SEC PROPOSED RULE SEEKS TO ENHANCE OVERSIGHT OF PROPRIETARY FIRMS LIKE HIGH FREQUENCY TRADERS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Proposes Rule to Require Broker-Dealers Active in Off-Exchange Market to Become Members of National Securities Association
03/25/2015 12:45 PM EDT

The Securities and Exchange Commission today proposed rule amendments to require that broker-dealers trading in off-exchange venues become members of a national securities association.  The amendments would enhance regulatory oversight of active proprietary trading firms, such as high frequency traders.

“This proposal embodies a simple but powerful principle of the federal securities laws – the protection of investors and the stability of our markets require that trading is overseen by both the Commission and a strong self-regulatory organization,” said SEC Chair Mary Jo White.  “Today’s proposed rules would close a regulatory gap by extending oversight to a significant portion of off-exchange trading.”

The proposed amendments to Rule 15b9-1 under the Exchange Act would narrow an exemption that currently exempts certain brokers-dealers from membership in a national securities association if they are a member of a national securities exchange, carry no customer accounts, and have annual gross income of no more than $1,000 that is derived from securities transactions effected otherwise than on a national securities exchange of which they are a member.  Income derived from proprietary trading conducted with or through another broker-dealer does not count against the $1,000 limit.  The exemption originally was designed to accommodate exchange specialists and other floor members that might need to conduct limited hedging or other off-exchange activities ancillary to their floor-based business.  Over time, the markets have undergone a substantial transformation, including the emergence of active cross-market proprietary trading firms, many of which engage in so-called high-frequency trading strategies.  Although the business of these firms may not be focused on an exchange floor, and they may be responsible for a substantial percentage of the trading volume in the off-exchange market, many are not members of a national securities association because they have been able to rely on the broad proprietary trading exemption in Rule 15b9-1.

The proposed amendments would amend the exemption to target the broker-dealers for which it was originally designed – those with a business focused on an exchange floor and over which that exchange is positioned to oversee the entirety of their trading activity.  The proposed amendments, among other things, would eliminate the current proprietary trading exemption and replace it with a more focused one that would accommodate off-exchange transactions by a floor-based dealer that are solely for the purpose of hedging the risks of its floor-based activities.  They also would update the exemption that permits off-exchange transactions necessary to comply with regulatory requirements restricting trade-throughs, under Rule 611 of Regulation NMS.

The SEC will seek public comment on the proposed rule amendment for 60 days following its publication in the Federal Register.

CFTC REVOKES REGISTRATIONS OF MAN AND COMPANY RELATING TO COMMODITY POOL FRAUD

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION  

March 25, 2015

CFTC Revokes Registrations of John G. Wilkins and His Company, Altamont Global Partners LLC, Based on Federal Court’s Permanent Injunction Order and on Wilkins’s Related Criminal Conviction

Washington, DC—The U.S. Commodity Futures Trading Commission (CFTC) today announced the revocation of the registrations of Altamont Global Partners LLC (AGP) of Longwood, Florida and its owner, John G. Wilkins, formerly of Chuluota, Florida. AGP was registered with the CFTC as a Commodity Pool Operator, and Wilkins was registered as an Associated Person of AGP.

The CFTC initiated revocation proceedings against AGP and Wilkins on November 25, 2014 (see CFTC Press Release 7069-14, November 25, 2014). After AGP and Wilkins failed to participate in the proceedings, CFTC Judgment Officer Philip V. McGuire issued an Initial Decision on Default (see CFTC Docket No. SD 15-01) on February 23, 2015. The Judgment Officer found that AGP and Wilkins are subject to statutory disqualification from CFTC registration based on an Order for entry of default judgment and an amended Order of permanent injunction entered by the U.S. District Court for the Middle District of Florida that, among other things, (1) found AGP and Wilkins committed fraud by misappropriating commodity pool funds and by delivering false quarterly account statements to pool participants and (2) enjoined AGP and Wilkins from further violations of the anti-fraud provisions of the Commodity Exchange Act, as charged, and from trading or applying for registration with the CFTC (see CFTC Press Release 6869-14, February 28, 2014).

The Judgment Officer also found that Wilkins is subject to statutory disqualification based on his felony conviction for conspiracy to commit mail fraud and wire fraud in connection with these same activities (see United States v. Wilkins, No. 13-cr-181 (M.D. Fla. July 19, 2013)).

The Judgment Officer’s Initial Decision on Default became a final Order of the CFTC on March 25, 2015.

The CFTC thanks the National Futures Association for its assistance in this matter.

CFTC Division of Enforcement staff members responsible for this case are Rachel Hayes, Peter Riggs, and Charles Marvine.

SEC ADOPTS FINAL RULES TO MAKE IT EASIER FOR SMALLER COMPANIES TO ACCESS CAPITAL

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

03/25/2015 12:45 PM EDT

The Securities and Exchange Commission today adopted final rules to facilitate smaller companies’ access to capital.  The new rules provide investors with more investment choices.

The new rules update and expand Regulation A, an existing exemption from registration for smaller issuers of securities.  The rules are mandated by Title IV of the Jumpstart Our Business Startups (JOBS) Act.

The updated exemption will enable smaller companies to offer and sell up to $50 million of securities in a 12 month period, subject to eligibility, disclosure and reporting requirements.

