1. State regulators said they'll help coordinate reviews
(see story) among states for some midsize investment advisers who must switch to state oversight from Securities and Exchange Commission registration as prescribed by the Dodd-Frank financial reforms measure. The program will be available for advisers now registered with the SEC who must register with four to 14 states, the North American Securities Administrators Association Inc. said. All advisers managing between $25 million and $100 million in assets must switch to state registration by next June, unless they are registered in 15 or more states; those advisers can remain under the SEC. A program manager will act as a facilitator in coordinating the state reviews, hoping to avoid having recommendations from one state contradict guidance from another state. Authority to approve applications, however, remains with each state. The coordinated review form needed to participate in the free service can be found at NASAA's IA Switch Resource Center website
(view site here).
2. A financial transactions tax introduced by Democrats in the House and Senate in early November would place a 0.03% levy on trades in stocks, bonds and other securities. Not surprisingly, it is being fought by the securities industry. S 1787
(click here): introduced by Sen. Tom Harkin, D-Iowa, and
HR 3313 (click here), from Rep. Peter DeFazio, D-Ore., would hurt investment firms and their clients, including retirees, when the tax is passed along through fees in 401(k) plans, according to the Securities Industry and Financial Markets Association. While the tax could raise $353 billion over a decade, another major goal of the legislation is to curb high-frequency trading, its sponsors said. The bills have 15 cosponsors in the House and two in the Senate.
3. The House approved several bills in November by overwhelming bipartisan margins to help small businesses raise money and ease Securities and Exchange Commission registration rules. HR 2930
(click here) would allow start-up firms to pool up to $1 million through online “crowd-funding” in individual investments of $10,000 or 10% of an investor's income, whichever is less. The House crowd-funding bill was endorsed by the Obama administration. The North American Securities Administrators Association opposes the proposals
(view here) out of concern the crowd-funding measure would to lead to speculative, risky offerings that could cost small investors heavy losses. HR 1070
(view here): would increase to $50 million from $5 million the amount of debt small businesses could issue publicly without having to go through the full SEC registration process. In the Senate, a related bill, S. 1791
(Read here, would cap individual investments at $1,000.
4. Securities and Exchange Commission Chairman Mary Schapiro said her staff is nearly done writing new rules for the $2.6 trillion money market fund industry after two years of suggesting that more needs to be done to prevent a run on the funds. After considering at least eight different approaches and receiving extensive comments on the issue
(view here) over the past year, the commission in the next couple months will release a plan to change the structure of the funds to make them less vulnerable to runs. It may require money market funds to maintain a capital buffer to draw on during emergencies, she said. The SEC hasn't entirely ruled out forcing funds to move to a floating net asset value, a step that industry officials strongly oppose. Concern stems from September 2008 when Lehman Brothers Holdings Inc. collapsed and the Reserve Primary Fund, which held debt instruments issued by the investment bank, “broke the buck,” or fell below $1 a share. Investors withdrew $310 billion from prime money market funds, and the federal government had to step in and provide a guarantee. The SEC already instituted limited changes to money funds in February 2010. The money funds regulations appear to be up for resolution before the 12(b)-1 fee issue
(read here) is finalized.
5. Proposals to prohibit members of Congress and its staff from trading stocks or commodities based on nonpublic information related to their Capitol Hill work are hot following a Nov. 13 “60 Minutes” segment pointing out that members of Congress seem to subvert insider trading rules. The issue has come up before but never gathered much support. The main bill introduced by Rep. Tim Walz, D-Minn., HR 1148
(read here), went from having nine co-sponsors before the “60 Minutes” story aired, to more than 130 now. Mr. Walz' Stop Trading on Congressional Knowledge, or STOCK, Act would ban trading by members or employees of Congress based on nonpublic information and require them to report all securities transactions of $1,000 or more. Two measures with similar goals also have been introduced in the Senate since the segment aired, S 1871
(read here), and S 1903
(read here). The Financial Planning Association and the Financial Services Institute Inc. said they are considering whether to lend support to any of the proposals after receiving comments from members expressing disappointment that such activity wasn't already explicitly illegal.
