United States: Corporate and Financial Weekly Digest - January 18, 2013

Last Updated: January 22 2013

Edited by Robert L. Kohl and David A. Pentlow

SEC Approves NYSE and NASDAQ New Compensation Committee and Adviser Listing Standards

On January 11, the Securities and Exchange Commission approved final amendments to listing standards submitted by NYSE Regulation, Inc. and NASDAQ Stock Market LLC with regard to the independence of compensation committees and the authority to retain and independence of, compensation consultants and other compensation advisers. The adoption of these listing standards was mandated by Rule 10C-1 under the Securities Exchange Act of 1934.

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SEC Extends No-Action Letter Permitting Broker-Dealers to Rely on Certain Investment Advisers to Conduct Customer Identification Program Obligations

The Securities and Exchange Commission has extended a no-action letter dated February 12, 2004 (the 2004 Letter) from the Securities Industry Financial Markets Association (SIFMA) that permits broker-dealers, subject to certain conditions, to rely on registered investment advisers to perform some or all of a broker-dealer's customer identification program (CIP) obligations. The 2004 Letter allows broker-dealers, in certain circumstances, to treat investment advisers as if they are subject to an anti-money laundering (AML) program even though the Department of Treasury's Financial Crimes Enforcement Network has yet to adopt an AML program rule for investment advisers. The 2004 No-Action Letter was to be withdrawn on the earlier of (i) the date on which an AML program rule for investment advisers became effective, or (ii) February 12, 2005. Since an AML program rule has yet to become effective, the 2004 Letter was extended, at SIFMA's request, multiple times. In response to SIFMA's most recent request to extend the 2004 Letter, the SEC has extended the 2004 Letter's no-action relief to January 11, 2015.

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FINRA Issues Annual Regulatory and Examination Priorities Letter for 2013

On January 11, the Financial Industry Regulatory Authority (FINRA) issued its annual letter outlining FINRA's regulatory and examination priorities for 2013 to FINRA-registered firms. The letter is meant to highlight to FINRA-registered firms' areas of significance to FINRA's regulatory programs.

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CFTC Issues Exemptive Order to ICE Clear Credit Permitting Commingling and Portfolio Margining of Cleared Credit Default Swaps and Security-Based Swaps

The Commodity Futures Exchange Commission has issued an exemptive order (Order) that permits the commingling and portfolio margining of cleared credit default swaps (CDS) and security-based swaps (SB CDS). The Order was issued in response to a request submitted by ICE Clear Credit LLC (ICC) in late 2011, and follows a complementary exemptive order issued by the Securities and Exchange Commission on December 19, 2012 (as reported in the December 21, 2012, edition of Corporate and Financial Weekly Digest), in which the SEC exempted dually registered broker dealers (BDs) and futures commission merchants (FCMs) from provisions of the Securities Exchange Act of 1934 and SEC regulations that would otherwise prohibit the commingling and/or portfolio margining of customer positions in cleared CDS and SB CDS that are held in customer accounts maintained in accordance with Section 4d(f) of the Commodity Exchange Act.

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Life Sciences Company Obtains Dismissal of Shareholder Class Action

The US District Court for the Middle District of Tennessee recently granted BioMimetic Therapeutics Inc.'s motion to dismiss the class action against it, and denied plaintiffs leave to amend their complaint. Shareholders claimed that BioMimetic violated the Securities and Exchange Act of 1934 because it knowingly made material representations about the development process and approval prospects of its flagship product, Augment, a synthetic bone-growth factor for the surgical treatment of foot and ankle bone defects.

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Delaware Supreme Court Refines Standard for Missed Pre-Trial Deadlines

The Delaware Supreme Court recently announced a new standard refining the rules that govern litigants' requests for extensions. Since 2010, the "Drejka analysis" provided a six-factor test to apply when considering whether to dismiss a case for discovery violations. However, the Delaware Supreme Court realized that trial courts have struggled to apply those factors consistently.

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Consumer Financial Protection Bureau Releases Final Mortgage Servicing Rules

On January 17, the Consumer Financial Protection Bureau (CFPB or Bureau) published its final rules related to consumer mortgage loan servicing.

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FTC Announces New Filing Thresholds for Hart-Scott-Rodino Pre-Merger Notifications

The Federal Trade Commission has announced the new notification thresholds for pre-merger notification reports that must be filed under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act). The notification thresholds are adjusted every year for inflation. The new thresholds go into effect on February 11, 2013.

