisers. The amendments will require investment advisers to provide additional information about various aspects of their businesses, including separately managed account business, branch operations, and their use of social media. The amendments will also facilitate streamlined registration and reporting by groups of funds and require advisers to maintain additional records related to adviser performance information. The amendments will become effective 60 days after their publication in the Federal Register, and advisers will be required to comply with the amended rules on October 1, 2017.

View the SEC’s final rule.

The SEC issued a request for comment on Subpart 400 of Regulation S-K, which requires certain disclosures about management, certain security holders and corporate governance of the disclosing firm. The request is part of a broader initiative to improve the disclosure requirements of Regulation S-K. The review will also inform the study mandated by the Fixing America’s Surface Transportation Act which requires the SEC to study Regulation S-K requirements in order to best modernize and simplify the substance of the disclosure requirements as well as the manner of the presentation of disclosed information. Input may include comments on existing requirements as well as potential disclosure issues that commenters believe Regulation S-K should address. The comment period is open for 60 days after the publication of the release in the Federal Register.

The SEC’s request for comment.

The SEC proposed amendments to eliminate redundant, overlapping, outdated or superseded provisions of its rules, in light of subsequent changes to public disclosure requirements, accounting standards and technology. The amendments, along with comments received on a release seeking information to simplify and improve disclosure requirements under Regulation S-K, are designed to further inform the Commission’s actions to enhance disclosure effectiveness and efficiency. The SEC is also seeking comment on certain disclosure requirements that overlap with US Generally Accepted Accounting Principles (GAAP) to determine whether to retain them or refer them to the Financial Accounting Standards Board for incorporation into GAAP. The proposed amendments are part of a broader staff review of the disclosure requirements that issuers are required to make to investors and the requirements of the Fixing America’s Surface Transportation Act (FAST) to eliminate provisions of Regulation S-K that are duplicative, overlapping, or unnecessary. There will be a 60-day comment period.

View The SEC’s proposed amendments.

The SEC adopted a series of amendments and related guidance regarding Regulation SBSR, which governs the regulatory reporting and public dissemination of security-based swap transactions. The amendments, among other things, assign reporting duties for platform-executed security-based swaps submitted for clearing and those resulting from the clearing process, establish reporting and publication requirements for certain cross-border security-based swaps, and prohibit swap data repositories from imposing fees or usage restrictions on data that Regulation SBSR requires be made public. The goal of the amendments and guidance is to increase transparency in the security-based swap market by facilitating better public access to transaction information and expanding the scope of Regulation SBSR to cover additional transactions and entities. The amendments and guidance will be effective on October 11, 2016. The rules and guidance also establish a compliance schedule for portions of Regulation SBSR, providing that transaction reporting will not begin until after security-based swap dealers and major security-based swap participants have registered with the SEC.

View the final rule.

The SEC proposed a rule that would require registered investment advisers to adopt and implement written business continuity and transition plans. The new rule requires investment advisers to prepare in advance for significant disruptions in their operations—whether temporary or permanent (such as a natural disaster, cyber-attack, technology failures, etc.)—thereby mitigating client and investor harm.

The proposed rule would require an adviser’s plan to be based on the particular risks associated with its operations, but also include policies and procedures addressing specified components, such as the maintenance of systems and protection of data, pre-arranged alternative physical locations, communication plans and review of third-party service providers. The rule would allow advisers to tailor the detail of their plans to the complexity of their business operations.

SEC Chair Mary Jo White commented that this rule was “the latest action in the Commission’s efforts to modernize and enhance regulatory safeguards for the asset management industry.” In addition to the proposed rule, the SEC staff issued related guidance addressing business continuity planning for registered investment companies, including oversight of operational capabilities of key fund service providers.

View the SEC press release.

View the proposed rule.

View SEC staff guidance.

The SEC voted to propose amendments that would increase the financial thresholds in the “smaller reporting company” definition. By expanding the number of companies that qualify as smaller reporting companies, the proposal is intended to “promote capital formation and reduce compliance costs for smaller companies” according to SEC Chairman Mary Jo White. Smaller reporting companies may qualify for scaled disclosures provided in Regulations S-K and Regulations S-X.

The proposed rules would enable a company with less than $250 million of public float to provide scaled disclosure as a smaller reporting company, as compared to the $75 million threshold under the current definition. If a company does not have a public float, it would be permitted to provide scaled disclosures if its annual revenues are less than $100 million, as compared to the current threshold of less than $50 million in annual revenues.

It is important to note, however, that the SEC is not proposing to increase the $75 million threshold in the “accelerated filer” definition. As a result, smaller reporting companies with $75 million or more of public float will be subject to accelerated filer requirements.