6.The debate over whether a self-regulatory-organization should be the force to increase examinations of investment advisers took on a new option in November. In a report, Georgetown University professor James Angel suggested that advisory firms could outsource routine compliance examinations to independent auditors. The TD Ameritrade-sponsored study, however, met with near immediate opposition
(see story) from the brokerage industry and doesn't seem to be going anywhere. Meanwhile, the most discussed idea, having an SRO like the Financial Industry Regulatory Authority Inc. take on this role, was criticized by Rep. Barney Frank
(see story), D.-Mass. The 30-year congressman and ranking member of the House Financial Services Committee said he's skeptical of bringing in an outside group and suggested Congress should give the Securities and Exchange Commission the money it needs to conduct more exams. SEC Enforcement Director Robert Khuzami told Congress the commission can now inspect only 8% of all investment advisers each year.
7. The Financial Industry Regulatory Authority Inc. issued a warning to members that they should make sure anyone using senior- or retirement-related professional designations actually has the experience and skills needed to work with seniors. The regulatory notice
(view here) suggested that firms review coursework, prerequisites and continuing-education requirements for designations and judge the quality and standards of the organization issuing the designation. Finra also released survey results from 157 member firms that showed widespread use of the designations. About two-thirds of broker-dealers surveyed allowed representatives to use one or more of 44 different designations. Separately, Sen. Herb Kohl, D.-Wisc., introduced S 1819
(view here) on Nov. 8 to help family members giving care to an older relative receive needed services, including financial planning and tax advice.
9.The Securities and Exchange Commission is still deciding how to handle U.S. District Court Judge Jed Rakoff's rejection of a $285 million settlement that the agency negotiated with Citigroup Inc. over a mortgage-backed investment fund. The Nov. 28 order
(view here) questioned the longstanding SEC policy of allowing companies to settle claims without admitting or denying wrongdoing. Judge Rakoff said the lack of admission of facts by Citigroup made it impossible for him to determine whether the proposed settlement was in the public interest. The judge set a July trial for the case and combined it with a separate case against a Citigroup employee who is charged in the matter. The SEC has 60 days to appeal Mr. Rakoff's decision, but securities lawyers said they don't think the commission will do so because they risk losing that appeal, which would put the government's longstanding approach to settlements up in the air. SEC enforcement director Robert Khuzami said the commission's settlement provisions that allow a firm to “neither admit nor deny” allegations allow it to efficiently extract penalties without the cost involved in pursuing litigation.
9. More than 30 House Democrats sent a letter
(read the letter) Nov. 7 to Secretary of Labor Hilda Solis outlining what they want to see in a re-proposed Labor Department rule that would expand the definition of “fiduciary” for people giving advice to retirement plans. The original rule, withdrawn by the agency in September, was widely criticized by the financial industry for overreaching. Critics said that rule would force broker-dealers to abandon the individual retirement account market. When the department re-proposes the regulation, as it has said it will do early next year, the Democratic lawmakers asked that it “address well-defined and documented concerns.” They also asked the agency to ensure that it “preserves the access of IRA owners and plan participants to investment services delivered by qualified financial professionals using whatever business model best fits the investor's objectives.” The letter was sent by Rep. James Himes, D-Conn., and also includes the signatures of Rep. Carolyn McCarthy, D-N.Y., a leader of the New Democrat Coalition's effort to get the original fiduciary proposal withdrawn, and Rep. Barney Frank, D-Mass., ranking member of the House Financial Services Committee.
10. In an attempt to make the estate tax “fair and equitable again,” Rep. Jim McDermott, D-Wash., introduced a measure that would return estate tax rates to pre-2001 levels. It would set a maximum marginal rate of 55% and a $1 million exemption for individuals ($2 million for married couples). Current law allows for a $5 million exemption at a maximum rate of 35%, although that is scheduled to revert to $1 million in 2013.
HR 3467 also aims to close estate tax loopholes by making spousal portability permanent for the gift and estate tax exclusions, restoring credit for the state transfer tax paid and other provisions. Bill Gates Sr., father of the Microsoft Corp. chairman, praised Mr. McDermott for introducing the bill. He said a fair estate tax “ensures that those who have benefited the most from this country reinvest in the very promise of wealth and opportunity America provided them.” The bill, which has one co-sponsor and was sent to the House Committee on Ways and Means, is the first to be introduced that doesn't just extend or repeal the existing law.