“These new rules provide an effective, workable path to raising capital that also provides strong investor protections,” said SEC Chair Mary Jo White.  “It is important for the Commission to continue to look for ways that our rules can facilitate capital-raising by smaller companies.”

The final rules, often referred to as Regulation A+, provide for two tiers of offerings:  Tier 1, for offerings of securities of up to $20 million in a 12-month period, with not more than $6 million in offers by selling security-holders that are affiliates of the issuer; and Tier 2, for offerings of securities of up to $50 million in a 12-month period, with not more than $15 million in offers by selling security-holders that are affiliates of the issuer. Both Tiers are subject to certain basic requirements while Tier 2 offerings are also subject to additional disclosure and ongoing reporting requirements.

The final rules also provide for the preemption of state securities law registration and qualification requirements for securities offered or sold to “qualified purchasers” in Tier 2 offerings.  Tier 1 offerings will be subject to federal and state registration and qualification requirements, and issuers may take advantage of the coordinated review program developed by the North American Securities Administrators Association (NASAA).

The rules will be effective 60 days after publication in the Federal Register.

SEC.gov | Statement at Open Meeting on Rule 15b9-1 and Reg A

SEC.gov | Statement at Open Meeting on Rule 15b9-1 and Reg A

CFTC ORDERS COMPANY TO PAY $800,000 FOR INACCURATE REPORTING OF GRAIN POSITIONS

FROM:  COMMODITY FUTURES TRADING COMMISSION
CFTC Orders Marubeni America Corporation to Pay $800,000 for Inaccurately Reporting Positions in Multiple Grains

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against Marubeni America Corporation (Marubeni), a dealer and merchant of agricultural commodities and the largest overseas subsidiary of Japan-based Marubeni Corporation, for failing to comply with its legal obligation to submit accurate monthly CFTC Form 204 Reports, regarding the composition of Marubeni’s fixed price cash grain purchases and sales, in violation of the reporting requirements in CFTC Regulation 19.01.

As the CFTC Order states, under CFTC Regulations all persons holding or controlling reportable futures and options positions in certain agricultural commodities (including wheat, corn, oats, soybeans, soybean oil, and soybean meal) and any part of which constitute bona fide hedging positions as defined in CFTC Regulation 1.3(z), are required to file CFTC Form 204 reports showing the composition of their fixed price cash position in each such commodity hedged. According to the Order, a purpose of the Form 204 report is to check compliance with speculative position limits by ensuring that filers that classify their futures positions as hedging actually own or control offsetting cash positions.

The Order finds that during the period from July 2010 through August 2013, Marubeni held reportable positions in Form 204 commodities and was required to file Form 204 reports showing the quantities of the fixed price purchase and sale open cash positions of such commodities it hedged. The Order further finds that during the relevant period Marubeni filed 38 Form 204 reports with the CFTC that did not accurately state the quantities of Marubeni’s fixed price cash positions of each such commodity it hedged. Specifically, the Order finds that Marubeni included in its Form 204 reports both basis and fixed priced cash positions. As noted in the CFTC Order, Marubeni thereafter submitted corrected Form 204 reports.

The CFTC Order requires Marubeni to pay an $800,000 civil monetary penalty and to cease and desist from committing further violations of CFTC Regulation 19.01.

CFTC STAFF ISSUES ADVISORY PERTAINING TO OCR FINAL RULE

FROM:  U.S. COMMODITY FUTURES
CFTC Staff Issues Advisory Reminding Futures Commission Merchants, Clearing Members, Foreign Brokers, Swap Dealers, and Certain Reporting Markets of their Reporting Obligations Pursuant to the Ownership and Control Final Rule

Washington, DC — The U.S. Commodity Futures Trading Commission’s (“Commission”) Division of Market Oversight and Division of Swap Dealer and Intermediary Oversight today issued a staff advisory (CFTC Staff Advisory No. [15-14]) to remind futures commission merchants, clearing members, foreign brokers, swap dealers, and certain reporting markets (collectively, “reporting parties”) of their obligation to obtain information on a timely basis from their customers or counterparties in order to comply with the ownership and control reports final rule (“OCR Final Rule”).

The staff advisory states that, pursuant to the requirements of the OCR Final Rule, reporting parties must obtain from their customers or counterparties the information necessary for reporting parties to submit certain OCR reporting forms by the deadlines specified in the OCR Final Rule. The advisory further states that it may be advisable for reporting parties to take steps to ensure that their customers and counterparties: respond promptly to requests from reporting parties for OCR information; promptly notify reporting parties of any subsequent updates to the information; and otherwise assist reporting parties in fulfilling their reporting obligations under the OCR Final Rule.

The OCR Final Rule requires the electronic submission of trader identification and market participant data on new and updated reporting forms. These reporting forms collect new information to better identify participants in futures and swaps markets. The OCR Final Rule is currently subject to staff no-action letter 15-03, issued on February 10, 2015. Pursuant to the no-action letter, reporting obligations under the OCR Final Rule follow a staggered implementation schedule with obligations beginning on October 1, 2015. Reporting parties should take preparatory steps, as described in staff no-action letter 15-03, so that they may successfully comply with their reporting obligations on October 1, 2015.