View SEC press release.

View the proposed rule.

The FDIC released a final rule revising the Securitization Safe Harbor Rule (12 C.F.R. Part 360.6) to clarify that its requirement that servicers of securitized assets take loss mitigation action within 90 days after an asset becomes delinquent does not conflict with the Consumer Financial Protection Bureau’s Regulation X (12 C.F.R. Part 1024), which prohibits a mortgage loan servicer from initiating foreclosure notices or filings unless a mortgage loan is more than 120 days delinquent. Specifically, the Securitization Safe Harbor Rule is being revised to clarify that documents governing a securitization transaction need not require the servicer of securitized assets to take any action that would be prohibited by Regulation X in order to satisfy the 90-day loss mitigation requirement of the securitization safe harbor. The final rule is effective July 27, 2016.

View the FDIC final rule.

The European Securities and Markets Authority published a final report setting out draft Regulatory Technical Standards on settlement discipline as required under the Central Securities Depository Regulation. The RTS cover measures for preventing settlement fails through automated matching, a hold and release mechanism, and partial settlement. The RTS also provide measures for monitoring and addressing settlement fails such as a mechanism for cash penalties and a buy-in process. ESMA has submitted the final draft RTS to the European Commission for endorsement.
 
View the Final Report and RTS.

The European Commission published a proposed Prospectus Regulation as part of the EU Capital Markets Union initiative. The proposed Prospectus Regulation would replace the current EU Prospectus Directive, revising the regime for companies to raise money on public markets or by public offer to potential investors. The key changes include: (i) increasing the threshold for when a prospectus would be required for offers with a total consideration from €100,000 to €500,000; (ii) removing the option for Member States to require a prospectus below that minimum threshold; (iii) giving Member States the option to give an exemption from the prospectus requirement for capital raisings with a total consideration of between €500,000 and €10 million for domestic offers for which no passport notification to other Member States is required; (iv) aligning the definition of SMEs with that under the new Markets in Financial Instruments Directive (MiFID II) so that the SME-specific regime is also available to SMEs with an average market capitalisation of less than €200 million, (increased from €100 million) not listed on a regulated market; (v) creating a system for frequent issuers using an annual "Universal Registration Document"; (vi) providing for a simplified disclosure regime for secondary issuances by listed firms; and (vii) establishing a single access point, provided by the European Securities and Markets Authority, for all prospectuses approved within the European Economic Area, although approvals will remain the responsibility of national listing agencies.

View the Proposed Regulation.

The US SEC issued final rules providing a framework of regulation to allow companies to offer and sell securities through crowdfunding. Concurrent with the adoption of the final rule, the SEC also proposed amendments to Rule 147 and Rule 504 of the Securities Act of 1933, as amended, to facilitate intrastate and regional offerings. The proposed amendments to Rule 504 of the Securities Act would increase the aggregate amount that may be offered and sold pursuant to the rule from $1 million to $5 million and apply bad actor disqualifications to Rule 504 offerings. The final rules enable individuals to purchase securities in crowdfunding offerings, subject to certain limits. Specifically, the rules: (i) allow a company to raise up to a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period; (ii) permit individual investors to invest in crowdfunding offerings, subject to specified limits over a 12-month period; and (iii) limit the aggregate amount of securities sold to an investor during any 12-month period to an amount not to exceed $100,000. In addition, companies that conduct crowdfunding offerings must, pursuant to the adopted rules, make certain disclosures about their business as well as the offering. The adopted crowdfunding rules and forms will be effective 180 days after publication in the Federal Register and the forms permitting funding portals to register with the SEC will be effective January 29, 2016. Public comments on the proposed amendments to Rule 147 and Rule 504 are open for a 60-day period following their publication in the Federal Register.

View the final rule.

View the proposed rules.

The European Securities and Markets Authority published its final Guidelines on Alternative Performance Measures for listed issuers. An APM is a financial measure of historical or future financial performance, position or cash flow and is usually derived from financial statements prepared by an issuer. The Guidelines aim to assist users in making investment decisions and encourage European issuers to publish comparable, transparent and reliable information on their financial performance so that users can obtain a comprehensive understanding of their performance. The Guidelines apply to issuers with securities traded on regulated markets who are required to publish regulated information under the EU Transparency Directive, any persons responsible for drawing up a prospectus under the EU Prospectus Directive and relevant EU national regulators. The guidelines will apply to APMs disclosed on or after July 3, 2016.

View the Guidelines.

The SEC announced the launch of a new rulemaking database to provide for greater transparency into the SEC’s rulemaking process. Unlike the structure of the current SEC website, the new database allows users to sort rules by date, status (e.g., proposed, completed, etc.), and SEC division (e.g., Investment Management, Trading and Markets, etc.).