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FINRA Provides Guidance on Rules Governing Communications with the Public

The Securities and Exchange Commission approved a rule change by the Financial Industry Regulatory Authority pursuant to which National Association of Securities Dealers (NASD) Rules 2210 and 2211 and NASD Interpretive Materials 2210-1 and 2210-3 through 2210-8 are to be adopted as FINRA Rules 2210 and 2212 through 2216 (the Communications Rules). The Communications Rules become effective on February 4. To provide additional guidance on compliance with the Communications Rules, FINRA has published a set of questions and answers on its website. The questions and answers cover a number of topics, including internal communications, transitional filing issues, new member firms, retail structured products, recommendations and public appearances.

FINRA Regulatory Notice 13-03 is available here. FINRA Rule 2210 Questions and Answers are available here.
 

FINRA Requests Comment on Proposed Rule Requiring Disclosure of Conflicts of Interest in Recruitment Incentives

Member firms often offer financial incentives when recruiting registered representatives. The Financial Industry Regulatory Authority has stated that it believes such financial incentives raise conflicts of interest that often are not disclosed when registered representatives ask their former customers to transfer to their new firm. Thus, FINRA is seeking comment on a proposed rule that would require a recruiting member firm to make detailed disclosure of the recruitment incentives offered to a registered representative who has been recruited. Comments must be submitted to FINRA by March 5.

FINRA Regulatory Notice 13-02 is available here.
 

Proposed Rule Change to Amend FINRA Rule Regarding Investor Education and Protection Disclosures

The Financial Industry Regulatory Authority filed a proposed rule change to amend FINRA Rule 2267 to require a member firm to include a description of and link to FINRA BrokerCheck on its website, social media page and any comparable Internet presence. The BrokerCheck description and link would also need to be included on the website, social media page and any comparable Internet presence maintained by or on behalf of any person associated with a member that relate to the firm's investment banking or securities business. FINRA would provide members with the text description and web address format for the link to BrokerCheck. FINRA will publish a Regulatory Notice announcing the effective date of the proposed rule change no later than 60 days following approval by the Securities and Exchange Commission of the proposed rule. FINRA will provide guidance regarding the prominence and placement of the BrokerCheck description and link in such Regulatory Notice.

The FINRA Rule Filing is available here.
 

NYSE Eliminates Certain Equities Account Type Indicators

The New York Stock Exchange LLC and NYSE MKT LLC have eliminated certain equities Account Type Indicators (ATIs). As of October 15, 2012, member organizations were no longer required to use the eliminated ATIs. The exchanges have provided information regarding functional ATIs and related definitions, as well as updated order capacity codes and a guide to certain OATS reporting issues (Attachments). After February 1, 2013, member organizations must stop using the eliminated ATIs and must use only the functional ATIs.

NYSE Information Memo 12-25 is available here. Attachments to Information Memo 12-25 are available here.
 

Second Circuit Holds Section 16(b) Inapplicable to Different Classes of Common Stock

The US Court of Appeals for the Second Circuit has held that Section 16(b) of the Securities Exchange Act of 1934 does not apply to a transaction where an insider buys and sells shares of different types of stock in the same company when those securities are separately traded, nonconvertible, and have different voting rights.

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Court of Appeals Affirms Validity of New York Choice-of-Law Provisions

The New York Court of Appeals has held that where a contract contains a New York choice-of-law provision and is otherwise subject to New York General Obligations Law Section 5-1401, New York substantive law will apply and the court need not conduct a conflict-of-laws analysis.

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CII Submits Rule 10b5-1 Rulemaking Petition to the SEC

On November 28 the Council of Institutional Investors (CII), an association of public, corporate and union pension funds and other employee benefit plans, submitted a letter to Securities and Exchange Commission Chairman Elisse Walter requesting that the SEC consider pursuing interpretive guidance or amendments to Rule 10b5-1 under the Securities Exchange Act of 1934 that would require Rule 10b5-1 plans to adopt protocols and guidelines as follows:

  1. Companies and company insiders should only be permitted to adopt Rule 10b5-1 plans during open "trading windows;"
     
  2. Companies and company insiders should be prohibited from adopting multiple, overlapping Rule 10b5-1 plans;
     
  3. Such plans should be subject to a mandatory delay, preferably of three months or more, between the adoption of a Rule 10b5-1 plan and the execution of the first trade pursuant to such plan; and
     
  4. Companies and company insiders should not be allowed to make "frequent" modifications or cancellations of Rule 10b5-1 plans.

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