Advisers are reminded the SEC’s annual compliance outreach program National Seminar will be held on January 30, 2014, at its headquarters in Washington, D.C. Investment adviser and investment company senior officers, including chief compliance officers (CCOs) are invited to register and attend.
This year’s agenda will likely include panel discussions with SEC staff from the Office of Compliance Inspections and Examinations (OCIE), Division of Investment Management, and Division of Enforcement’s Asset Management Unit and investment adviser personnel. The agenda’s topics will include SEC exam priorities in 2014, private fund advisers, registered investment companies, valuation, and the role of the CCO. Continue reading “Reminder: SEC National Compliance Outreach Program”
Short sale activity continues to be a significant focus of the SEC, particularly when it involves short sales without delivery, or “failures to deliver.”
The SEC’s Office of Compliance Inspections and Examinations (OCIE) has now issued a new Risk Alert raised by its examination staff’s observation that some options trading strategies are being used to evade the short-sale rule, Rule 10b-21. The alert addresses the need for customers, broker-dealers and clearing firms to be aware of options trading activity that could be used to avoid complying with the close-out requirements of Reg SHO.
Under the rule, it is fraudulent to sell an equity security if it deceives a person participating in the transaction about the seller’s intention or ability to deliver the security by settlement date. Rule 10b-21 covers such situations where a seller deceives a broker-dealer, participant of a registered clearing agency, or a purchaser about its intention to deliver securities by settlement date, and the seller then fails to deliver securities by settlement date. The violative activity would include broker-dealers (including market makers) acting for their own accounts. Broker-dealers could also be held liable for aiding and abetting a customer’s fraud under Rule 10b-21.
In addition to addressing, with examples, trading strategies that could be used to circumvent Reg SHO requirements, and other helpful ways that OCIE has observed that some firms have used to effectively detect and prevent violation of the rule, the alert provides summary guidance covering (a) Reg SHO Close-out Requirement; (b) Reg SHO Locate Requirement; (c) Rule 10b-21; (d) Key Trading Terms and Concepts; and (d) Option Activity Related to Hard to Borrow and/or Threshold Securities.
The SEC has announced its schedule for the upcoming Compliance Outreach Program regional seminars to be held in Chicago, New York, Atlanta and San Francisco. Investment adviser and investment company senior officers, including chief compliance officers (CCOs) are invited to register and attend. The first meeting will occur in Chicago on August 28.
This years’ Compliance Outreach Program, which started off in Boston in May, will likely include panel discussions with SEC staff from the Office of Compliance Inspections and Examinations (OCIE), Division of Investment Management, and Division of Enforcement’s Asset Management Unit. Topics will vary depending on location. For example, the Chicago seminar will address traded and non-traded real estate investment trusts, investment companies with special emphasis on alternative investment funds and money market funds, and current enforcement actions in the investment management industry. The New York seminar will focus more on newly registered investment advisers, dual registrants and to investment advisers affiliated broker-dealers, and will topics like the SEC’s examination process, priorities, risk surveillance, and examination selection process.
As we’ve alerted our audience in previous blogs, investment advisers should attend these meetings because “[t]he seminars highlight areas of focus for compliance professionals. They provide an opportunity for the SEC staff to identify common issues found in related examinations or investigations and discuss industry practices, including how compliance professionals have addressed such matters.”
Registration information about the regional seminars is available at:
As part of its National Exam Program, the SEC’s Office of Compliance and Examinations (“OCIE”) has just mailed a letter to senior executives and Chief Compliance Officers of newly-registered investment advisers apprising them of what practices they can expect to be examined.
While the letter primarily concerns risk-based exams of advisers to private funds that registered with the SEC after July 21, 2011, the significance the OCIE examination staff is attaching to certain adviser practices in these so-called “Presence Exams” should be weighed by all advisers regardless – whether they’re new or a private fund. As we have discussed these and other areas of exam focus in previous posts, OCIE’s hot areas referenced, and set for review, include:
- Marketing materials;
- Portfolio management;
- Conflicts of interest;
- Safety of Client Assets; and
- Valuation of Client holdings and assessment of fees based on valuations.
Through the SEC’s lens, each of these topics is being viewed in three phases: engagement; examination; and reporting.