View the SEC announcement of the new database.

View the SEC rulemaking index.

The European Commission launched a consultation on proposed action to address the legal and practical issues in the EU covered bond market to facilitate cross-border investment within the EU and from third countries. The consultation forms part of the Commission's Capital Markets Union initiative. The regulation of covered bonds is a matter of Member State national laws although the prudential treatment of covered bonds is provided for in a variety of EU legislative acts such as the Units for Collective Investment in Transferable Securities Directive, the Capital Requirements Regulation and the Bank Recovery and Resolution Directive. There are differences between the legal frameworks and supervisory practices of various EU Member States for covered bonds as highlighted by the European Banking Authority in its July 2014 report. The Commission is proposing a more integrated EU-wide covered bond framework that could be reflected in legislation and/or a set of recommendations and the consultation paper includes a discussion of the various approaches that might be taken in an effort to introduce harmonisation across the EU. The consultation closes on January 6, 2016. 

View the EU Covered Bond consultation paper. 

The European Securities and Markets Authority published a consultation paper on proposals for draft Regulatory Technical Standards on the European Single Electronic Format, the new format for annual financial reports, required under the Transparency Directive. The Transparency Directive requires issuers listed on regulated markets to prepare their annual financial reports in a new format from January 1, 2020. The new format aims to improve comparability and analysis for investors and regulators as well as simplify annual report submissions for issuers. The consultation paper assesses current practices and formats of annual financial reports and considers the options for harmonising the format of reports required under the Transparency Directive. ESMA is seeking views on its proposals in order to finalise draft RTS for submission to the European Commission before the end of 2016.  Comments on the consultation are due by December 24, 2015.

View the consultation.

The International Organization of Securities Commissions published a final report on the cross-border regulation of the global securities markets. The report sets out the cross-border regulatory toolkit of regulatory options available to national securities regulators, including an analysis of the approaches taken to cross-border regulation and the impact that the use of such cross-border regulatory tools may have on investor protection, markets and systemic risk. The tools that are used are classified into national treatment, recognition, and passporting. IOSCO undertook a survey of member jurisdictions to identify the tools that members currently use to regulate financial activities in the global securities markets. The report also sets out next steps for IOSCO, including considering (i) how to be more explicit in incorporating cross-border issues into its policy work; (ii) organizing workshops for regulators on the process and considerations for assessing foreign regulatory regimes under unilateral and mutual recognition or otherwise develop better understanding of the complex aspects of cross-border regulation; (iii) setting up an information repository of its members supervisory cooperation agreements; and (iv) setting up an information repository for recognition decisions, including the analyses that informed such decisions.

View the IOSCO Report.

The International Organization of Securities Commissions published its final report on the peer review of implementation of incentive alignment recommendations for securitization. The report sets out the implementation progress of its recommendations, which were published in 2012, on incentive alignment in securitization. The recommendations relate to, amongst other things: (i) achieving global harmonization of incentives of investors and securitizers along the securitization value chain; (ii) jurisdictions evaluating and formulating approaches for such alignment; and (iii) minimizing any adverse effects of cross border securitization transactions that may arise due to different approaches in incentive alignment and risk retention. The review states that only five jurisdictions of the 25 jurisdictions have reported to have completed implementation of all the recommended measures: China, India, Indonesia, Japan and Turkey. Eleven jurisdictions have taken steps to implement all measures but those steps were either not all complete or were not yet in force across the whole securitization market: Argentina, Brazil, France, Germany, Ireland, Italy, the Netherlands, Russia, Spain, the United Kingdom and the United States. The report also states that EU jurisdictions and the US were further progressed in implementation than other jurisdictions with smaller securitization markets. IOSCO aims to conduct a further adoption monitoring and implementation review in 2016.

View the report.
 

The European Securities and Markets Authority published a document setting out examples of waivers for pre-trade transparency requirements under the current Markets in Financial Instruments Directive and its implementing legislation, known as MiFID I. The document includes positions adopted by ESMA’s predecessor, the Committee of European Securities Regulators as well as opinions issued by ESMA. The document is intended to assist national regulators in ensuring that their supervisory practices are in line with ESMA’s opinions and to assist firms in determining the extent of the MiFID I requirements. Under MiFID I, operators of regulated markets and multilateral trading facilities must publish current bid and offer prices and the depth of trading interests in shares admitted to trading on a regulated market unless an exemption applies. Exemptions are available from national regulators for shares based on the market model or the type and size of orders. ESMA intends to update the document on an ongoing basis.

View the ESMA document.