The roundtable focused on (i) the role of an “Examination Expert” to review SRO examination programs, (ii) the proposed disclosures of firm specific risks and financial reporting, (iii) the proposed requirement for segregation and secured acknowledgement letters, and (iv) the proposed residual interest requirements for FCMs.  (Click here to view my earlier blog on the proposed rulemaking, with analysis and commentary.)

The list of panelists is available here.

A video of the roundtable discussion will be made available on YouTube at http://www.youtube.com/user/CFTC or can be accessed through the CFTC’s website.

The comment period for the proposed rulemaking on Enhancing Protections Afforded Customers and Funds Deposited by Customers expires February 15, 2013. 

Lofchie Comment:  Among my (many) criticisms of Dodd-Frank is that the safety benefits which it was supposed to provide to customers have been greatly oversold.  There is quite a good argument (as the failures of MF Global and Peregrine have made obvious) that swaps customers would be safer if their collateral were held by a custodial bank, as was possible in the pre-Dodd-Frank world, rather than by an FCM, as will be required by Dodd-Frank.  In this regard, I note that “futurization” (the conversion of swaps into futures) means that customers will forego the custodial benefits of “LSOC” segregation of swaps collateral for the less restrictive segregation of futures collateral.

The MSRB has published an electronic version of its printed 2013 Rule Book, which describes rules for municipal securities dealers and municipal advisors effective as of January 1, 2013.  The MSRB also reminded firms that it is currently seeking industry and public comment on its entire Rule Book as part of a comprehensive review of all of its rules. The deadline to submit comments is February 19, 2013.

Lofchie Comment:  This is an opportunity to comment to which which firms should attend. There is a lot of momentum at both the MSRB and the SEC to significantly expand requirements as to the issuance and trading of municipal securities, so it is certain that changes will be made, perhaps even substantial changes.  By way of illustration, we have linked below to a few of our recent news stories on municipals regulation.

Click here to view Press Release here (links externally to MSRB website).
See also:  MSRB Undertakes Broad Rules Review and Asks Public to Recommend Changes to Municipal Market Regulations.
See also:SEC Commissioner Walter Asks, ”What Now?” (Enhancing Disclosure in the Municipal Securities Market).
See also:SEC Commissioner Elisse B. Walter: ”Bringing Municipal Bond Trading Into the Light” (Speech).
See also:   SEC’s study on the municipal securities market.

The CNMV, Spain’s market regulator, announced that it will not extend its ban on short selling.  The CNMV initially instituted the short selling ban in July 2012, which was renewed in November 2012.  Rules adopted by the EU will apply with respect to Spanish securities.

Click here to view Press Release here (links externally to CNMV website).

FINRA has filed with the SEC a proposed rule change to amend FINRA trade reporting rules.  The amendment would require that members report OTC transactions executed during business hours (as defined in FINRA provisions) in NMS stocks and OTC Equity Securities (and cancellations of such transactions) to FINRA as soon as practicable following execution, but not later than 10 seconds after execution (currently firms are allowed 30 seconds to report).  FINRA also cautioned firms against programming their systems to delay the execution of trade reports to the latest possible instant. 

The proposed rule amendment would allow firms at least a four-month period after adoption of the rule to implement the necessary technology changes.

See: Text of Proposed Rule Change (links externally to FINRA website).

The British Banking Association has confirmed that it will be reducing the number of LIBOR rates which are published daily from over 150 down to 37 by June 2013. 

The move was one of many recommended in the Wheatley Review of LIBOR, and follows the results of a public consultation exercise on the issue.  The timeline for the changes will be as detailed in the Association’s Feedback Statement of December 14, 2012.

Lofchie Comment:  Firms should survey their derivatives and lending documentation and determine what agreements will be impacted by the discontinuance.  Additionally, firms should consider stopping as soon as practicable the use of any LIBOR measures that will be discontinued as the use of these measures is likely to become thinner over time.

NFA announced that its Board of Directors had accepted various recommendations made by the Berkeley Research Group (“BRG”) that were part of BRG’s independent analysis of NFA’s audits of Peregrine Financial Group, Inc., the FCM that failed in connection with a massive fraud, and that NFA’s staff is developing a plan to act on the recommendations.  NFA’s Board of Directors will also appoint a special committee to oversee the timely implementation of the recommendations.

The recommendations cover a wide range of topics, with particular attention given to NFA’s training and procedures, stating that enhancements were needed to ensure a greater sense of “professional skepticism” among its audit staff.

Click here to view NFA Press Release in full.
See also:  Report of and Recommendations made by Berkeley Research Group (BRG)
See also: A letter from NFA’s CEO and Chairman on the Peregrine Collapse and the BRG Report (January 31, 2013).

The purpose of the meeting was for the SEC to consider the following:

• Recommendations as to trading spreads on smaller exchange-listed companies (in particular, whether the interval between ticks should be increased to allow more dealer profit with the aim of encouraging market-making in such companies),
• Creation of a separate U.S. equity market limited to sophisticated investors for small and emerging companies, and
• Disclosure rules for smaller reporting companies. 

In the opening remarks, SEC Chairman Walter stated that to support the SEC’s attempts at enhancing investor protection and capital formation, the agency was seeking “thoughtful input by all market participants, including the small and emerging business community.”

Click here to view speech in full (links externally to SEC website).
See also: Comments Received – File No. 265-27; Draft Committee Recommendations and Statement.

The SEC Division of Trading and Markets has provided no-action relief to NetRoadshow, under the provisions in Exchange Act Rule 15c2-12 (“Municipal Securities Disclosure”), which allowed electronic road shows to be provided to retail investors in connection with municipal securities offerings without the underwriters of the offering being required to treat such road shows as a part of the preliminary or the final official statement. 

Lofchie Comment:  The incoming letter provides interesting historical background as to the development of electronic road shows, as well as the treatment of such road shows under the rules relevant to municipal securities.  Notwithstanding the applicable legal differences in the rules governing distributions of municipal vs. corporate securities, from a policy standpoint, it is not clear why electronic road shows should be available to retail investors in muni offerings but not to retail investors in corporate offerings.

Click here to view letter in full (links externally to SEC website).